Why automate ID checks?

Verifying someone is who they say they are is square one in the Know Your Customer (KYC) due diligence process. Regulated firms can’t (and certainly shouldn’t) get a new customer onboarded until the ID documents are in and verified. But why is digital or automated ID verification so important now?

Going through a process of physically reviewing identity documents is old hat. The days of applying for a new credit card with your passport and driving licence in hand are over. In-person KYC is impractical in terms of time and efficiency, both for the financial institution and the customer; it has been next to impossible to physically check documents because of the pandemic; and frankly customers expect to be able to submit everything digitally now anyway.

Sure, some people may feel a little hesitation when it comes to sharing personal documentation online, but everyone is pretty used to it now and it’s unlikely to cause drop-offs with genuine applicants in any onboarding process. In fact, it could be said the opposite is true, institutions may risk losing applicants if they are unable to submit information digitally. According to an article by SalesCycle.com, one of the key reasons people gave for abandoning applications for financial products was that they were asked to provide personal information by post or in branch.

What is being verified?

Financial institutions need a good, reliable way to verify a new customer’s ID online. Getting the basics right is so important because of the risk of fraud and other financial crime, as well as factoring in customer expectations.

Cifas reported last year that there were “just under 190,000 cases of identity fraud” in the UK alone. Much of this ID theft was related to applications for plastic cards. Trends show that instances of fraud are only set to increase with the ongoing transition to digital financial services, online applications and automated onboarding pushing this ever forward.

Electronically verifying an official document can really cover some of the basics of automated onboarding and risk management, including for example checking and verifying names and addresses. Other, more sophisticated checks, can look for signs of forgery on an ID document or even instances of fraud associated with the particular device used to make the application.

The aim of due diligence for financial institutions is to swiftly and confidently get a result for the first set of fundamental ID checks. Then there is a clear pass or fail for the person applying for a product and the KYC or AML process can continue from there or halt immediately.

The right KYC tool for the job

Using a platform to automate KYC checks, such as ID verification, creates efficiency for financial services businesses and convenience for customers.

To minimise friction in this part of the due diligence process, FinTechs need to use a KYC platform that can do three things:

1.     Capture an individual’s ID document, such as a passport

2.     Access data to automatically check or match the ID document

3.     Confirm whether the check has passed or failed

The best platforms will also be ISO certified to ensure all customer data is processed and managed securely.

Communicating with customers

Another fundamental to look for in the technology used to automate ID verification is the ability to communicate with customers and request additional documentation. Firms don’t, for instance, want to be in a position of immediately rejecting an application because someone holds a passport from a country deemed as high-risk. Instead it makes sense to trigger enhanced due diligence and to ask for more information to get a fuller picture to make a more informed decision.

Once that new or additional document is received the platform can attempt to automatically validate the individual’s ID again. Keeping the onboarding process moving. This approach minimises friction and enables applications to proceed through an onboarding journey with little to no human intervention, known as straight through processing (STP).

The obvious aim is to maximise the number of applications that can be completed using STP. This delivers efficiency, good customer experiences and reduces drop offs in the application process. As we know, the number of customers who do abandon applications is impacted by the smooth running (or otherwise) of KYC, so it’s important to get it right.

These kinds of digital experience help establish trust online and that trust runs both ways. The customer trusts the institution knows what it’s doing and sees a robust due diligence process. The FinTech can trust the customer because they have a built an accurate picture of who they are working with through digital checks. This sets the tone for the rest of the customer lifecycle and the virtual relationships now common in a digital economy.

The human touch

While automated ID checks and STP are great for customer experience and drive efficiency in financial institutions, the aim should never be to completely do away with human intervention in risk management and compliance. Firstly, people still enjoy interacting with other people, especially when they have questions or are unsure of something. Secondly, when it comes to ID checks, the “sniff test” i.e. an expert KYC analyst reviewing a case that doesn’t seem quite right can add immeasurable value. Compliance people with their skill and experience can help FinTechs avoid unconscious bias and they can also spot abnormalities that might equate to suspicious behaviour.

The aim should be to use automated ID checks to speed up the due diligence process, and to drive STP in the majority of low to medium risk instances. Then the highly skilled and experienced compliance analysts are there, brought in the process to communicate with customers and to analyse higher-risk cases. This hybrid approach should help create the right balance within the overall due diligence effort.

Get in touch

PassFort has facilitated more than 5 million customer onboarding journeys for financial institutions worldwide. If you would like to talk about automating ID checks or digital transformation of your KYC and AML processes, they would love to hear from you – please get in touch anytime!

Lavanya Rathnam

Lavanya Rathnam is an experienced technology, finance, and compliance writer. She combines her keen understanding of regulatory frameworks and industry best practices with exemplary writing skills to communicate complex concepts of Governance, Risk, and Compliance (GRC) in clear and accessible language. Lavanya specializes in creating informative and engaging content that educates and empowers readers to make informed decisions. She also works with different companies in the Web 3.0, blockchain, fintech, and EV industries to assess their products’ compliance with evolving regulations and standards.

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