KYC Best Practices: 3 Tips for Improving Digital Identity Verification Practices

Fraud and Financial Crime

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Joe Susienka

Sep 21, 2018

For banks to grow in today’s technology age it’s critical that they be able to attract new customers through digital channels. But digital identity verification presents a real challenge and KYC best practices aren’t always evident. The resulting problem is an all-too-common one for financial institutions --ensuring that customers applying online are who the claim to be, but without introducing too much friction in the online account opening process.

It’s an incredibly delicate balancing act between fraud prevention and creating a seamless customer experience, and once that causes entirely too many sleepless nights for banking professionals.

On the one hand, Javelin Strategy and Research reports that 16.7 million people were victims of identity fraud in 2017, with roughly 20% of those related to compromised bank accounts or loan applications. On the other hand, however, more than 70% of consumers want to open bank accounts digitally, but only 8% of new account applications started on a mobile device are being completed in a single digital session.

There’s a clear disconnect, and it’s an issues that’s in desperate need of a solution because banks that are better able to manage fraud and money laundering in online channels can see significant growth in accounts and deposits versus those that do not innovate –in some cases even realizing a 30% growth in new accounts opened when a multi-layered approach for online account opening was implemented.

The time has come for banks to rethink their approach to meeting risk and compliance requirements, preventing fraud and yet also providing customers with a simple, engaging online account opening process.

Here are a few KYC best practices to get them started…

Go beyond the basic by utilizing comprehensive digital identity data

Use a layered approach that includes a number of sources of identity data. This allows banks to find alternative ways to validate identity. Using only information provided by the applicant can leave you susceptible to fraud. There is so much information available on the internet that can help verify a person’s identity. Compliment traditional sources with passive identity verification through email history, social media presence, geo-location, IP address, and phone data.

Conduct real-time cross-checks with other sources, including commercially available, regulated data.There are a lot of new companies investing in and using new technologies to solve for verifying identity that goes beyond publically available data. One example is a mobile app that using facial recognition and a pin to protect and share identity verification documents like a drivers license or passport. They verify the document matches the picture from the ID to user and then make sure the person accessing the phone is the same one from the documents.

This can be integrated into the application process to verify the user and pre fill application data. According to the Signicat 2016 Digital Banking report abandonment rates doubling from 15% at 10 minutes to 30% at 15, enabling a quicker application process with the ability to pre fill in data can significantly increase accounts opened. There are a lot of new technologies and ways to verify a person’s identity beyond static questions that can improve approvals rates and reduce risk with online account opening.

Improve accuracy with embedded intelligence.

Apply risk tolerance levels and rule settings that are customized to fit your specific needs. Being able to customize your own rules and workflow is important. Being able to have multiple workflows for different risk levels during enrollment can help you gather all the info needed to decision the enrollment all online.

Incorporate machine learning and AI to continuously source live digital data and correlate thousands of data points to create a holistic, accurate customer identity model. Machine learning isn’t just a buzz word. Machine learning is able to take massive amounts of data make sense of it and improve and adjust overtime to detect new fraud threats and catch things that would otherwise go unnoticed.

Utilize real-time reporting of approval and denial rates on your chosen risk strategies so you always know how well it’s working. Does this fit your overall risk strategy? Reporting on these statistics can reveal the cause of abandoned enrollments to show where user friction could be reduced.

Strengthen behind the scenes controls with real-time anomaly detection

Detecting unusual activity across hundreds of institutions to identify bad actors. Fraudsters will try to target many financial institutions in a short period of time using the same information. Having a solution that can look across different financial institutions can find anomalies and fraud that wouldn’t be detected otherwise.

Flagging accounts that match known patterns associated with fraudulent applications. Flagging information used during a fraudulent application can help with detecting future fraud, knowing what has been used before can be used to set up alerts and step-up authentication if the same information is used in the future.

Recognizing patterns across branch, web, or mobile channels.Did you get a surge of enrollments from an Android phone shortly after a new vulnerability was found? Fraudsters try to go find the weakest point and try to exploit it, being able to track patterns and trends allows you to adjust your risk profile in real-time to stay in line with fraudsters.

90% of applications going to manual review can be reduced with an intelligent, multi-layered approach. Making these changes will not only reduce the risk of fraud but also reduce friction into the entire account opening process. A multi-layered approach can remove unnecessary tasks, reduce manual review and create fewer abandoned enrollments.

It’s possible to effectively manage risk and compliance in new and non-traditional ways –these KYC best practices are just the start. By taking these steps, banks can significantly reduce friction in the online account opening process, which will be key to their ongoing success.

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Joe Susienka

Joe Susienka, an experienced B2B payments and compliance specialist, helps deliver secure payment solutions that meet the compliance needs of organizations. He is a Product Manager for Bottomline Technologies and is both CAMS and PMC-IV certified.
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