Why Identity Verification For Banking Is Crucial In A Digital World

Third-party fraud, or identity theft’s evil twin, is on the rise, and it starts when someone steals your personal information to create a synthetic profile. They use that profile to commit fraud on an organization, posing as you to file false claims and take the money. It’s a slow, painful process to recover from, and it can easily be avoided with the right identity verification solutions in place. This article will help you understand how identity verification is used in financial services so you can protect yourself against first party fraud as well as third-party frauds and their financial repercussions.

Anonybit’s innovative solutions help organizations tackle all kinds of emerging fraud. By improving identity verification processes, they can quickly weed out the bad actors creating synthetic profiles and help keep you and your organization safe. 

What Is Identity Verification?

Identity verification is a critical process financial institutions use to ensure that an individual is who they claim to be during various financial transactions, such as opening a bank account, applying for a loan, creating a gaming account, etc. This process is essential in safeguarding against new account fraud, where individuals might attempt to use stolen or fabricated identities to gain access to financial services.

Beyond fraud prevention, identity verification plays a pivotal role in regulatory compliance efforts, particularly in Know Your Customer (KYC) and Anti-Money Laundering (AML) practices. KYC requires financial institutions to assess and verify the identity of their customers to evaluate potential risks of illegal activities. AML measures focus on monitoring and preventing money laundering and other illicit financial activities. By verifying identities accurately, financial institutions can better manage customer risk, comply with legal requirements and otherwise maintain the integrity of their systems and the financial system as a whole. 

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How Does Identity Verification For Banking Work?

Identity verification in the banking sector is a critical process designed to ensure that individuals accessing financial services are who they claim to be. With the rise of digital banking, traditional in-person verification methods have been largely replaced by advanced digital identity verification solutions. These methods rely on comparing an individual’s information or biometric data with a pre-verified data set to confirm their identity. Here’s how the process typically works:

1. Digital Identity Verification Methods

Digital identity verification involves several techniques, each serving a unique role in confirming an individual’s identity. Common methods include:

ID Document Verification 

ID document verification is a fundamental step in identity verification, especially during:

• New account openings
• Onboarding
• When entering financial agreements

This technique involves checking the legitimacy of government-issued ID documents, such as:

• Passports
• Driver’s licenses
• Identity cards

The process involves capturing, extracting, and analyzing data from an individual’s ID document to authenticate validity. Automated ID document verification technology can authenticate documents in real-time, providing a fast and secure way to verify identities. The verification process includes:

• Analyzing visible security features (like watermarks or holograms)
• Checking font usage and consistency
• Detecting inconsistencies such as misaligned rounded corners

The primary benefit of ID document verification is that it allows financial institutions to authenticate a customer’s identity documents digitally and in real time, whether the user is in-branch or remote. This technology speeds up the account opening process, onboarding, and lending while significantly reducing the risk of fraud. It also helps lower abandonment rates in digital banking channels by providing a smoother user experience.

Selfie Verification 

This method uses facial recognition to verify the individual presenting the ID. By comparing a real-time selfie with the photo on the ID document, the system can confirm that the person is indeed the same individual. Facial comparison algorithms extract biometric data from both images to create a standardized dataset for accurate matching.

Selfie biometrics play a crucial role in digital identity verification and fraud prevention. By extracting biometric data from a facial image and comparing it with pre-verified data (such as a passport photo), facial comparison can accurately confirm an individual’s identity. This method is highly effective, with a 99.9% accuracy rate. 

Liveness Detection

Liveness detection adds a layer of security that is typically used in the selfie verification process by ensuring the selfie is not a mask, photo or AI generated image or video.

Modern Methods of Identity Verification in Banking: Ensuring Security and User Experience

Identity verification in banking is a sophisticated process integrating various digital methods to ensure that individuals accessing financial services are legitimate. Financial institutions can create a robust, secure, and user-friendly identity verification process with:

• ID document verification
• Selfie verification
• Liveness detection

This protects against fraud and enhances the overall customer experience, making it easier for users to confidently access the services they need.

Enhancing Identity Verification with 1:N Selfie Checks

Financial institutions are increasingly utilizing advanced digital onboarding processes that incorporate 1-to-many selfie checks to enhance security and combat fraud. This technology offers several key benefits:

• Duplicate Detection: Identifies if the same individual has attempted to create multiple accounts, a tactic often used in synthetic identity fraud.
• Synthetic Identity Prevention: Cross-references selfies against a vast database to spot artificially created identities that may evade simpler checks.
• Blocklist Screening: Automatically checks selfies against known fraudster databases, preventing access for bad actors.
• KYC/AML Compliance: Provides an additional layer of due diligence, helping institutions meet regulatory requirements.
• User-Friendly Experience: Requires just a single selfie from the customer, streamlining the onboarding process.

Secure Your Future With Anonybit

At Anonybit, our decentralized biometrics system design helps companies prevent data breaches and account takeover fraud. With a decentralized biometrics solution, companies can enable passwordless login, wire verification, step-up authentication, and help desk authentication. We aim to protect companies from data breaches, account takeovers, and synthetic identity fraud.

To achieve this goal, we offer security solutions that cover the user lifecycle such as:

• 1:N deduplication, synthetic and blocklist checks upon account origination
• Passwordless login
• Step up authentication
• Account recovery
• Secure storage of biometrics and other PII data

Anonybit eliminates the tradeoffs between privacy and security. Prevent data breaches, enable strong authentication to eliminate account takeovers, and enhance the user experience across the enterprise using Anonybit.

Book a free demo today to learn more about our integrated identity management platform. 

Identity Verification Use Cases Throughout The Customer Journey

Account Opening 

When a new customer initiates their first interaction with a financial institution, checking their identity is typically a part of the customer onboarding process. Checking a new customer’s stated identity against an official document such as a state-issued ID or passport should include matching the document’s name and face and verifying the document’s validity. Moreover, there should also be a selfie check against an existing repository to check for duplicates, blocklists and synthetics. This often overlooked check dramatically decreases the likelihood of a fraudster opening an account and circumventing document verification processes with a stolen identity and gives the financial institution confidence in the new customer’s intentions.

Borrowing Money

When a customer wants to borrow a significant sum of money, checking their identity should be a prerequisite for releasing funds. The financial institution may see the customer for the first time – for example, if the customer is applying for a mortgage through a lender that isn’t their main financial institution. In other cases, the customer may be well-known to the lender, but the request for funds could still be fraudulent if the account has been taken over.

Whether verifying the customer’s identity for the first time, as in the case of account opening, or re-verifying an existing customer’s identity again before allowing them to access significant funds, identity verification including a 1:N selfie check at this point in the customer journey can significantly reduce the misappropriation of funds.

Wire Transfers

A customer may suddenly choose to make a large transfer for various reasons, but checking their identity before sending the money through is frequently a good idea. Many financial institutions have already stepped up authentication and require MFA before allowing large transfers, but without biometrics, fraudsters are able to circumvent existing processes.

Re-verifying the user’s identity against the original biometric captured at account origination at this point is  a better way to shut down fraudsters. Traditional MFA and OTPs can be redirected by fraudsters so the only way to truly know who someone is at the time of a wire transaction is to verify their selfie. 

In-Person Check Cashing

Many use cases center around purely digital interactions, but digital identity verification can be very effective in stopping certain types of fraud that occur in bank branches daily. Whether the individual who comes to cash a check is an existing customer, utilizing an identity verification tool to verify that the person is who they claim to be can mitigate the majority of in-person check fraud. Think of it like this: most fraudsters are repeat offenders so if they do wash a check to themselves as a payee and it ends up being a fraud, if the fraudster is placed on a blocklist and verified biometrically, they will not be able to repeat their crime.

Service and Support

Customers may require support for a broad range of reasons, and biometric authentication can help ensure that the employee offering the support doesn’t accidentally aid a fraudster in committing a financial crime. For things such as password resets, call center services, and account updates and disputes, it is imperative to know that the identity of the person requesting support matches the identity of the customer who owns the account. This protects customers against account takeover and stops fraudsters before they can do lasting harm.

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Why Do Banks Need Identity Verification

Although organizations must have Know Your Customer (KYC) and Anti-Money Laundering (AML) checks baked into their interactions with customers, the degree of certainty around a customer’s identity isn’t always as high as it should be. Identity theft is a pervasive problem that leads to many challenges.

In fact, according to the FTC, reported instances of fraudsters using stolen identity information to open new bank accounts under a victim’s name grew by 32% in 2022 in the U.S. to over 110,000 cases. The bank’s KYC/AML process failed in each of these situations. Increasingly traditional document verification is also failing.

Costs and Consequences for Financial Institutions

In the UK, instances of credit card ID theft, where a criminal either opens a new card using a stolen identity or takes over a genuine account in good standing, were up 101% YoY midway through 2022, according to UK Finance, with a reported gross loss of £21.4m in the first half of 2022. These financial crimes are costly to consumers and financial institutions alike. For financial services organizations, failing to verify their customers’ identity in situations such as these carries a reputational cost, too, so it’s essential to get it right.

The financial costs of fraud are more accessible to quantify than the reputational costs, and unfortunately, they are quite significant. Financial services organizations spend over $4 resolving each $1 of fraud, with the actual amount varying slightly depending on the type of organization. Banks spend the most, with mortgage firms close behind, but regardless of the specific organization, the cost is high enough that stopping fraud before a loss occurs is imperative.

6 Benefits Of Identity Verification For Banking

1. Enhanced User Experience and Growth 

A fully digital identity verification process streamlines customer onboarding, providing a seamless and user-friendly experience. This convenience can lead to increased growth in digital channels, as customers are more likely to engage with services that offer quick and hassle-free access. By eliminating the need for in-person verification, financial institutions can attract a broader audience, including tech-savvy users who prefer mobile and online interactions.

2. Fraud Reduction in Remote Transactions 

Digital identity verification is particularly valuable for reducing fraud when dealing with remote or unknown applicants. By leveraging advanced technologies like facial biometrics and document verification, banks can confidently verify the identity of individuals who are not physically present. This reduces the risk of fraud, such as identity theft or account takeovers, protecting the institution and its customers.

3. Compliance with KYC Requirements 

Meeting Know-Your-Customer (KYC) requirements is essential for financial institutions to remain compliant with regulations and avoid penalties. Digital identity verification assists in fulfilling these obligations by accurately verifying customer identities and assessing potential risks.

This process supports anti-money laundering (AML) efforts and helps institutions monitor and prevent illegal activities like money laundering or terrorism financing.

4. Accurate Identity Matching with Facial Biometrics 

Facial biometric verification ensures that the person presenting an ID matches the individual on the ID document. By comparing facial features, financial institutions can quickly and accurately confirm identity, adding an extra layer of security.

This method is particularly effective in preventing impersonation and ensuring that the correct individual is accessing financial services.

5. Accessibility and Ease of Use 

Mobile image capture technology, a key component of digital identity verification, is accessible and easy for everyone. Customers can simply use their smartphones to capture images of their ID documents, making the process convenient and widely available.

This accessibility is crucial for reaching a diverse customer base and ensuring that identity verification is not a barrier to accessing financial services.

6. Efficient Data Processing 

Digital identity verification systems can extract data directly from documents, eliminating the need for manual data entry. This automation speeds up the process and reduces the risk of human error.

Documents can be verified in seconds, significantly improving efficiency and allowing customers to move forward with their financial transactions quickly.

How Accurate Is Identity Verification?

In perfect conditions, identity verification algorithms reach accuracy levels of 99.97%. This means that biometrics like facial recognition can achieve reliable results when matching subjects to reference images.

Challenges and Benefits of Facial Recognition in Financial Identity Verification

While the technology is highly reliable, discrepancies can occur when matching selfies to reference photos. In the case of identity fraud detection, this could mean that a fraudster can bypass security checks, with potentially devastating consequences for an organization and its customers.  The Department of Homeland Security recently completed some benchmark testing in this area highlighting the differences between vendors under varying conditions. One key takeaway is that a robust algorithm that leverages liveness detection is key to fraud prevention.

Identity Verification Best Practices

Biometric authentication is becoming a go-to solution for identity verification in banking. This method leverages facial recognition to verify a person’s identity and compare a live selfie against the photo on the ID document that is being submitted for verification. Top performing NISt algorithms for biometric authentication are accurate, and user-friendly. They improve the experience for legitimate users while blocking access to fraudsters.

Incorporating biometrics into identity verification processes can help financial institutions tackle a multitude of fraud schemes, particularly those involving synthetic identities. While many deployments check for a live selfie match against the photo on the ID document being presented, many organizations overlook the opportunity to establish a selfie repository to check for duplicates, synthetics and blocked identities in conjunction with the ID verification process. Because many types of fraud can often go undetected for long periods, it is important to create and leverage these repositories to prevent significant losses.

Related Reading

• Fraud Systems For Banks
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• OTP Fraud
• Multi Factor Authentication Banking

Book A Free Demo To Learn More About Our First-Party Fraud Prevention Software

At Anonybit, we help companies prevent data breaches and account takeover fraud with our decentralized biometrics technology. With our decentralized biometrics framework, companies can enable passwordless login, wire verification, step-up authentication, help desk authentication, and more. 

Comprehensive Security Solutions for Companies

We aim to protect companies from data breaches, account takeovers and synthetic identity on the rise, privacy regulations, and digital transformation. To achieve this goal, we offer security solutions that cover the user lifecycle such as:

• 1:N deduplication, synthetic and blocklist checks upon account origination
• Passwordless login
• Step up authentication
• Account recovery
• Secure storage of biometrics and other PII data

Balancing Privacy and Security with Anonybit’s Integrated Platform

Anonybit eliminates the tradeoffs between privacy and security. Prevent data breaches, reduce account takeover fraud, and enhance the user experience across the enterprise using Anonybit. Book a free demo today to learn more about our integrated identity management platform.