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How Identity Verification is a Strategic Priority for Businesses in 2021

PaymentsJournal by PaymentsJournal
March 2, 2021
in Featured Content, Identity Verification, The PaymentsJournal Podcast
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How Identity Verification is a Strategic Priority for Businesses in 2021

How Identity Verification is a Strategic Priority for Businesses in 2021

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Thanks to COVID-19, 2020 was the catalyst for a massive adoption of digital services by consumers. With the pandemic still ongoing and consumers’ changes in behavior solidifying, it’s unlikely that the world will ever return to what it was before. Digital is here to stay.

But with the shift to digital comes new risks. Now more than ever, identity verification during customer onboarding is key to risk mitigation and fraud prevention.

To learn more about the importance of maximizing identity verification, PaymentsJournal sat down with Daniel Patterson, VP of Customer Success at Trulioo and Tim Sloane, VP of Payments Innovation at Mercator Advisory Group.

PaymentsJournal
Why Identity Verification Should be a Strategic Priority for Businesses in 2021
PaymentsJournal Why Identity Verification Should be a Strategic Priority for Businesses in 2021
PaymentsJournal

COVID-19 led to the rapid adoption of digital services

The events of 2020 ushered in a transformative time for business across nearly every business vertical. In fact, McKinsey reported in October 2020 that the pandemic accelerated the digital economy—which includes identity verification as a service—by seven years.

Traditional brick and mortar businesses were forced to digitalize to accommodate online transactions, and brands that already had an online presence had      to strengthen their e-commerce processes due to overwhelming demand.

Now, consumers are relying on digital services to complete many everyday tasks, from banking to shopping and other services. Consumers are more willing to complete transactions, open accounts, and share information online.

“At Trulioo, we’ve just seen a lot of examples where organizations were a little blindsided by the mass user adoption of their platform, something they’ve always dreamed about… but something that they weren’t really prepared for,” said Patterson.

When it comes to risk mitigation, it’s all about trust

Unfortunately, bad actors are eager to capitalize on this digital shift and exploit weaknesses in security frameworks. That makes it crucial for organizations to prioritize strong identity verification and fraud prevention when onboarding and interacting with consumers.

At the end of the day, identity verification highlights the importance of trust. “Trust means identifying the individuals that are using services, building trust and safety into the online community that’s using a particular service, while also ensuring compliance with international anti-money laundering regulations and the like,” explained Patterson. “And, of course, delivering a positive user experience, which will start with onboarding, but needs to be maintained through the lifetime that someone is using an online service,” he added. 

A holistic layered approach prioritizing KYC is key

We’ve established that identity verification is crucial. But what do businesses need to consider to ensure their know your customer (KYC) or know your business (KYB) programs remain resilient in an increasingly digital world?

“The first piece of advice that we give to our customers, if they don’t do this already, is to make…the KYC component of onboarding a priority. That’s not just from a compliance standpoint, but a priority from an entire company standpoint,” said Patterson.

To do so, businesses must assess operational and business risks, understand the nuances of unique market demographics, keep abreast of KYC, anti-money laundering (AML) and other compliance requirements of the regions in which they operate, and understand whether the right data is being collected to support compliance and business needs.

Given how complex identity verification is, especially considering the vast differences between consumers around the world, it’s crucial to take a holistic, layered approach. A layered approach is key because individuals and business identities are made up of various multiple unique attributes. In other words, there’s no one-size-fits-all approach to risk management and identity verification.

“Security right now, both physical as well as [the] internet and identity, are top topics in the market today,” said Sloane. “And in every instance, it’s a layering approach that’s used and found most effective to be able to protect assets… Understanding what the risk profile is and selecting those right data sources and credentials is the right way to figure out how to lock down that identity to the level of risk you’re comfortable with,” he added.

Listening to consumer demands regarding onboarding experiences

Traditionally, identity verification programs have focused on bringing the average cost of identifying a new customer down as low as possible, while ensuring compliance adherence and minimal fraud losses. Aside from cost, the most common metric for assessing performance in identity verification is around the frequency and impact of fraud.

While each of these are undoubtedly important, “time to verify” should also be considered a key measurement component of any successful strategy. This provides critical insights into account abandonment rates and the stages of the customer journey where identity checks slow down. In other words, it’s not truly a successful identity verification program if consumers are abandoning the customer journey.

“We sometimes see an over-indexing on identifying successfully every single end user on the platform. It’s a mistake in many ways, but mostly because that should not be your goal, to ensure that you know absolutely everything about every single individual on your platform,” noted Patterson.

In other words, organizations should operate in support of data minimization: that is, avoiding the collection of extraneous information on customers and only using data for its intended purpose.

It all starts with account onboarding

As the initial stage of the customer journey, account opening cannot be overlooked when attempting to strengthen the identity verification process. Trulioo’s consumer account opening report revealed that 90% of consumers believe a secure account creation process, one that validates their identity while prioritizing risk mitigation and fraud prevention, is very important.

Additionally, more than 80% of consumers are less likely to abandon the onboarding process, 84% will have greater trust in the brand, and 71% are more likely to share more personal data with a financial services firm that uses real-time identity verification.

Of course, there’s also a need to balance strong user authentication with friction. Too much friction during onboarding can mean the loss of a customer; too little can result in poor identity verification. That’s what makes a holistic risk-based approach—one that enables organizations to appropriately escalate a consumer with a high risk profile for enhanced due diligence—so beneficial.

“Balancing that security expectation with [the] introduction [of] a reasonable or healthy amount of friction is certainly key, and that enables an organization, whether it’s a bank or an online marketplace or a payments platform, to appropriately classify users with a risk profile,” concluded Patterson.

Tags: Covid-19customer experienceidentity verificationKYCOnboardingRisk ManagementTrulioo
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