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Wednesday, November 25, 2020

Online ID Verification – A Primer for Fintech Businesses

Organizations such as for instance banks or financial institutions offering any type of financial products or services are required to adhere to government regulations. These regulations include such as for instance things as Know Your Customer (KYC) and Anti-money Laundering (AML). Here is online ID verification, a primer for fintech organizations.

Fintech Regulation

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All these regulations correspond to identity verification measures just the original banking institutes perform. ID verification in the banks corresponds to the knowledge of onboarding clients. There is just a risk assessment completed on each individual and a decision about whether a person is effective at being managed by the financial institution or perhaps not.

Financial Institutions

Financial institutes have already been prone to a few threats before, including financial crimes such as for instance money laundering, terrorist financing, and other suspicious transactions.

As a direct result these threats, regulators around the globe are stringent concerning security measures. These systems can identify the bad actors and activities in the device and combat them appropriately.

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Fintech businesses face similar challenges. Financial technologies are harnessing the best of the technologies that are advancing digital banking methods.


The reason there are lots of security dilemmas in Fintech is the cybersecurity of the systems that hold highly confidential information related to clients and their financial status.

To secure the info of clients from data breaches, proper measures have to be taken in place. Today, ID verification systems are integral with digital platforms. The identity and verification of each and every onboarded individual must face specific standards as they prefer to perform the digital transactions or open an on the web account – while sitting at home.

The KYC process to think about in Fintech businesses correspond has a few forms.

The approach towards identity verification covers these areas.

  • Customer Due Diligence (CDD): The CDD corresponds to customer identification and verification of its personal statistics. 
  • Enhanced Due Diligence (EDD): EDD refers to detail by detail identity verification in which AML screening can also be performed thoroughly to check if an identity is in criminal watchlists across the world.
  • Customer Identification Program (CIP): The CIP is just a proper ID and is completed to verify the identity and its credibility to sustain the economic climate.
  • Ultimate Beneficial Ownership (UBO): The ownership verification is done where the beneficial owners of companies are authenticated. This process checks to verify that the person is not associated with any criminal activity. These people should be registered entities and hold a credible profile in operation infrastructure. 

All these processes will vary however, lie in the loop of KYC operations. Each of those processes is completed by regulatory bodies and is essential for each Fintech business to conduct.

The discrepancy in compliance can lead to worse circumstances. For instance, depending on regulators, the penalty for non-compliance can cause harsh monetary fines, business asset abandonment, business freezing, and even years of imprisonment.

Components of KYC Process

For Fintech organizations, the implementation and execution of the KYC process while balancing all other aspects is crucially important.

For an online financial business, there are lots of perspectives concerning performance and security that want to get proper attention. The awareness of detail in the thorough KYC process is essential as any careless step can contribute to the suspicious financial flow.

The KYC process is conducted to assign a risk against each identity. Risk assessment is completed against every individual to identify the chance associated with it.

Continuous monitoring of accounts is done to make certain that transaction to not cross this limit and reaches a genuine destination.

The following are three components of the KYC process.

  1. Customer Due Diligence: This process is what banking institutions do while onboarding an individual. Risk is assigned to individuals by performing some operations. These operations are identity verification, fraud analysis, and AML screening against sanction and PEPs (Politically Exposed Persons) records.
  2. Enhanced Due Diligence: If someone or business is considered high-risk, then a more in-depth analysis corresponding to customer/client ought to be performed. For instance, an intensive screening of people against updated adverse media, data legally enforcement agencies and against news, etc.
  3. Continuous Monitoring: Identity monitoring is completed through the client lifecycle. It is done mostly against high-profile customers. Moreover, account mentoring is done to see when it is under the danger of data breach or to every other cyberattack. Suspicious activities and transactions may also be monitored in this process.

Technology Incorporating KYC Process

The innovative KYC operations are integrated with the system of Fintech organizations that serve the purpose of identity verification. By employing Artificial Intelligence, machine learning, as well as other reliable technologies, the process of online ID verification is conducted.

ID verification API is integral with on the web systems that conduct documents as well as biometric verification of customers.

In a few moments, using Optical Character Recognition (OCR) technology, the information from the document will be extracted and verified.

Moreover, based on robust underlying AI algorithms, facial recognition systems will perform facial biometric authentication.

In in this way, the online KYC process will soon be performed. Technology has the capacity to keep intact both facets of customer experience and on the web security simultaneously.

Online Identity Proofing

Each on the web individual that either wants to open an on the web customer account, perform digital transactions, transfer funds, or use any online financial service would require someone to prove the digital identity to the system.

In in this way, risk categorization is done dynamically. Based on real-time identification, a person is marked with a rating in risk assessment matrix and based on that the online processes are processed. Third-party ID verifications service is integral with on the web systems whose operations are as per the regulatory requirements.

For online fraud prevention, identity proof is asked from the customer in the shape of some official ID document that could be an ID card, driving license, passport, or credit/debit card.

The document authenticity is checked online, and screening of people is done against global watchlists and updated sanction lists.

An automated on the web process of KYC verification in the Fintec businesses can drive a massive and clean customer base. The regular KYC operation in the physical banks involves manual verification that takes hours and a lot of visits to the branch.

Fintech organizations promote the utilization of online id verification to shape a secure and honest digital community. Moreover, it ensures customer experience in which now the process of hours could possibly be done in only seconds. Approximately ID verification services have a tendency to verify the identity of an individual within just 30 seconds.

The ID verification system includes an identity screening process in which by extracting the name from the user-uploaded document, it really is checked against global watchlists, sanction lists, and PEP records.

During the facial recognition process, technology, and many checks are performed.

For example, liveness detection is done where the presence of an individual all through KYC process verification is ensured. In this process, minor facial movements are detected, such as smile, lip movement, expressions, eye blinking, etc.

By identifying this, the 3D face mask will soon be created and stored in the database. The information is stored in some mathematical formula. The face live-captured is checked against the one stored previously in the database. If both formulas match, identity is verified.

A specific precision and accuracy rate are previously defined in which the facial features are verified. Among the live-captured photos which are different and cross the defined limit — the facial skin will not be confirmed.

The reason they are not popular is that the online fraudsters use printed and photoshopped images, or the ones that contain spoofing elements.

Such malicious components are detected by high level facial recognition technology, and after identification gives the status of ‘face unmatched.’

The facial recognition feature is currently part of the cellular phone. Hence Fintech businesses have the advantage of mobile ID verification.


Whether they truly are physical banks or advance technologies which are promoting Fintech businesses, KYC compliance is just a vital part as well as regulatory requirements.

The challenges Fintech organizations face because of digitization match security all through digital payment and customer experience. By employing fast and secure ID verification services, the Fintech business can protect several incidences of data breaches.

Thankfully the bad actors from entering the legitimate financial systems are just starting to be expunged.

Compliance for Fintech businesses is now much easier and systematized.

With just a single KYC API integration, digital banks can comply with regulatory obligations. Digital banks can verify clients, identify them, authenticate them, and screen them against global watchlists.

With authorized and controlled access over user accounts, using facial recognition may be met, and hence, the clean customer base can be harbored.

Along with this particular, identity theft, account takeover, and credential stuffing attacks can be paid off from digital financial systems.

Jeff Parker

Jeff Parker is an identity fraud expert and writer of various blogs writing about high level technologies including artificial intelligence, machine learning and data science. Previously, he has worked as a consultant, usually assisting small enterprises in digitalization and on the web fraud prevention.

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