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A Guide to Identity Verification for Financial Services

Identity Verification in The Financial Services Industry

The reformed form of the financial services industry that we see today took years to become what it is today. If you explore the history, you will find that the birth of finance happened in Babylonia (300 B.C.) It was an ancient city in central-southern Mesopotamia (present-day in Syria and Iraq). At that time, temples and palaces were used to store valuables.

Short History-Related Facts:

Fast-forward to today’s financial ecosystem, the increasing shift of financial activities to online platforms is the new reality. As a result, verifying the identities of individuals has become crucial. Why is this so important? It’s because trust is fundamental to every transaction and the user onboarding process.

For financial institutions and fintech companies, establishing trust heavily relies on the solid foundation of robust, AI-powered identity verification.

What is AI-Powered Identity Verification?

AI-driven identity verification stands as a vital Know Your Customer (KYC) tool for businesses and financial services, as it has the potential to significantly reduce cybercrime attack vectors and prevent identity theft. In other words, it’s a fusion of technology and processes meticulously designed to validate a person’s authenticity in the digital realm.

Digital identities extend beyond mere usernames and email addresses. Today, they encompass a combination of various factors that collectively paint a comprehensive picture of an individual. These core components of AI-powered ID verification involve checking personal information, such as date of birth, address, or social security number, along with biometrics like facial recognition or fingerprint patterns.

Why is Identity Verification Important for Financial Service Providers?

Financial services and other businesses involved in substantial fund transfers become attractive targets for criminal actors who explore diverse methods to exploit the transaction process, employing identity fraud strategies. When a consumer falls victim to fraud while making a purchase at an online store, the repercussions extend beyond impacting their bank accounts — it also tarnishes the reputation of the company involved.

Interesting Mobile Banking Statistics:

That’s why the popularity of e-services, including banking, government services, and healthcare, has made digital identity verification a widely adopted method for accessing these platforms. AI-powered ID verification is important because it leverages digital technology to confirm an individual’s claimed identity in a more secure, simple way.

Problems in the Financial Services Industry

The financial services industry incorporates banks, credit unions, insurance firms, credit-card companies, accounting businesses, and more. Digitalization is helping all these institutions to improve their customer experience, efficiency, and productivity.

Unfortunately, cybercriminals have also started leveraging technology to find loopholes in financial services and commit fraud. Below, we provide some common financial crimes and other issues that force financial services struggle:

1. Cybercrime

Around 62% of breached data comes from financial services only. Hacking and Malware attacks were majorly responsible for data breaches in the industry. Today, the leakage of confidential information and financial loss are the most significant risks for customers using any online financial service platform.

2. Ensuring Regulatory Compliance

Online investment and financial platforms such as crypto exchanges, money services businesses (MSBs), and more have been excessively used for money laundering and tax evasion. Therefore, government authorities have made it compulsory for financial services firms to comply with KYC (Know Your Customers) AML (Anti Money Laundering) directives. Unfortunately, most businesses don’t use the right technology to comply with these directives, increasing online frauds.

For example, not so long ago, in 2019, 12 of the world’s top 50 banks were fined for non-compliance with KYC and AML. The Swiss bank had received a fine of $5.1 billion for AML breaches by the French Criminal Court.

3. Identity Theft

Identity theft is a big concern for businesses in the financial services industry. Online fraudsters use various tricks to access personal information of users and fraudulent financial gain. One widespread example of financial identity fraud is, fraudsters stealing your credit information to buy things without your consent. In some cases, cybercriminals also misuse your personal information to apply for new credit cards and loans.

Identity Verification for the Financial Services Industry

Identity verification plays a significant role in information security. It is quite helpful in preventing identity theft, money laundering, and other cybercrimes. Real-time digital identity verification solutions are capable of verifying any identity document and analyzing users’ previous records from the databases.

The identity verification ensures that a user or customer’s identity matches perfectly the one that is supposed to be. In most countries, identity verification, also known as the KYC process, has become obligatory for businesses associated with the financial services industry. Perhaps, this is the reason why identity verification market value has increased considerably. 

The following identity theft stats clearly show how vital identity verification is in the modern scenario:
Verify customers identity within 15 seconds. Schedule a free identity verification demo here.

How Financial Services Can Benefit From Identity Verification

Comply with KYC and AML

Businesses associated with the financial services industry are required by law to comply with KYC and AML directives, and identity verification is an integral part of the KYC process. Not only identity verification helps businesses prevent hefty fines, but it also improves their market reputation. It’s advisable to have a robust identity verification solution in place to verify customers’ identities.

Protect Business against Criminal Activities

Identity verification helps you ensure that all transactions are legit and your users are not involved in any illegal activity. Moreover, identity verification improves user experience as users feels safer using your platform.

Conduct Age Verification

With identity verification solutions, you can also confirm a customer’s age, which is crucial to the online gambling industry and other businesses where age restrictions are applied.

Minimize Operational Costs

The modern AI-powered identity verification solution helps you automate the entire verification process that saves time and money. Additionally, it reduces the chance of human errors.

No matter what business you’re in, if you’re looking for an advanced AI-enabled ID verification solution, iDenfy can help you out. Our identity verification service combines document verification, face recognition, and liveness detection in one solution.

iDenfy’s fully automated identity verification solution can recognize and verify more than 3000 types of ID documents from more than 200 countries. Powered by machine learning and AI, it can automatically recognize facial biometrics and check that it’s an ID photo.

At iDenfy, we also help businesses comply with KYC, KYB, and AML regulations. To know more about us and our services, contact us.

This blog post was updated on the 7th of December, 2023, to reflect the latest insights.
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