Financial institutions today are challenged with meeting consumers’ high expectations for fast and convenient digital banking processes, while also needing to mitigate fraud and comply with increasingly stringent regulatory requirements. Consumers want to do more of their banking through digital channels. A 2018 survey of more than 5,000 consumers showed that 69 percent want to be able to conduct their entire financial lifecycle – from account opening to taking out personal loans – entirely through online and mobile channels. Yet, too often today, new customers are still sent out of the digital channel and forced to visit a branch location in order to complete the account opening process. A move that injects additional friction into the process and increases customer frustration.
That’s because even in today’s increasingly digital era, banks are struggling to fully digitize the account opening and onboarding process. In order to prevent application fraud and comply with strict know your customer (KYC) and anti-money laundering (AML) regulations, financial institutions must positively verify their customers’ identities, which has traditionally been difficult to do in digital channels. Last year, it was estimated that banks alone were to exceed $31 billion in global fraud loss.
In a climate where fraud, identity theft and data breaches dominate headlines, consumers need to be on high alert. Digital identity verification is a key technology to not only enable the end-to-end digital banking services that consumers desire, but also to maintain trust between financial institutions and their customers. A process that onboards new customers faster, lowers operational costs, and ultimately improves the consumer’s digital banking experience.
The Need for New Identity Verification Methods
Traditionally, financial institutions have relied on a combination of knowledge-based authentication (KBA) questions and static personally identifiable information (PII) in order to verify consumers’ identities in digital channels. However, in the wake of large-scale data breaches in recent years that exposed the PII of millions of consumers, these methods are no longer effective. Fraudsters and cybercriminals use the vast troves of exposed consumer data available on underground markets – including birth dates, addresses, social security numbers and more – to create synthetic identities or open fraudulent new accounts under legitimate consumers’ names.
As a result, financial institutions must look to new approaches for verifying consumer identities in digital channels. A number of new technologies and trends, from the proliferation of smartphones to the emergence of advanced analytics and machine learning, now make it possible for financial institutions to automate and secure consumers during the digital account opening process.
Identity Document Verification
Thanks to the prevalence of smartphones today, financial institutions can now leverage consumers’ mobile devices for verifying the authenticity of their identity documents. Using their smartphone camera, new applicants can snap a picture of their driver’s license, passport or other identity document and upload it directly to the financial institution. Advanced artificial intelligence (AI) and machine learning algorithms look for embedded security markings that are invisible to the naked eye, to verify that the documents are authentic and unaltered.
E-signatures: Enhancing Customer Experience and Compliance
Signatures are a traditional form of verifying identity, but manually “wet” signing documents can be a time-consuming process, that can involve visiting a branch, or printing, scanning and posting documents, all of which carry a higher chance of human error. The pain-points associated with manual signatures become even greater if an agreement spans geographical regions. Given this, banks are increasingly adopting e-signature solutions as a more seamless and secure, e-signing experience that allows the bank to acquire new customers quicker and offer a higher quality service, no matter their location.
E-signatures also help banks remain compliant with GDPR and other regulations by capturing a customer’s digitally signed document supported by a comprehensive visual audit trail detailing what the customer has agreed to, when and how they signed.
While many banks have already adopted basic e-signature abilities, the technology alone is not enough to completely automate the new accounting opening process while reducing fraudulent enrollments. For example, manual identity document verification checks or introducing paper agreements, are both ways in which banks end up with a semi-automated or siloed process, which increases application abandonment rates and application fraud while negatively impacting the overall customer experience.
Financial institutions can also leverage consumers’ smartphones for biometric authentication methods including fingerprints, facial recognition with liveness detection and even iris scanning. For example, banks can request that the consumer snap a selfie to submit at the same time they submit the digital copy of their ID. Automated facial comparison technology with liveness detection can verify that the person in the selfie is real and is the same person pictured on the identity document. When combined with biometric identifiers such as fingerprints and iris recognition, financial institutions have a powerful tool for quickly verifying new customers’ identities to a high degree of certainty.
Risk-Based Analytics, Real-Time Account Checks and Transaction Monitoring
Banks can combine the identity verification methods described above with advanced risk analytics, real-time account checks and transaction monitoring to achieve context-aware identity verification. This combination of technologies allows financial institutions to aggregate an array of real-time information from several different data sources and digital channels to make immediate decisions that assess the total risk associated with the new customer. These data sources can include third-party partner risk data, recent transactions and real-time account checks at other institutions, as well as risk analysis based on the user behavior, biometrics, location, device integrity and more. Real-time analysis of this data helps provide a comprehensive and contextual picture of the applicant that can complement other identity verification checks in order to help the financial institution reduce the risk of fraud in the new account opening process.
With the technologies described above, financial institutions can establish strong identity assurance in digital channels through multi-factor authentication. Rather than simply relying on something the applicant knows (such as KBA or PII) to prove their identity, banks can leverage mobile device data along with biometric or behavioral risk indicators for a multi-layered security approach that takes into account something the applicant has and something they are, in order to apply the precise level of security, at the right time, thereby helping to mitigate the financial institution’s exposure to fraud.
Ultimately, digital banking is predicated on trust. Consumers must be able to trust that financial institutions will protect their sensitive data and PII through strong security measures. Combined with a positive digital account opening experience, banks must be able to trust that new applicants are who they say they are. With new digital identity verification technologies, financial institutions can finally effectively verify new customers’ identities in mobile and online channels, without compromising security or impeding the digital customer journey. By enabling a convenient and secure digital account opening processes, banks can meet the expectations of today’s digital consumer and re-establish trust, while fighting fraud, reducing abandonment rates and meeting regulatory compliance.