A world in which we bank through our phones is no longer a far-reaching future. Not only are we now used to funneling most of our transactions through a single device, but younger generations, in particular, are also growing increasingly accustomed to banking on their phones—moving money around and setting up new accounts at the touch of a button. Having to undergo a lengthy process to open a bank account, as was once commonplace, now seems archaic in comparison.
That’s why challenger banks and fintechs have almost universally streamlined their onboarding processes to take place in the palm of your hand—a response to customer demand. Now, even traditional banks are moving to mobile banking in an industry-wide shift towards digital transformation. But such innovation comes with its share of challenges.
The principal challenge is that of security and compliance. Verifying customers’ identities during the onboarding process was always carried out by humans—error-prone, yes, but perceived as trustworthy above all else. Digitising this process might appeal to customers, but it requires not only the very best technology but also stringent adherence to regulations.
The industry, therefore, needs a common, streamlined approach to digitally verify customer identities, mitigate the risk of fraud, comply with regulations and push forward to the seamless experiences that customers desire. If we’re undergoing a revolution in financial services, isn’t it time there was a revolution in the way we verify identities?
The regulation equation
It’s no wonder that regulation is top of the agenda when it comes to identity verification. Incidences of account-takeover fraud tripled in the past year, with losses reaching $5.1 billion—and more customers than ever before were victims of identity fraud. To combat the threat, companies in the banking and financial-services (FS) sector must comply with anti-money laundering (AML) and know-your-customer (KYC) regulations, requiring identity verification for their users—but this makes the move to a seamless customer experience much more difficult.
To avoid fines, companies must be able to verify every individual identity opening an account and the level of risk they present. This has become more difficult since the rise of synthetic identities and account-opening fraud, caused primarily by the increased number of major data breaches in recent years.
So, if visiting a branch to have your identity documents (IDs) checked manually is undesirable for customers in the new world of transactions, how can financial businesses enable customers to open accounts instantly and digitally while being compliant and avoiding potential fraud? The latest advancements in computer vision, machine learning and biometrics could be the answer.
Smile for the camera
For companies investing in new technologies to help onboarding, customers can benefit from submitting identity documents and even biometric identifiers for verification, all through their phones. Digital identity-verification solutions enable consumers to scan their identity documents with their phones. Then, advanced artificial intelligence (AI) and machine learning checks various features of the document instantly to determine its authenticity and if it has been forged or tampered with. Customers can then take a selfie, which is compared with the photo on the identity document.
Combining identity-document authentication with biometric face comparison delivers complete identity verification—the digital equivalent of displaying your identity document through in-branch interaction with another human being. Companies can corroborate this two-factor identity verification with other factors of identity verification, including geolocation, network data from mobile phones and device-reputation data to take this identity assurance to the next level. The value for consumers is apparent.
Completing the onboarding process from the comfort of your own home is encouraging for consumers, and it reduces rates of abandonment in account opening—a plight for those institutions still requiring in-person verification. For businesses, meeting the customer-identification requirement for KYC and AML regulations and mitigating the risk of account-opening fraud solves regulatory challenges while providing vastly improved customer experiences—and increasing their rates of successful account openings.
With recent research finding that account-takeover fraud is the top type of fraud loss in digital channels, the need to put the right technology and strategy in place is greater than ever. To ensure that the banking and FS sector doesn’t collapse under the weight of increasing regulations, mounting fraud risks and growing demand for better customer experience, there needs to be a serious rethink.
Banks should look to challengers for insight into how important seamless onboarding is to their business models and look to replicate their successes in this arena. The innovative challengers should equally look to the big banks to be reminded of the importance of regulation and security—after all, no customer wants speedy sign-up if they’re also, knowingly or not, opening themselves up to fraud. As well as reducing losses from fraud, the technological investment is made even more justifiable when you factor in the new account-opening revenue that could come from such streamlined and efficient onboarding processes.
The whole industry has a vested interest in identity verification. Having the assurance of knowing your customers are who they claim to be and adhering to growing regulatory pressures—all the while pleasing customers, new and old—is key to the future of banking and finance in the new world of digital transactions. Investment in the right technologies is what it takes to stay afloat in the deep end—will everyone take the plunge?
AIM Evaluation: Identity Document Capture and Verification, Aite Group, 2018