Identity Verification in Fintech: A Guide to Best Practices

Financial institutions are turning to digital identity to increase efficiencies, offer a better customer experience, and help mitigate risk. In this modern age, they must also employ modern solutions to meet the needs of their clients and keep pace with the ever-changing landscape.

The following best practices can aid fintech in approving and locating new clients without fraud or friction while streaming the client journey.

What is digital identity verification?

Digital identity verification (IDV) is verifying an individual’s identity. The objective is to confirm the person exists and is who they claim to be. Identity verification is a part of the customer due diligence processes needed by AML regulations in the world.

Any financial institution can verify a person’s in-person and online characteristics by acquiring electronic and documentary evidence.

Digital identity verifying solutions in fintech

There are different digital identity methods, and financial services can use a combination to increase their digital security. They include:

• Two-factor authentication
• Knowledge-based authentication
• Biometric verification
• Multiple methods
• AI (Artificial Intelligence)
• Document verification
• Database authentication
• Liveliness detection

1. Two-factor authentication (2FA)

Multi-factor or two-factor authentication requires clients to enter a code or OTP sent to their phone or email. This can be crucial to ensure your client didn’t fill incorrect data. 2FA typically needs customers to have their phones during the authentication process.

2. Knowledge-based verification (KBA)

Knowledge-based authentication verifies an individual’s identity by needing a response to security questions. To be verified, you will need to give the correct answers.

Additional safeguards for knowledge-based authentication include giving answers within a limited time.

3. Biometric authentication

Biometric technology can authenticate and identify a person based on physical characteristics. These biological or physical characteristics traditionally include fingerprinting, retina and iris scanning, voice recognition, and facial recognition.

These techniques provide users with a high level of convenience because they don’t have to enter passwords or answer questions.

4. Multiple methods

You can use multiple digital identity techniques that work for your enterprise needs. For instance, you can combine a document-verifying technique, machine learning-enabled verification processes, and facial recognition.

Using numerous methods of IDV heightens accuracy and offers a better user experience. You can prevent identity theft, financial crime, and data breaches and complete your transactions confidently.

5. AI (Artificial Intelligence)

Most Digital identity-verifying methods cannot be a complete solution on their own. That means that introducing Artificial Intelligence and deep learning is a great way to address the problem.

Artificial Intelligence can speed up identity verification by assessing and compiling personal data and financial data at a rate humans can’t achieve. It can also solve biometric difficulties related to facial hair, makeup, and aging.

New Artificial Intelligence-enabled IDV platforms usually incorporate a selfie and a photo-based identity document. Along with AI algorithms, the best practice may create an accurate, fast verification process.

6. Database methods

Database method involves data in various databases to offer customers access to a card or account. And the databases used are social media, such as Facebook or Google: that is why the method is also called social verification.

7. Liveliness detection

Using this approach to verify someone’s identity implies checking if the document presented corresponds to the live selfie or image. The user will have to hold a smartphone and do some movements, such as tilting or nodding their head.

Other ways include analyzing photos or selfies of documents in order to determine if they are legitimate or have been edited.

8. ID document verification

The process determines if an ID document is legit or authentic or not. ID document verification can verify documents issued by the government, like a driver’s license and a passport.

Identity Verification for Fintech

Digital IDs verification is vital in the digital era. It helps in fraud prevention and compliance with regulations, increases customer experience, streamlines processes, and ensures data privacy. IDV also helps to prevent illegal activities and money laundering, increasing trust in online transactions. All you need is to ensure you are dealing with the right digital identity service providers.

Aside from considering various identity verification solutions, each financial sector also needs to

• Check identity fraud levels’ metrics to determine what needs improvement and what is working.
• Continuously re-assess what they are using.
• Stay attentive to new compliance fraud and regulation schemes.