5 Trends That Prove Digital Identity Verification is More Relevant Than Ever
The pandemic has caused a dramatic shift in the way we live our lives. One change that is apparent is our relationship with technology and how we access financial services online. As we look to restart our lives in the ‘new-normal’, we are turning to digital channels and devices to bridge the gap between what we previously did ‘in-person’ and what we can do now, either remotely or in a more distanced way. This is very apparent in the financial services industry where consumers and businesses alike must now open accounts, apply for loans and make payments through online and mobile banking channels.
Remote banking processes require a high level of trust between banks and consumers. Banks interacting with new and existing customers online need to know the customer is who they say they are. They need to carry out Know-Your-Customer (KYC) processes in line with local regulations and they need to be sure the individual is not a fraudster or bot. The ability to verify an individual’s identity online in real-time during the customer onboarding process using digital identity verification is therefore crucial.
In this blog, we explore five evolving trends in digital identity verification and how banks are responding to this challenge:
Trend 1: Digital identity verification is not new, but the incentive is bigger than ever.
Identity verification has always been a key focus for businesses that need to comply with KYC regulations and mitigate the risk of application fraud during in-person customer onboarding. Typically, identity verification takes place when a customer produces valid ID documents during the onboarding process. For remote customer onboarding, financial institutions have looked to digital identity verification to enable them to onboard a remote customers in a secure and compliant way.
We know that the majority of financial institutions have already started this process of digitization for account opening processes - indeed 85% of financial institutions provide some form of digital account opening.
We also know that, prior to the current pandemic, budgets assigned to digital account opening programs had almost doubled in size. So the desire to digitize already existed, along with the financial backing.
While the basic requirements for digitization remain the same, financial institutions now have a more pressing driver – speed to market. Before the pandemic, many FIs had partially digitized customer processes. For example, a customer might start a loan application online, and then finalize the application with an in-person visit to a branch to show their ID documents. These hybrid scenarios went some way to satisfying consumer demand for online access to financial products.
Today, FIs that want to win new customers must figure out how to fully onboard a customer in a physically distanced way. For many FIs, this means adding digital identity verification to their online capabilities. The quicker they can achieve this goal, the better they will be able to adapt to the post-COVID world where digital services are a necessity rather than a preference.
Trend 2: Enabling digital identity verification requires a careful consideration of security, privacy and compliance requirements, as well as geographical coverage and vendor capabilities.
Financial services customers want to be able to open an account or access banking services with minimum friction, but they also want to feel reassured that the correct level of security is in place to protect both their account and identity. Any adoption of digital identity verification needs to include a careful consideration of all security, anti-fraud, data privacy and compliance requirements, with the safety of the customer’s data and account of paramount concern.
Anyone involved in programs of work aimed at digitization of an account opening process will be all too aware of the many requirements that need to be met when developing functionalities internally or selecting external vendors to provide particular capabilities. The following requirements should all be considered:
- Identity Verification Across Channels – Does the solution enable digital identity verification across all channels (online, mobile, branch, call-center and face-to-face with advisers)?
- Geography – does the solution support the document IDs in the countries, states, and provinces in which you do business?
- Managing Risk & Fraud – Remote, faceless transactions are more susceptible to fraud. Does the solution adequately manage the risk of fraud and actively help reduce application fraud?
- Quality Assurance and Due Diligence – Does the solution require manual QA and credit/background checks or are these automated as part of the solution?
- Elimination of Paper Processes and Wet Signatures – Does the solution eliminate paper while also capturing intent/consent and audit trails electronically?
- Legal Enforceability & Compliance - Is the resulting agreement between the customer and the financial institution legally enforceable? Is the identity verification process compliant with relevant regulations?
- Infrastructure, Device and App Security – Is the solution secure at all times, and does the solution/vendor secure all infrastructure, devices and apps against cyber-attacks and malicious actors?
It is worth pointing at that not all digital identity verification methods are equal. When used alone, some older forms of verification, such as Knowledge-Based-Authentication (KBA), can result in friction during the account opening process. It’s important that FIs consider the customer experience when analyzing digital identity verification to ensure the method they use is suitable. Financial institutions should check that digital identity verification services and vendors are able to offer the latest digital identity verification methods such as facial biometrics and automated document ID verification, including the ability to verify a remote identity using a selfie and liveness detection technology. These digital ideneity verification methods deliver a good customer experience while also protecting the FI against application fraud.
Trend 3: Financial institutions that already enabled digital identity verification are best placed to meet customer needs as they adapt to the new reality.
We have seen that FIs who are already digitally-enabled and whose employees are set up to work-from-home are best placed to adapt to the new reality of social distancing and online financial services.
In a recent webinar on addressing evolving fraud amid workplace distancing, Julie Conroy, Research Director at Aite Group, shared these insights:
“Of the firms that I interviewed, by the second week of April, the majority had 85% or more of their fraud operations operating in a work-from-home environment. But it wasn't everybody…. Some of the key best practices that enabled those that were able to get a big chunk of their workforce working from home were things like having a portion of your workforce that had been working from home part of the time before the crisis… Almost everybody I spoke with said that there's been some technology glitches along the way.”
Similarly, bank and financial institutions that already have a mature digital onboarding channel will be well positioned for success, while others will now need to accelerate their digitization programs (or face an uncomfortable future). COVID-19 has magnified the short-comings of some banks’ digital offerings and it is has also created an urgency for them to remove any manual steps or physical touch-points in the onboarding processes.
Trend 4: Digital identities will become more commonplace in financial services, healthcare and government services.
It is not just financial institutions that need to look closely at digital ID verification. Governments and healthcare providers are increasingly working with digital identity verification services to find identity solutions for services which are moving online. Some commentators have even spoken of digital ‘vaccination and immunity passports’ to help speed up economic recovery post-COVID. If this become a real thing then the possibility of people digitally verifying their identity to demonstrate their vaccination status could also be a possibility.
In the US, The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) allocated $349B in aid to small businesses as part of the Paycheck Protection Program. Using e-signature technology, which was integrated in just 24 hours, lender Monona Bank was able to process 229 small business loans to a value of almost $50 million in a single day. This enabled their clients to access relief funds quickly and securely, while also protecting the lender. Banks that were slow to digitize struggled to process loan requests and meet the needs of their small business clients.
In our new society, where there is a need for individuals and businesses to access crucial financial relief quickly and without the need for face-to-face interaction, there will be an expectation that governments, insurers, heath providers and financial institutions can serve their customers digitally and securely. Even the US Treasury Department is now allowing unbanked individuals to receive their relief cheques via mobile payments services.
Trend 5: The pandemic has seen a dramatic rise in the volume of online transactions. Fraudsters know this too and attacks are also increasing.
The current pandemic has seen a dramatic rise in the overall volume of online and cashless transactions. Fraudsters are also using the chaos and confusion of the pandemic to capitalize on insecure online transactions and dupe vulnerable demographic into fraud scams using SMS and email phishing scams.
In a webinar on post-COVID fraud threats Julie Conroy advises that:
“Fraudsters always capitalize on current events to tailor their phishing schemes, and COVID is absolutely no exception. Every country across the globe has its own specially tailored SMS and email phishing schemes that are capitalizing on COVID.”
Julie Conroy also reports that in the unsecured lending space, both banks and Fintech lenders saw an early surge in lending fraud attacks when the WHO declared the pandemic. These attacks were manifested as first-party application fraud, third-party application fraud and synthetic identity fraud.
Financial institutions onboarding unknown and remote customers therefore need to be extremely vigilant in their onboarding and digital ID verification processes to detect and prevent application fraud. Similarly, financial institutions with existing customers who are transacting online for the first time and may be susceptible to phishing scams and fake websites need to be able to detect and prevent account takeover attacks in real-time to avoid financial losses.
Fraud expert Julie Conroy summarizes the current situation well. She says:
“We've been talking about digital transformation for years, but this is putting the pedal to the metal on digital transformation. The pandemic fears and cautions are significantly changing our habits of how we act as consumers as well as how we will work, looking for low and no touch transactions. Nobody wants to touch a POS terminal or an ATM that 20 people before us have touched in the past half hour.”
Indeed the rules, behaviors and actions that consumers will tolerate have changed dramatically. While no-one would have thought twice about touching a point of sale terminal a few months ago, ‘contactless’ has become the new (and safest) norm. Companies that can fully digitize their account opening, loan application and financial product sign-up processes solutions quickly will be most likely to success in this time of crisis and beyond.
As fraud attacks also increase, the need to establish trust between a remote consumer and a financial institution becomes even more important. As we continue to adapt to the new normal, we also expect to see regulations and industry advisory bodies continue to regulate and advise on the safe, secure use of biometrics and digital identities in financial services.