Digital identity verification can help to solve the problem of not knowing exactly who you are dealing with – here’s how.
Is the person you are speaking to who they say they are? Is their passport, driving licence or ID genuine, or is it fake? When it comes to things like new account openings or high-risk transactions, one of the most essential factors is knowing who you are dealing with. In banks, for example, a customer might turn up to show their face, alongside their ID, and appear very trustworthy, but it is still possible to get a fake identity and claim to be somebody else. Customers can do that in the physical world, but also in the digital world. Because in the digital world, you can’t physically see the person or look them in the eye. So, the point is to make it as difficult as possible for somebody to assume a fake identity. And a digital identity verification can give you the confidence that a customer is who they say they are.
For starters, there is the risk of losing out on business. If you don’t know exactly who that customer is, then that user will not fulfil your obligations and you will not get your money. But there are also regulatory risks involved. If you do not know your customer and manage your regulations, there may be money laundering cases which you, as a business, could be associated with. This, in turn, can gain negative publicity. The only way to stop money laundering (and the negative consequences of this, like terrorism and slavery) is to stop the money flow, and we do that by identifying people. Digital identity verification can help to protect yourself and your business from the risk of fraud. And, the regulations behind digital identity verification are there to help combat terrorism and modern slavery.
For more complex services, like those offered by financial institutions, insurance firms and telecommunications operators, there are strict Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements. KYC is a significant part in the fight against financial crime. Companies can refuse to open an account or they can halt a business relationship if the customer fails to meet minimum KYC requirements. In Europe, the fourth Anti-Money Laundering Directive (AMLD4) directive came into force in 2017, and all EU Member States were required to implement AML 5 by January 2020. But the overall purpose of AML is to help financial entities protect against the risks of money laundering and financing of crime. Not only do you need to know who the customer is, but you also need to monitor their transactions.
A digital identity is a general term for all the digital information available about a customer. It is based on information that was provided by the customer, in short, it is the customer’s word against yours. For example, a digital identity might be their Instagram biography, their Facebook profile or even a Spotify profile. It is a facet of a person’s social identity and it is ‘unverified’. Even so-called verified accounts, such as a celebrity Instagram account, are not verified according to AML and do not necessarily provide a strong link to a person. A ‘verified’ digital identity is one issued by a service provider, typically compliant with AML and any other regulations.
Trust is the fundamental requisite here. And, it is important for businesses to look for a digital identity verification provider that has regulatory approval with digital methods which establish the identity of a person. Not only would it be safe and efficient for your business, but having strong digital identity verification technology can strengthen the relations with the end-customer using your services. Why? Because they know it’s safe.
What to learn more? Read our in-depth guide to digital identity.
Solutions Marketing Manager at Signicat
June 03 2020