For financial institutions, KYC goes beyond mere data collection, encompassing a comprehensive understanding of customers' financial profiles and activities.
Onboarding a new customer, opening a bank account, or accessing restricted areas necessarily involves an identity verification process. Currently, high-tech digital systems can perform these procedures more reliably than a human.
What do we mean by identity verification?
n general terms, it is a process by which the identity of a person, entity, or device is confirmed and authenticated. This process is used in a variety of contexts, such as online applications, financial transactions, and access to secure facilities, among others. The main goal of identity verification is to ensure that the person or entity claiming to be who they say they are truly.
Various methods and technologies are used to carry out identity verification, and these can vary depending on the context and the nature of the transaction. Some common methods include:
- Biometrics: Unique and measurable information from the human body, such as fingerprints, facial recognition, iris, or voice, is utilized to verify a person’s identity.
- Two-Factor Authentication (2FA): This method involves using two or more verification elements, such as a combination of a password and a code sent to a mobile device, to enhance security.
- Online verification: Some platforms employ online services to verify information provided by an individual, such as address or phone number verification.
- Life detection verification: This method aims to prevent the use of fake or static biometric information by confirming that the person is present during verification. Common life detection techniques include real-time facial recognition, blinking and movement tests, and dynamic voice verification. Tests can be active (with explicit user participation) or passive (gathered in the background during a digital transaction, causing minimal friction).
- Knowledge-Based Authentication (KBA): This method focuses on authentication through verifying information that only the legitimate person should know. It involves asking specific questions that only the authentic individual should be able to answer correctly. Examples of KBA include personal security questions or verification of financial history.
- Identification documents: Presenting and verifying official documents, such as passports, driver’s licenses, or identification cards, is a traditional way of confirming identity. Advanced methods used for identity document verification include:
- Ultraviolet (UV) Verification: Many identity documents contain features visible only under ultraviolet light. Automatic verifiers can examine these UV elements to confirm the document’s authenticity.
- Optical Character Recognition (OCR) Technology: Advanced systems use OCR to scan and extract information from identity documents automatically. This allows for quick and accurate comparison of extracted data with the provided information. TrustCloud adds the benefits of Artificial Intelligence to this technology, enabling complex data extraction aligned with defined business rules through its AICR solution with great flexibility.
- Microprint analysis: Some identity documents incorporate microprints that are challenging to reproduce accurately through conventional forgery methods. Advanced verifiers can scrutinize these microprints to detect potential irregularities.
- Holograms and special security elements: Many identity documents use holograms and other special security elements that are difficult to replicate. Advanced systems can verify the authenticity of these elements by analyzing their design and unique characteristics.
- Facial comparison: Facial recognition technology is used to compare the facial image on the identity document with a real-time photo of the individual presenting the document. This helps prevent the use of fake or stolen documents.
- Document authenticity verification: Advanced systems can analyze specific features of paper, ink, and other document elements to determine authenticity. This includes detecting physical alterations or signs of forgery.
- Blockchain and distributed ledger technologies: Some advanced solutions utilize technologies like blockchain to create immutable records of identity documents. This provides an additional layer of security and traceability.
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Objectives and compliance in the context of identity verification
Identity verification serves several main objectives that vary depending on the context and specific application. However, in general terms, the primary goals of identity verification include:
- Preventing fraud: A key objective is to reduce and prevent fraud. Identity verification ensures that individuals engaging in transactions or accessing services are who they claim to be, minimizing the possibility of fraudulent activities.
- Ensuring security: Identity verification is essential for ensuring security in various transactions and environments. From accessing online accounts to entering secure facilities, authentication helps protect against unauthorized access and malicious activities.
- Compliance with regulations and standards: In many sectors, strict regulations and standards mandate identity verification. This is especially true in financial services, healthcare, travel, and other industries where authentication is crucial for complying with legal and regulatory standards.
- Preventing money laundering and terrorism financing: Identity verification is a vital tool in preventing money laundering and terrorism financing. It helps ensure that financial transactions are transparent, and the identities of those involved are properly documented.
- Establishing trust: Identity verification contributes to establishing trust between parties involved in a transaction or interaction. By confirming the authenticity of identity, a trustful environment is created, which is essential for the smooth operation of various operations.
- Protecting user privacy: Identity verification also plays a role in protecting user privacy. It ensures that personal information is shared only with authorized individuals or entities, preventing unauthorized access to sensitive data.
- Facilitating secure online transactions: In the digital environment, identity verification is crucial for facilitating secure online transactions. It helps mitigate risks associated with identity theft and other forms of fraud in cyberspace.
Identity verification should be applied across all industries to provide support and assurances in any user-business relationship. However, there are certain standards that regulate its use, obliging specific companies and institutions to implement them in certain ways based on the risk level of different operations and use cases derived from their activities.
Most prominent standards related to identity verification
- AML (Anti-Money Laundering): AML consists of regulations and procedures designed to prevent and detect activities related to money laundering and terrorism financing. These regulations often require rigorous customer identity verification in financial institutions and other entities to mitigate the risk of illegal activities.
- eIDAS (Electronic Identification, Authentication, and Trust Services): eIDAS is a European Union regulation that establishes a framework for electronic identification and trust services for online transactions among member countries. It provides standards and requirements for electronic identity verification, ensuring interoperability and security in digital transactions.
- Data Protection (GDPR – General Data Protection Regulation): GDPR is a European Union regulation that sets standards for the protection and handling of personal data of EU citizens. In the context of identity verification, organizations must follow GDPR guidelines to ensure that the collection and processing of personal data are done legally and ethically, respecting individuals’ privacy.
- SCA (Strong Customer Authentication): SCA is a security measure applied in electronic transactions to authenticate users robustly. SCA requires at least two of the three authentication elements: something the user knows (like a password), something the user possesses (like a physical device), and something inherent to the user (like a fingerprint). This standard applies in the European Union, specifically in the context of online payment services, to enhance the security of electronic transactions and reduce the risk of fraud.
Identity verification not only facilitates secure transactions, strengthens digital onboarding, and protects against financial risks but also contributes to the construction of a trustworthy digital environment. As technology continues to advance and forms of fraud multiply, it is imperative that verification methods evolve to address changing challenges and ensure the protection of identity in an increasingly connected world.
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