The Importance of ID Verification in Financial Services - Hyarchis
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The Importance of ID Verification in Financial Services

published 2023-03-29

As a financial services provider, it is important to know who you are doing business with. To ensure that you can adequately service them, first and foremost, but also because of increasingly strict regulations. Too make sure the onboarding process runs smoothly, the customer must reveal their identity to you and you are responsible for verifying it. This process must of course comply with applicable laws and regulations and ethical requirements, such as KYC, AML and GDPR. But how do you arrange this correctly, within the applicable frameworks? How do you perform ID verification properly and work fully compliant?

There are various phases in the customer life cycle; identity verification mainly emerges in the first phase: onboarding. Perhaps the most important point in the entire know-your-customer process. Also a point which criminals are increasingly targeting. Research has shown that as many as 108.9 million accounts fell victim to hacks in the third quarter of 2022, which was a whopping 70% increase from the previous quarter. Apart from the fact that this puts consumer safety at risk, it costs a lot of time and money to discover a breach of privacy.

Artificial intelligence as a solution

You can be forgiven for having that sinking feeling. If so many data hacks take place on a large scale, how will you still be able to carry out your work? The secret lies in prevention and a business process that enables you to act quickly if things do go wrong. Organizations that fully focus on an automated AI-based process are better positioned to get a possible break-in under control, resulting in significant cost savings. A fully automated system ensures that you significantly reduce the risk of money laundering, terrorist financing and identity fraud. As a result, you avoid high costs for your customers, you are able to continue to provide a top-notch service and you free up valuable time by taking repetitive tasks off your employees’ hands.

How do you ensure such an automated process, with an eye for the needs of the customer, and within the legal framework? How do you limit the number of hacks, so that you are spared damages, claims and reputational damage?

Minimal data processing is key

A large part of the identification process consists of requesting an identity card. Stories about identity data being stolen regularly make headlines and consumers are continuously warned against the disclosure of their personal data. Although financial service providers may request an ID card or passport to establish the customer’s identity, they are not allowed to store the data. But that begs the question: who checks if they really don’t? And, more broadly, how do you, as a financial service provider, deal with customer data?

That is actually easier than you might think. Banks and other financial service providers are allowed to request a raw identity document because of the essential security features that are present on it. But after the check has been completed, the service provider must comply with the AML and GDPR guidelines, which specify that only ‘minimal data processing’ is permitted. And that means in practice that the copy of the ID that is stored must be edited: the photo must be made unrecognizable and a watermark must be added.

This contradiction, of requesting an unedited document but saving an edited version, makes the route to an efficient identification process one full of obstacles. This verification as part of KYC causes a large part of customer acceptance to be delayed or even declined. This can be due to various reasons, such as an illegible copy, essential information that has been made unrecognizable, edges that are not visible or low overall quality of the document. Digital identification is the solution here, provided that the applicable laws and regulations are followed.

A KYC process that runs like a charm

As a financial service provider, you want and must comply with laws and regulations and ethical requirements such as KYC, but that does not make you a legal expert. So how do you ensure an automated process, with an eye for the wishes of the customer, within the legal framework? How do you limit the number of hacks, so that you are spared damages, claims and reputational damage?

The answer is: switch to smart tooling and work with a digital, automated verification process for identity data. Ensure that all customer data is securely controlled and managed so that you and your customer are not adversely affected.

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