Since the pandemic hit us in 2020 we tend to spend more time behind the screen of our phones or computers. That change has also affected the world of banking with the increased demand for digital presence. Digital banks have recorded 40% user growth in 2020 in the United States. The number of users has increased from 28 to 39 million users. Going digital provides tremendous convenience with 24/7 services, but also creates new challenges. Proper identity verification is one of them. Identity verification plays a big role in the financial services industry. It helps to establish trust and security between businesses and customers. What does identity verification look like for digital banks which do not have a physical branch?

KYC and AML in digital banking

KYC which stands for Know Your Customer is a part of the Anti-Money Laundering (AML) policy and requires new users’ identity to be verified. Its main purpose is to make sure customers’ activity is legitimate, and no identity fraud or money laundering is taking place.

Traditionally, KYC was performed in person at the local branch. During the verification, the information on the physical ID was checked with the information provided by the potential customer. The back-office processes would check the information against databases and approve or deny the client.

Proper KYC procedure consists of identifying the customer and verifying their true identity and assessing customer risk. Additionally, the bank needs to investigate account activity and transactions undertaken by its existing customers.

Electronic Know Your Customer (e-KYC) enables fully digital onboarding, which includes checking customers’ identities and conducting anti-money-laundering checks. The whole process of identification can be tailored based on the specific regulatory requirements.

Benefits of identity verification for neobanks with Fully-Verified

Onboarding of new users in the neobank industry should meet the demands of the modern customer. Neobanks advantage over traditional banks is their flexibility. They are more likely to adopt new technologies to make the user’s experience and safety their number one priority. That means that they are more likely to implement a remote video verification process for their customers. Video verification for challenger banks has many advantages not only for customers but also for the banks.

  1. Simplified onboarding process: With identity verification from Fully-Verified the process has been shortened to a minimum, so it meets the expectations of a fast and easy onboarding.
  2. Easy access: The verification process can be carried out from anywhere in the world. The only requirement is a camera device and internet access.
  3. Real-time processing: means that customers can get verified quicker than if they were using conventional methods.
  4. Safety: Fully-Verified’s video identity verification with the presence of a trained operator is the safest way of onboarding new customers. The verification is backed by automated document data extraction and face recognition, which eliminates the problem of people using stolen or fake IDs.
  5. Compliance: All of our verification options meet all the required regulations and comply with the strictest KYC rules.
  6. Accuracy: Our process thanks to the combination of a live video call with a trained specialist and with AI machine learning eliminates any fraud attempts and risks of human error.
  7. Flexibility:  The process is adaptable, any additional feature, like proof of address check, or PEP and sanction lists scan, can be added.

What compliance means for digital banking?

Digital banks face unique opportunities. With the right tools, like video verification with Fully-Verified, they can offer quick onboarding for customers. But they also need to comply with the same rules and regulations as brick and mortar banks. This means that they need to ensure that all suspicious transactions are reported and intercepted. 

Neobanks were popular with money launderers due to the fact that it was an unregulated branch of the banking sector. Compliance in digital banking is even more difficult when regulations have not caught up with technological innovations. Global financial authorities reacted to this gap in regulation, by introducing guidelines with a specific focus on digital banking services. In March 2020, the Financial Action Task Force (FATF), an intergovernmental organization that was founded o develop policies to combat money laundering and terrorism financing, published Digital Identity Guidance. According to the documents banks can use automated ID document verification with facial comparison to verify the customer’s identity. The process used by Fully-Verified is entirely compliant with the rules published by FATF. 

As new banks that do not have a lot of built trust with the clients, challenger banks must consider AML compliance as an essential component of their procedures. Complying with regulations such as AML and KYC rules will help digital banks protect themselves from reputational damage and penalties. 

When neobanks start to think about regulatory compliance they need to include a few key factors and implement a risk-based approach to their customers. One of the bases of that approach is a screening of politically exposed persons (PEP) and checking if the potential customer is not on a sanction list. A part of the AML compliance also includes Customer Due Diligence (CDD) which means predicting, to some extent, the types of transactions and activities the customer is likely to be involved in and monitoring account activity. 

How Fully-Verified can implement KYC for digital banking?

Fully-Verified’s verification on a video call is performed in real-time by a trained operator. It is a process that recreates face-to-face meetings on the web and applies multiple security checks at the same time.

We offer two identity verification solutions, both of them backed by our trained operator, artificial intelligence, and the latest technology. All of our solutions comply with the strictest KYC, AML, and compliance requirements.

  • Live-Verify: Video identifications are done on a live video call with a verification specialist. A user connects to a trained operator who guides the user through the verification steps.
  • Self-Verify: Automated identity verifications on video, where users go through the whole procedure on their own. The whole process is recorded on live video from start to finish.

Our video identification process is simple: Users fill in a registration form on the website with their personal details. Details are sent to us via API. We verify the details using our video identity verification process and send the results and evidence automatically to our customers. This means that the customer can perform desired actions straight away.

Apart from identity verification solutions, we offer standalone verification options:

  • Sanctions and PEP checks allow determining who is and who is not appropriate to do business with. It includes lists issued by governments and financial authorities. We currently check over 350 databases around the world.
  • Proof of address verification confirms that the address stated for the verification purposes is actually a residence address and ties the user to a specific location.
  • Manual KYC service is a customized service that can suit different business expectations. Our experienced team can comply with business’s standards and policies that were already implemented or we can create a custom solution using our own platform and resources.

Neobanks face a difficult challenge. They need to win the trust of consumers and they need to reassure regulators that they can operate safely and comply with regulations. All of that needs to be user-friendly and create a positive experience for the customers. To do this, neo-banks should work together with companies that can help stop money laundering and identity fraud. Fully Verified’s video identity verification service can help to achieve this balance.

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