KYC Customer Due Diligence
March 10, 2023
March 2023 KYC Customer Due Diligence Customer due diligence (CDD) is a process of gathering and verifying information about customers to assess their potential risks
Identity verification
by Fully-Verified
In today’s world, functioning online is considered a norm for businesses, institutions, and individuals. Companies and institutions worldwide that reshaped their services to function online. Due to strict regulations regarding KYC (Know Your Customer) procedures, online identity verification has become a new standard for businesses and institutions globally.
Online identity verification – what is it?
Identity verification is a process that allows to confirm one’s identity and confirm the validity of details provided by a person. The process is usually based on data authentication of one’s identity document, such as a passport, national identity card, or driving license. Digital identity verification is carried out entirely online with the use of technology, AI, and machine learning solutions.
For businesses operating online, the identity verification process is one of the most critical steps of customer digital onboarding. It minimizes the risk of fraudulent activity, such as identity theft, anti money laundering, or carrying out transactions on one’s behalf without authorization.
What are the benefits of customer identity verification?
Regardless of the industry, identity verification brings several significant benefits and advantages that enhance security and minimize overall risk.
Eliminated risk
Eliminated risk of cybercrimes, financial crimes
(such as money laundering, terrorist financing),
and identity theft.
Compliance
Compliance with global regulations and policies. In this case, the lack of compliance can result in severe penalties, including fines and criminal liability.
Enhanced trust
Enhanced trust between users as well as between users and service providers.
Seamless onboarding
Faster, more efficient customer onboarding with no paperwork and drawn-out processes involved.
What industries need identity verification services?
When it comes to the verification of customers, the situation has significantly changed in recent years. Due to the global development of technology and the shift towards digital solutions, the requirements and regulations around identity verification, KYC, and AML laws have changed.
Customer onboarding and KYC checks were only strongly associated with banks and financial institutions for a long time. Indeed, traditional banks and fintechs (such as neobanks, digital wallets, and online loan services) require reliable verification methods due to strict regulations and the high risk of money laundering. However, due to that change and a strong pull towards online services, the scope of sectors in need of digital verification solutions expanded.
An excellent example of platforms needing digital identity verification are cryptocurrency-related services, such as crypto wallets, crypto trading, and lending platforms. In recent years, regulators worldwide started to implement strict regulations, treating crypto platforms similarly to other financial services.
Other sectors requiring identity verification
- Insurance companies
- Forex trading
- Telehealth
- E-learning
- Sharing economy
- Real estate
- Social media platforms and online dating apps
- Peer-to-peer services (P2P lending)
- Crowdfunding
- E-gaming & gambling
What is identity verification used for?
One of the primary uses for digital identity verification solutions is customer onboarding. Proper KYC checks performed at the beginning of a business relationship between service providers and customers ensure transparency, enhance safety, and minimize the risk of fraudulent activities.
Identity verification methods are also used to verify users’ age reliably. Whether opening a bank account, setting up a digital wallet or an account on a gaming/e-gambling platform, verifying users’ age is a must; due to growing legal requirements, such checks cannot be based on users’ declarations only.
What are the main regulations to follow?
The regulations regarding identity verification can differ depending on the sector and location. The directives, regulations, and frameworks oblige institutions and companies to carry out due diligence procedures during the onboarding process, including identity verification of clients.
The main regulations that set standards for the verification processes in Europe, the UK, and the USA are:
- Anti-Money Laundering Directives (3rd/4th/5th/6th AMDL)
- eIDAS (Electronic Identification, Authentication and Trust Services regulation)
- The UK Bribery Act & The UK Modern Slavery Act
- Financial Action Task Force (FATF) recommendations and standards
- The Customer Identification Program (CIP)
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for global customer onboarding
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Experience unparalleled automation.
Eliminate identity fraud
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How does online identity verification work?
There are various types of verification methods. Some of the most popular ones available now are video and photo-based identity verification solutions.
Using technologies that make the process smooth and quick for businesses and customers, digital identity verification solutions usually consist of similar steps. This structure ensures the highest level of security and minimizes the risk of fraudulent activity, such as money laundering, and other financial and cybercrimes.
Human supervision
Human supervision is another important factor during the verification process. In some cases, such as video identity verification, a specialist can be present during the process to carry out the steps. Verification can be checked by a specialist after it’s been completed, or direct contact with a person undergoing verification happens in real-time.
Document verification
This method is based on authenticating identity documents, such as passports, identity cards, and driving licenses. This process consists of confirming the document's authenticity and validating the user's personal details to verify their identity. Other tools, such as OCR, are used to verify documents properly.
Optical Character Recognition (OCR)
It is an automated data extraction solution. The software extracts data from handwritten and printed documents, scanned files, and photos and converts the text into a machine-readable form to be used for further digital data processing.
Liveness detection
Liveness detection refers to the use of technology that, based on biometrics and users’ movement recognition, identifies natural movements and confirms the presence of a real person during the verification process.
Database verification
Database verification compares data submitted by the user with publicly available information as well as private databases and lists. It includes databases such as PEP (Politically Exposed Persons) and Sanctions lists.
Face verification
Face verification allows to confirm the ownership of the document. With AI technologies, the software verifies that the person in the ID photograph is the same person using the document during the verification process.
Steps of digital identity verification
Depending on requirements, different types of identity verifications can be used. Some solutions might utilize one tool, while others might combine multiple tools and technologies. However, regardless of the type of identity verification, the steps taken during the process are usually quite similar.
Collecting user’s personal information
The first step of a proper identity verification process is the collection of user’s data. Usually, upon creating an account, the user is required to provide information such as:
- first and last name,
- date of birth,
- identity document number,
- personal identification number
- other personal details
The personal information required can differ depending on the industry or sector in which a company operates.
Data authentication and user’s identity verification
Proper data authentication is one of the critical steps in any identity verification process. During that step, data from the user’s identity document is extracted. In the case of digital verification solutions, several technologies and software can be used, such as OCR which extracts data from photos of users’ identity documents to validate data and ensure that the document wasn’t altered, either digitally or manually.
Ownership confirmation & document validation
During this step, it is essential to eliminate the risk of identity theft and the possibility of performing transactions without the identity document’s rightful owner’s authorization. One of the most effective and quickest ways to confirm the ownership of the ID is a biometric check, such as Face Verification. That’s also when solutions such as liveness detection and human supervision come to play, eliminating the risk of fraudulent attempts.
It is also important to choose an identity verification method that excludes the risk of using a fraudulent or forged document. This is when security features checks and ID document comparisons with official government-issued templates are performed.
Additional steps
Further steps can be performed to obtain and verify additional data depending on business needs.
Some examples of additional steps that can be performed are:
- Proof of Address check allows confirming the customer’s residential address
- PEP and Sanctions Lists or other databases checks
- Phone number confirmation (TAN) enables secure transaction authentication
- Additional interview questions depending on the needs of your business
How can Fully-Verified help with the identity verification of your customers?
Fully-Verified offers a wide range of KYC solutions. They’re fully customizable to meet the strictest requirements of multiple regulations around the world, as well as your own business needs.
Live-Verify is a live video verification solution made to ensure the highest compliance and safety. The process consists of a live video interview with a highly trained operator who, with the help of AI and machine learning tools, verifies the identity of a user, confirms the authenticity of the presented identity document, and the rightful ownership. The entire process is recorded.
Self-Verify is an automated video identity verification solution that enables users to verify themselves without the operator present during the verification. The whole process is still recorded and double-checked by a trained operator after the user completes the steps.
Additional KYC services offered by Fully-Verified include:
- Proof of Address check
- PEP and Sanctions check
- Manual KYC which means taking care of all your KYC needs after discussing your requirements and expectations with us
Discover the KYC platform for global customer onboarding
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