Digital ID Verification for Customer Onboarding

By Zac Cohen

Every single day, millions of consumers create new accounts online with ecommerce sites, the sharing economy, payment apps—and, of course, with banks. If you ask them which organization offers the best onboarding experience, how many are likely to say banks? Due to rising fraud and financial crime—and the heightened regulatory demands that have resulted from it—the account-opening process for banking customers makes for a less-than-ideal customer experience.

Ultimately, the onboarding experience can make or break a customer’s impression of a bank. In fact, according to research published by Digital Banking Report, the amount of time it takes for a customer to open an account online significantly affects abandonment rates. Moreover, 40 percent of customers abandon an application once they have spent 30 minutes on it.

So, how can banks and financial institutions remove friction from the online application process while keeping customer experience top of mind and safeguarding against security threats?

Security is necessary, but costly—both in terms of dollars and customer experience.

According to a global survey by Thomson Reuters, financial institutions on average spend $60 million every year to meet regulatory requirements under Know Your Customer (KYC) and customer due diligence—with some banks spending as much as $500 million.

The same study found that both banks and customers—particularly corporate customers—agreed that protracted KYC procedures were putting more strain on onboarding processes and client relationships. In fact, according to the study, the time to onboard a new client has increased by 22 percent from 2017 and is anticipated to further increase 18 percent year over year.

Although the costs associated with meeting these requirements is high, failure to comply with them can lead to serious consequences. Between terror attacks, drug trafficking and other nefarious activities, money laundering is a growing concern that cuts across borders and through societies.

A report by Moneyval, Europe’s money-laundering watchdog, observes that money laundering is an expanding and, increasingly, international phenomenon. Current estimates of the amount of money laundered worldwide range from $500 billion to a staggering $1 trillion, with disastrous effects on the global economy.

Banks need to strike a balance between easing the onboarding process and fulfilling regulatory requirements.

Under KYC requirements, banks must not only identify their customers, but also verify that the identity provided by each customer actually exists. The identity is considered verified when the customer’s professed identity (name, address, national ID number etc.) matches their records on file—in other words, the information held by trusted and reliable identity data sources.

Electronic identity verification (eIDV) automates this process: By enabling banks to instantly verify the identity of their customers, eIDV helps fulfill KYC requirements while allowing banks to onboard customers quickly.

Thanks to technological innovations, the mushrooming of an API ecosystem and greater engagement between governments, data vendors and regtech solutions, we now have a marketplace of identity data at our fingertips. As a result, banks can now choose from a variety of technologies and data to carry out due diligence on their customers—without testing the patience of customers. These include but are not limited to:

  • Document verification—which determines whether the identity document provided remotely by the customer is legitimate and not a forgery.
  • Biometric authentication—which authenticates an individual’s identity based on unique physical characteristics such as fingerprints, retina, voice, etc.

Depending on where the bank is onboarding customers—along with a host of other factors—banks can determine the level of risk associated with onboarding a customer. That risk level can then drive which technologies and data sources the bank intends to use.

Performing identity checks at the speed customers want—combined with the security that compliance and fraud prevention demands—is not necessarily about trade-offs. Delivering a delightful customer onboarding experience is possible with the right systems and processes in place. Here’s what you should be looking for:

  1. Seamless access to multiple data points.

When financial institutions roll out their services in new markets, they need to be able to verify the identity of the customers there. In order to do this, they need to tap into a variety of trusted data sources. Often, this data is exclusively in the custody of local data vendors. To obtain access to this data, banks would to forge new relationships and sign multiple contracts with the vendors—a costly, time-consuming process.

Traditionally, this process requires a considerable amount of time and resources—not to mention a high level of familiarity with the local ecosystem. Data sources must be identified then vetted. Manual checks must be conducted to ensure security and compliance. An integration for every data source must be built, further adding time and resources to the process. Given these constraints, it could take a bank six months to a year just to integrate a single data source into its system.

But financial services is a highly competitive space, and moving with speed is crucial. Thanks to technological advances, banks can, using a single API, obtain access to hundreds of data sources across the world.

  1. Flexibility in identify verification.

A flexible approach to identity verification means the ability to deliver different types of identity checks and types of data from a variety of sources. The more data inputs, formats and channels a system can deliver, the more robust the information.

Flexibility also refers to being able to adjust the checks, depending on risk assessments. As each check represents a different risk level, the ability to customize rule sets optimizes performance by delivering the best match levels for any given level of risk.

  1. Mobile capability.

This year, the number of mobile phone users worldwide is expected to approach five billion. And according to a Deloitte study, almost every developed country has at least 90 percent mobile phone penetration.

From the customer’s perspective, a mobile eIDV solution can provide for a simple, user-friendly and intuitive way to verify identity that causes little pain and plenty of gain. It could involve a swipe, an auto-fill or a verification code sent to the customer’s phone.

And while cutting the verification process to mere seconds improves the customer experience, extra layers of security on the back end can create safer transactions, helping to meet fraud prevention requirements. As the number of mobile phone users continues to increase worldwide, banks will see an ever greater use case for a secure digital identity verification process.

Zac Cohen is general manager at Trulioo, a global identity and business verification company that provides secure access to reliable, independent and trusted data sources worldwide to instantly verify consumers and business entities online.