Why identity validation matters
When you have gained information and identified your user, you now need to validate their identity to give you the confidence that you know exactly who you are dealing with.
# Is your customer who they say they are?
It is difficult to know exactly who you are dealing with when you onboard online. Is your customer really who they say they are? Is their passport, driving licence or ID genuine? When onboarding a customer, before you can complete the process and begin your relationship on an ongoing basis, you need to validate their identity.
If you are an unregulated business, such as a clothing shop, it might not seem necessary to validate an identity because if a customer enters the wrong shipping address, the customer doesn’t have much to gain. However it is still recommended to validate identities to lower the risk for your business as there is always the possibility of credit card fraud. But regulated industries, such as banks and other financial industries, are required to validate by law. When it comes to high-risk transactions, it is essential to know who you are dealing with.
For services offered by these regulated industries, there are strict Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements for businesses. These play an important part in the fight against financing crime, terrorism and corruption. Not only do you need to know who the customer is, but you also need to monitor their transactions.
According to Experian's 2020 Global Identity Fraud report, 74% of consumers cite security as the most important part of their online experience. Also a large number of consumers (72%) would be willing to go through a more thorough onboarding process to ensure security and ease later on.
# Using registry lookups
There is a way to check if the details a customer has given are in fact correct. You can look up their details on various registry spaces online. This differs in different countries, but in Norway for example, they have a national population registry (known as Folkeregisteret) where every citizen of Norway is registered and has a national identification number. BankID uses the NIN (National Identification Number) as the unique identifier for each person. This means it is easy to look a person up on different registry spaces online to check an address, age, gender, or other basic information. For example, if you are paying out a life insurance policy, you could validate that the person is still alive on the National Population Register.
When selling a house or giving out loans, it’s vital to check a customer’s credit status to be certain that they will be able to pay everything back. There is also the PEP status (politically exposed person) which is part of the AML regulation. If you find that your customer is a PEP, they are more prone to be exposed to extortion or bribery. This is a vital piece of information to find as you may need to keep monitoring this person in the future, not only for the customer’s sake but for the security of your business.
# Why validate identity when onboarding a business?
When onboarding a business as a client, there are several people you might interact with. But in order to meet requirements, you need to check if the person you are dealing with is actually authorized to sign for the business. Do you need the Director’s signature or will an authorized person suffice? This can be rather challenging to find, but a registry look-up could help with this identification.
When onboarding a business, you will also need to identify the UBOs (Ultimate Beneficial Owners). This check is mandatory if you are regulated. The UBO is the collection of people who own the business, benefits the most and has ultimate control over an arrangement.
The reason behind this identification is to prevent financial crimes such as money laundering and terrorist financing. Often, people can start many different companies under the control of other businesses and create what are called ‘ghost firms’ - fake addresses and business registration numbers to create an allusion of a real business in order to launder money. It’s your duty to check out your client.
All of these compliance and KYC checks during client onboarding are becoming increasingly complex, with businesses spending a lot of time manually processing checks with stretched out teams. This is where a third-party identity validation firm can be necessary