The Importance of Identity Verification for Banks
Identity verification is the process that ensures a person is who they are supposed to be. Global data breaches have been on the rise over the past few years. Studies reported five billion data breaches in 2020 alone.
These breaches have led to the rise in identity theft and account takeovers. So to be safe, organisations need a trustworthy method of verifying a person’s true identity.
So the banks’ success highly depends on their capacity to complete this task quickly without hiccups. Also, they need to develop strong and reliable fraud prevention systems. This will help them adhere to more stringent anti-money laundering (AML) regulations, which include Know Your Customer (KYC) compliance.
The traditional and physical techniques were limiting in offering identity verification solutions. But the digital age has made the process of identity authentication possible.
What measures have you put in place to have a streamlined identification process? According to statistics, about 36% of businesses use identity management and biometrics technologies.
To prevent fraud and money laundry and improve your customer experience, you should consider investing in this cutting-edge technology. Most importantly, you will avoid fines related to General Data Protection Regulation (GDPR).
You can run tasks like using selfies for face identification, determining liveness, extracting data from documents, automatically reviewing watchlists, and analysing records for false information.
1. Prevent Costly Chargebacks
Chargebacks are consumer safeguards to protect cardholders against fraud or abuse. It is consistently enforced by the card issuer – banks if the cardholder raises claims of fraud or transaction dispute with merchants.
There are three benefits that cardholders gain from chargebacks:
- Better customer service from merchants to avoid forced chargebacks and reversals.
- Protect cardholders from merchant fraud – an illegal seller posing as a legitimate merchant with fake or low-quality offers.
- Protection from criminal fraud that may use your card for their illegal transactions.
Unfortunately, merchants are affected the most by chargebacks. They will incur losses on the value of returned goods and associated shipping and return expenses. In 2021 alone, chargebacks cost merchants about $20 billion.
Banks can also be affected by chargebacks. If the issuer has so many cases of chargebacks from fraudulent or criminal transactions, it may show that they have a lapse in their security procedures.
Plus, bank chargebacks – those between cardholder issuer and merchant’s bank, can be costly for both institutions. As a bank, you can reduce the costs of chargebacks, especially those linked to criminal or fraudulent transactions.
For criminal transactions, most start with the stolen identities of the card holders. As such, you’ll need secure yet flexible identity verification solutions to add a layer of consumer protection. You can pack two-factor authentication (2FA), biometrics, and more just to ensure it’s your client making the transaction and not an impersonator that will cost everyone.
As such, it goes beyond just protecting concerned parties’ high chargeback costs but also prevents criminal fraud aiming to empty your card holders’ cash.
2. Avoid Costly Fines
According to reports, the banking sector incurred fines of about $13.7 billion in 2020. All this resulted from failure to comply with AML, KYC data protection, and MiFID requirements.
Capital One is one of the biggest banks in the United States that got hit with AML non-compliance. The U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) charged them up to $390 million. This is an expensive fine for companies. It’s crucial to adhere to AML and KYC systems to avoid these fines.
AML follows the rules, laws, and protocols created to prevent fraudsters from declaring illegal income legitimate. So, following the KYC procedures is essential to profile your clients and flag any unlawful activity.
Failure to adhere to these rules is detrimental, as you risk hefty fines or serving jail time.
Banks that incorporate the identity verification software and follow the AML and KYC compliance avoid potential fines.
Investing in identity verification procedures is a sure way of preventing money laundering, terrorism, and identity theft-related crimes.
Remember that the guidelines keep changing and updated. So ensure your bank is up to speed to prevent breaking any laws.
3. Improve Your Bank’s Reputation
The success of a business is directly impacted by its reputation. And the same applies to banks. With the availability of so many banks today, consumers can easily switch brands if their needs aren’t met.
With the increase in data breaches, your clients want to be confident that their information is safe. Moreover, most people only want to associate with banks they can rely on. Hence, this makes trust a critical aspect of the banking industry.
So if you run ID verification checks, they can be confident in your commitment to protecting their data. Therefore, this fosters trust in your brand in this unsafe digital environment.
Trust helps to strengthen your relationship with your clients in this unsafe digital era. Lack of it will break this relationship, forcing them to seek alternative solutions.
Besides, your bank’s reputation and revenue will suffer if you fail to recognise this consumer and brand trust need. At the same time, recognising the consumer and brand trust can give your bank an upper hand in retaining more clients.
The faster you can confirm a customer’s identity, the quicker you can build trust. So many banks are adopting identity verification solutions to build this trust. For instance, they use face-matching selfies, client data, and KYC watchlist checks.
With frauds and data breaches rising, most banks are looking for ways to improve and modify identity verification methods and overall security procedures.
The devastating impact of less robust identity verification systems costs banks, merchants, cardholders, and normal bank users. Each bank user or client may need different verification to facilitate faster and more secure transactions.
Banks must adopt a more robust, secure, flexible, and customer-friendly identity verification procedure. It will help address every need of each category of client your bank deals with. You stand to benefit more from better and more secure access to your banking system.
The benefits of the identity verification procedure include:
- Reducing costly chargebacks on the banking institutions
- It prevents expensive fines and money laundering concerns
- Improving the banking reputation as a secure and zero-tolerance to money laundering
Confirming a person’s true identity helps clients trust them and avoid being sued for failing to validate their ID.
Plus, certainty is critical, but your clients’ data must remain private and secure or risk non-compliance lawsuits from regulations like the EU’s GDPR. So, work with an identity verification provider that ensures your client’s data is private and secure.