know your customer

Financial crimes are increasing at an alarming pace. The annual money laundered is 2% to 5% of the global GDP, according to a United Nations Office of Drugs and Crime (UNODC) Report. This massive number is a point of concern for financial institutions and regulatory authorities. Financial regulatory authorities have, therefore, come up with strict regulations to restrict and monitor financial crimes across the globe. KYC and AML compliance has been introduced by the regulatory authorities to minimize the risk of financial fraud.

KYC or Know Your Customer refers to the process involving businesses to know their clients in detail, to prevent any instances of identity theft and fraud. It is imposed on all banks and financial institutions globally but businesses and individuals can also practice it for added security. KYC is not limited to the verification of customers only, rather it is used to verify vendors, merchants, agents, partners, employees, etc.

Fraudsters regularly come up with new ways to by-pass the security barriers set to prevent fraud and scam. Stringent checks need to be done in order to screen individuals before and during the onboarding process. Customer verification can be performed using various means that verify and confirm the user’s personal data. In most of the cases, however, it is done through the scrutinization of their documents to match specific information.

The ID verification process is done both manually and automatically through the use of Artificial Intelligence (AI) technology. However, due to the accuracy and efficiency of the AI software, automatic verification is preferred over a manual one. There are various methods to digitally verify identities such as address verification, face verification, and 2-factor authentication.

A deep dive into digital Address Verification

Online Address Verification refers to the use of artificial intelligence technology to authenticate addresses from the displayed documents to minimize the likelihood and threat of fraudsters. It is an integral part of the KYC regime since it helps in authenticating and matching the address of individuals with the address on their documents. Fraudsters sometimes use a combination of real and fake information to create a brand new identity. The address verification system verifies whether the person actually is who he/she claims or be or not.

In order to secure and establish seamless business operations, all institutions and businesses need to carry out detailed due diligence of their customers, whether they are financial institutions, e-commerce websites, internet marketplaces, or online gaming sites. A business may have to deal with unwanted consequences if they do not properly conduct customer due diligence and verify addresses and other user information.

A good example is that of Airbnb. The company experienced a large number of fake hosts last year, increasing the incidents of fraud. Airbnb had not properly authenticated the addresses of the hosts, who had falsely listed down superior properties as their own, which were later revealed to be inferior to the ones claimed earlier. This greatly disappointed the guests who came to stay and led to negative customer feedback for Airbnb.

The online address verification system works in three main steps. First, the individual is asked to face the webcam holding an identity document to match it against the image on the identity document. Then a secondary document containing a residential or business address is required to be uploaded to match the information between the documents. Finally, the address is analyzed and the results are provided to the back-office for further evaluation.

The address of a user can be efficiently verified from the government-issued documents that include ID cards, passports, driving license, utility bills, and bank statements, etc, depending on the client’s preference.

Undoubtedly, the physical address of individuals is an important factor to authenticate their identities. Through digital address verification, the businesses can not only ensure the identity of the customers while keeping fraudsters at bay but also proactively meet the KYC/AML compliance.