The majority of financial institutions are strictly following recommendations provided by FATF (Financial Action Task Force) which encourages such organizations to draft and implement policies that could assist them in countering threats. The requirements include designing risk preventive measures, such as KYC for customer identification, record keeping, transaction monitoring, CDD (customer due diligence), AML screening of customers, etc.
Let’s start with a definition of KYC, and discover how advanced ID document verification better supports financial institutions.
Table of Contents
KYC (Know Your Customer)
KYC is the mandatory process of identification and verification of the client’s identity during the onboarding process. In other words, financial institutions and banks need to ascertain that their customers are legitimate i-e are genuinely who they are claiming to be, through a number of procedures. In the past, the U.S., Middle East, Europe, and the Asia Pacific accumulated fines worth  USD26 billion for non-compliance with KYC and AML regulations. In case customers fail to meet the minimum KYC requirements, banks may refuse to open their accounts and other financial organizations may halt forming business relationships with them. One of the procedures included in KYC is ID document authentication.
Online Document Authentication
Each customer is required to provide documents to prove their identity and address. An AI-based software is integrated into the websites or applications of financial institutions. During the onboarding process, this software requires them to take or upload a picture of their ID documents in real-time. The software is able to verify documents using OCR technology for relevant data extraction and analyzing it within seconds for accuracy. If the provided details are accurate, only then the customer is able to gain access to the platform.
• Identity Verification Documents May Include:
- Government-issued ID cards
- Passport
- Employer letter
- Drivers license
- Utility bill
- Bank statements
- Rent agreement
- Tax bill
Identification VS Authentication
To better grasp the concept of identity document verification, it is essential to be able to differentiate between the identification and authentication of documents. Let’s begin.
Identification refers to the ability to accurately identifying the customer. This can be done through liveness detection, through geolocation logs, checking the age and nationality through the documents provided by the customer, and lastly, through consent collection.
On the other hand, Authentication refers to the ability to prove that the customer is genuinely who they are claiming to be. After document check, authentication is a crucial step for filtering out any fake documents that criminals may be using, such as:
- Illegitimate Documents: For example, documents missing rainbow prints and Holograms
- False documents: Documents that belong to someone else and are stolen by fraudsters to try and authenticate themselves
- Modified documents: Manipulated fonts or writing styles in a document
Use Cases of Document Verification
Financial institutions utilize AI-powered KYC verification softwares for their benefit in the following ways:
- Authenticating of Credit or Debit cards of the customer
- The document, Age and Address Verification to identify modified customer details while onboarding
- Comparison between documents details and information collected from facial biometric authentication for the removal of fake users
- Ensuring PCI (Payment Card Industry) Compliance
- Live verification of IDs, passports, and utility bills
Conclusion
Machine learning is currently more focused on the emerging trends in fraud prevention. Many financial institutions are making use of artificial intelligence to improve their security systems for the provision of a seamless customer onboarding experience. For better authentication, identity document verification is an efficient part of KYC, particularly to ensure fraud prevention. The process can be easily done with the help of OCR technology, which automatically extracts details from reliable ID documents, such as an ID card or passport. The entire process is completed within seconds and successfully filters out any modified, illegitimate, and false documents that may cause monetary or reputational losses for financial institutions.
