Synopsis: In today’s digital era, the complexity and diversity of ID verification pose significant challenges for financial institutions. In this regard, learn how integrating advanced ID verification solutions is vital in combating fraud and enhancing customer satisfaction.

Identity theft has become a serious concern. Last year, nearly 27.2 million people from India and 13.5 million people from the USA became victims. Consumers from the US alone have lost nearly $28 billion due to various identity fraud scams. These facts show the need for a robust ID verification mechanism in the financial domain for fraud prevention. When customers feel safe about their money, it results in high customer satisfaction for banks and other financial institutions. This article covers some of the advanced ID verification techniques that are useful in quickly preventing fraud ID scams. But, before jumping into the same, let’s understand why and how ID verification becomes a challenge in the financial domain.  

Identity Verification Challenges in Financial Domain

According to a report, 62% of banks and financial institutions feel new regulatory norms and enforcements are making it harder to meet anti-money laundering (AML) compliance. But that’s only the very beginning. Here are some reasons why preventing identity scams is becoming challenging financially.  

A rise in systematic fraud

Now, organizations are taking advantage of modern technologies, like cloud computing, to offer their customers innovative online products and services with much less processing time. However, without a stringent ID verification system, scammers use fake IDs to trick banks into stealing customers’ sensitive data to create fake accounts and make illegal transactions.  

Diversity of ID Documents

There are 6000+ types of ID documents worldwide, like passports, driver’s licenses, and utility bills. Every banking customer might have a different combination of these documents. Banks and similar institutions find it hard to sort through this diversity online to determine who is who.  

Evolving Biometric Forgey

Biometrics and facial recognition technologies are the most common for verifying a person’s ID during online processing. However, these are relatively easy to hack for scammers. They use AI to tamper with facial recognition or fingerprints to pretend to be someone else.  

Lack of Strong Data Privacy and Data Protection

Financial organizations need help to keep sensitive data safe from fraudsters. Nearly 90% of enterprises and small businesses faced this issue last year. Plus, the system lacks transparency, which is unclear and open about how they use and protect their customer data.   

How Advanced ID Verification Prevents Frauds and Improves Customer Satisfaction

Let’s look at some of the proven methods to prevent ID verification scams to a great extent.  

Document Verification

Financial institutions should consider physical document verification after the primary process to reduce the risk of fraudulent account openings. The use of advanced document verification tools can also help. With automated user consent, such tools authenticate documents from third-party web sources, including government portals. This also improves customer experience by reducing onboard time while enhancing KYC, KYB, and AML compliance.

Advanced Biometric Verification

People will make US$5.1 trillion in transactions using biometric payments in a few years. It shows the need for advanced biometric solutions to fight against rising identity fraud. Usually, scammers use deep AI and artificial fingerprints made of silicon or rubber to bypass traditional biometric readers. 

 In this regard, advanced biometric solutions add futuristic features, such as retinal scans and real-time location access, creating a difficult-to-replicate form of identification. Advanced fingerprint scanners also have a built-in infrared light to measure the finger’s reflection frequency. This can detect fake silicone, rubber, paper, gel, or film fingerprints.  

Two-Factor Authentication

There needs to be more than a good password. Besides, 61% of people use the same password to login to multiple services. That explains why 62% of organizations worldwide leverage multi-factor authentication to protect sensitive information online.   

Its security benefits for organizations and customers are alike. That said, even implementing a simple 2-factor authentication works well to keep hackers away from practicing ID fraud. Two layers of security means twice the work for hackers. Different types of multi-factor authentication options exist, including push notifications, OTPs, email/SMS codes, two-factor tokens (offline), etc.  

Besides, you don’t need to engage a team of skilled software engineers to build such security systems. Many free authenticator apps are available in the market, such as Google Authenticator, LastPass Authenticator, Microsoft Authenticator, etc. You can easily use them to implement two-factor authentication for your customers with ease.  

Knowledge-based Authentication

Have you ever been in a situation where you must answer at least one secret question to access your account? That’s called Knowledge-based authentication (KBA). It can be your mother’s maiden name, first school, pet name, or favorite teacher. You can offer your users three types of KBA: static, dynamic, and enhanced. In static KBA, users select the secret question to answer upon account creation. The dynamic KBA involves questions generated in real time from credit reports or market databases. The most secure one is the enhanced KBA. It involves static and dynamic KBA and other multi-factor authentication, such as biometrics and two-factor authentication. That probably explains why the KBA market is expected to grow by 13.29% in the next two years.  

End Thoughts

Preventing fraud in the financial domain is a multi-prolonged task. However, ID verification is an essential aspect of it amidst rising online transactions. The primary advantage is that it protects organizations and their customers from any ID scam and its consequences. On the other hand, it also benefits companies by earning customer satisfaction, which provides more business in return. Read this guide to learn how to manage and mitigate additional risks when dealing with lending MSMEs.