Verification is critical to AML systems to confirm the identity of clients and customers and avoid working with fraudulent parties. Hence, it is essential to outline the different verification types clearly.
The Know Your Customer (KYC) process checks if customers are who they say they are. KYC falls under the umbrella term Anti-Money Laundering (AML), although the terms are often used interchangeably.
Knowing various types of verification methods is crucial to understanding AML solutions. Following this blog, you will get an insight into the different verification types you can use.
Need for Identity Verification Types
In identity verification, an individual’s ‘personally identifiable information’ is matched with authoritative data sources, such as utility bills, credit reports, and education records. These verification types prevent unauthorized activities like money laundering and identity theft.
The instances of money laundering, terrorist financing, synthetic identity fraud, trafficking, identity theft, account takeover fraud, and data breaches are significantly increasing.
In recent years, the use of Application Programming Interfaces, or APIs, has become increasingly popular for AML and KYC procedures. This is because traditional methods make it hard to verify the identity of tens of thousands of customers. However, several innovative processes have been developed with APIs to help with this problem.
Industries That Strongly Need Verification Solutions
Hackers are using increasingly sophisticated methods to carry out their malicious acts. This has created a need for global digital identity verification checks in every industry. Regulators worldwide have started implementing strict regulations to address this problem.
- Financial Services
It is encouraging to see that banks, crowdfunding platforms, insurance companies, and virtual payment platforms strive to make customers’ lives easier. Digital identity verification types could help banks, insurance companies, and other entities in the finance sector to make the onboarding process seamless.
- E-commerce Services
In the e-commerce industry, fraudsters increasingly use false or stolen identities to target online transactions. Payment card fraud, account takeover, and phishing attacks are common threats. Verifying your identity improves the accuracy and efficiency of your shipping operation.
- Telecommunications
Telecom companies are continuously engaged in secure identity verification types for their customers. If scammers enter the system, they can reset new passwords and control the account, including sensitive information like bank account details. From there, depending on the type of hacker and their goals, you could be held accountable for money laundering, terrorist activity, and other serious offences.
- EdTech, Apps & Social Platforms
Due to the extensive increase in overall revenue for e-gaming, EdTech, and other application-based platforms, illegal activities are common. One can easily use the platform to launder money or finance terrorist activities by targeting the young. Digital verification of identity can help protect online gaming platforms from criminals.
Types of Verification Methods
Identity verification consists of different systems and ways. Different approaches may be used in this process. Identity verification types are driven by KYC and AML rules. Every country has different organizations and standards for enforcing these rules. Below mentioned are the most common types of verification methods:
Knowledge-Based Authentication (KBA)
A person’s identity is verified through Knowledge-Based Authentication (KBA) by answering security questions. The questions are usually simple for the real person to answer but difficult for an imposter, such as “Who is your favourite teacher?” or “How many pets do you have?”.
Two-factor authentication (2FA)
The two-factor (or multi-factor) authentication process is one of the most common types of verification methods which generally requires users to provide a username, token, and password before accessing their accounts. Typically, tokens are something users memorize or possess, like a code they receive from an authentication agency.
Credit bureau-based authentication
A credit bureau-based method of authentication uses information from one or more credit bureaus. Companies store consumer credit information, including name, address, and social security number. Some people with thin credit files, such as young people and recent immigrants, may not be eligible for this program.
Database methods
A database method is generally used to assess the level of risk a user poses since it reduces the need for manual reviews. Database ID methods verify identity cards using data from a variety of sources. The data submitted by the user is compared with public information and private databases and lists.
Online & Biometric verification
Online verification uses specific tools to cross-check whether or not a government-issued ID corresponds with the user in question. This can be done via artificial intelligence (AI), biometrics, computer vision, and even human review. Other ways to confirm identity include voice recognition, facial recognition, retina scanning, fingerprinting, and iris scanning. The great thing about such types of verification methods is that it’s very convenient for customers–they don’t need to remember any passwords or answer any questions.
What HyperVerge can do for you
With HyperVerge, you can verify your identity online, perform KYC/AML checks, and prevent fraud. HyperVerge provides identity verification and fraud detection solutions through deep-learning networks in banking, financial services and insurance (BFSI), crypto, telecommunications, defence, energy, and e-commerce. Over 600 million verified users use HyperVerge in more than 195 countries. The HyperVerge API delivers 65M API hits per week and over 1 million KYCs daily.
Conclusion
If you are a financial institution, you know anti-money laundering (AML) legislation is a big deal. Your clients expect you to maintain the integrity of their finances, and you want to protect yourself from any legal or financial punishments. There are always new tricks in money laundering, so it is crucial to stay up to date on AML solutions. We hope the types of verification methods shared by us and insights on how they are useful will help you decide the best options for your organization.
As one of the leading AML solution providers for various identity verification types, HyperVerge provides AML solutions for confronting criminal activity if you want to simplify customer onboarding or worry about AML compliance.
FAQs
What types of documents can be used for identity verification?
Countries have regulatory bodies to ensure financial institutes (FIs), and banks observe due diligence. You can use officially issued documents, such as a driver’s license, or passport, as they are the most accepted forms of verifiable documents.
What is the difference between AML and KYC?
The concept of KYC is to confirm that customers are who they profess to be and aren’t a liability to the company. This due diligence is part of the anti-money laundering phrase, although these verification types can be used synonymously.
What are the flaws of biometric verification?
There are a few potential flaws with biometric verification types. One is that if a database is hacked and fingerprints are retrieved, it can make the fraudulent activity even easier. Another is that not everyone may be comfortable with sharing their biometric data.
