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Identity theft continues to be a significant issue globally and in the United States. As of 2024, identity theft remains a prevailing concern, with the Federal Trade Commission (FTC) obtaining 5.7 million total identity forgery and theft reports, 1.4 million of which were specific to identity theft. Financial casualties due to identity theft are substantial, with the FTC estimating total losses at $10.2 billion, reflecting a significant increase from previous years.

Therefore, the demand for robust identity theft protection is also increasing in the banks. To acquire the immaculate security of the banks, KYC and AML compliance are opted for as the customer due diligence process. 

This article will explore how identities are verified for the banks and how the validation process works to discourage identity theft. 

What is meant by Identity Verification?

Identity authentication is the process by which one’s credentials are validated to prove the genuineness and intricacies of their authenticity. This process involves questioning who the person they declare to be is. Banks and other financial institutions require KYC or Know Your Customer solutions to identify users based on the information provided. 

Identity verification can occur in two simple ways: through physical or digital validation. In the traditional process, applicants visit the banks to verify their documents. However, the digital mode is totally different and will be discussed below. Identity theft protection can be of various types: 

• Biometric Verification
• Knowledge-Based Verification
• Two-Factor Authentication (2-FA)
• Document Verification
• Social Verification
• Behavioral Verification
• Location-Based Verification
• Multi-Factor Authentication (MFA)

Why is Verification Identity Essential In the Banking System?

Verification identity holds great importance within financial systems, particularly in banks, to guarantee security, adherence to regulations, and confidence. This process helps in thwarting potential fraudulent activities and transnational offenses like money laundering and identity theft by confirming the authenticity of individuals’ claims. Stringent identity verification safeguards both customers and financial institutions against unauthorized entry and financial crimes, while also ensuring adherence to regulatory standards such as KYC and AML regulations.

Furthermore, reliable identity verification encourages customer trust, as individuals feel more secure knowing that their financial data and transactions are protected against illicit activities. Verifying identity is crucial for creating a secure and trustworthy banking atmosphere.

How Does Digital Identity Verification Work For Bank Onboarding?

Digital identity verification for bank onboarding involves several essential steps to ensure security and accuracy, which are:

Data Collection: Customers provide personal information, including name, address, and date of birth.

Document Verification: The documents uploaded by the user, such as identity documents, undergo verification using optical character recognition (OCR).

Biometric Verification: Facial recognition matches a selfie or video with the ID document photo to confirm the user’s identity.

Database Checks: Information is cross-referenced with government records, credit bureaus, and watchlists.

Liveness Detection: Rest assured that the biometric data is from a real person, not just a still image.

Risk Assessment: Then, the automated systems analyze data for potential fraud and perform risk assessments.

Approval or Escalation: Accounts are either approved or flagged for manual review if any issues arise that cannot be detected in the system.

Secure Storage: Verified data is securely stored in compliance with regulations.

This process enhances security, reduces physical interactions, and streamlines onboarding by employing advanced technologies in the banking system.

Implementing Identity Verification Online For Preventing DIgital Frauds

It is crucial to implement id verification  in order to prevent digital fraud and provide a strong defense against various cyber threats. Through the use of cutting-edge technologies like biometric authentication, document verification, and real-time database checks, companies can verify the identities of their users with precision. These security measures for preventing identity theft aid in validating individuals’ claims to their identities and substantially lowering the likelihood of unauthorized access and fraudulent activities.

User Identity Authentication For KYC Compliance 

User identity authentication is essential for Know Your Customer (KYC) compliance. It ensures that financial institutions adhere to regulatory standards and maintain the integrity of the economic system. This process helps prevent fraudulent activities, such as money laundering and terrorist financing, by allowing only verified individuals to access financial services. Effective user identity authentication not only fulfills regulatory requirements but also builds trust with customers by assuring the security and legitimacy of the financial institution. Therefore, robust identity theft protection is crucial for achieving KYC compliance and establishing a secure and transparent economic environment.

Final Words

Identity theft protection is a necessary measure in dissuading identity fraud and meeting the regulatory compliance for bank KYC and AML. Although, it is a very commonly used process that involves document verification, biometric checks, and real-time database cross-referencing so that banks can confirm the legitimacy of their customers. Moreover, integrating advanced technologies can uphold potential frauds and digital forgery in the ever-evolving technological spectrum.