Categories
Fraud

Preventing Account Takeover & Transaction Fraud in eCommerce Marketplaces

eCommerce marketplaces and their use during and post-pandemic have grown significantly. More than 150 million people used online shopping for the first time during the COVID-19 pandemic. Also fraud increases regarding online fraud, organizations are losing $4.5 million per year as a result of online transaction fraud. 

Consumers put their trust in companies, online marketplaces, and apps whose services they choose to use. Online services such as rideshares, vacation rentals, P2P payment platforms, delivery services, and more. As the rate of fraud rises, companies that use ineffective or weak identity proofing measures will find themselves facing financial losses, loss of brand reputation, and regulatory fines. In some cases, they might also be endangering their customers, if they have unauthorized drivers and couriers with stolen identifications. Fraudsters use fake documents as they may not be eligible for employment. It may take a long time since that kind of fraud is detected by the eCommerce marketplace.

Growing Threats for eCommerce Marketplace

Trust is the primary factor in any business building a long-lasting relationship. Especially when a company operates globally and when they want to build a loyal customer base. With the rapid acceleration of digital shopping and transactions comes a growing fraud landscape. With a sudden rise of people wanting to transact online, marketplaces and apps need to have the ideal strategies in place to protect themselves and customers from fraudulent activities.

There are numerous fraud types that fraudsters use. As the industry picks up after the global pandemic, marketplaces and apps are finding that their customers are being targeted. Without ideal risk mitigation or comprehensive identity proofing strategies, companies may find themselves facing the following:

  • Unverified Vendors, Hosts & Drivers: Vendors, hosts, and drivers who use false/stolen documents and other fake ID techniques to exploit both the platform and consumers for monetary gain.
  • Falsified Listings & Fake Accounts: Unauthorized vendors that create a fake account and publish fake listings and product reviews is another threat faced by eCommerce marketplaces. 
  • Buy Now, Pay Later Muling: consumers either for themselves or on behalf of others use a payment service when purchasing a product or service while planning not to pay for the services. It is also known as chargeback fraud, consumers will make a purchase but later claim that their transaction was unauthorized. Thus, merchants have to issue a refund without getting the product back.
  •  Card-not-present (CNP) Fraud: As online shopping increases, customers can’t provide a credit card directly to the merchant. That’s why fraudsters can use stolen credit card information to make unauthorized transactions. And in most cases, card owners are unaware of being compromised. 
  • P2P Payment Scams: online peer-to-peer payments for products and services that go through bank portals give users a false sense of security. In a lot of cases, this ends up being a scam where people are defrauded and unable to receive protections or refunds from the banks. 

These types of fraud happen when large eCommerce fraud with a huge customer base leverage minimal ID verification services. Being unable to monitor transactions constantly for consumers, partners and contractors increases the risk of fraud. By not focusing on establishing trust, firms often find themselves with serious monetary, reputational, and security issues.

Building Trust Without Hurting Customer Experience

Organizations that want to build and maintain trust with their vendors and consumers need to have a multifold approach for detection, and prevention of fraud. Using bad technological solutions or improper regulations can result in noncompliance and friction during customer onboarding. Also, constant fraud leads to higher operational costs and also hurts brand reputation. 

Fraudsters use similar tactics against eCommerce platforms that they do for financial institutions. Marketplaces and apps are later seeing significant growth in different types of fraud. According to a report, account takeover fraud grew by 54% in 2020. Identity-related fraud for financial institutions grew by 69% for eCommerce in mid-to-large size retailers.

By following up with Anti-money laundering (AML) compliance, companies will have to follow KYC for customer verification. eCommerce marketplaces also have to follow KYB compliance for detecting and preventing vendor-related fraud. By following all the compliances, eCommerce marketplaces and apps will be able to effectively verify the identities of vendors and consumers alike. This also improves customer experience, prevents fraud, and ensures happy and loyal customers. 

Categories
General

Is Real-Time Payment the future of payments?

The “Real-Time Payments (RTP)” system from the US Clearing House is expected to disrupt the financial landscape in 2021. While the latest payment system was launched in 2017, it may seem like that it can change the financial industry. As of right now, the network reaches 56% of US direct deposit accounts. So why do financial institutions think that RTP can change payments in 2021?

What Is Real-Time Payment?

There’s a lot to understand about real-time payments. Real-Time Payments or “RTP” refers to payment networks or a network that is used to make the payment. The hint is in the name, the payments happen in real-time, unlike ACH Payment processing time. These payments are initiated, cleared, and settled within seconds, thus causing the payments to be instantaneous. Real-time payment networks operate 24x7x365, this allows users to initiate the payment anytime and the payment will be cleared within seconds. For payments to happen 24×7, banks and credit unions will need to have a 24×7 backend system. 

“Open-Loop” is an important part of real-time payments, which allows the payment to go directly into the person’s bank instead of relying on a prepaid balance. Without a clear and nuanced data-rich method, it’ll be tough to reduce payment errors.

How Does Real-Time Payment Work?

Real-time payment is the first new payment system in the U.S in the last 40 years. And it enhances the payment method dramatically, including initiating, settling, and reconciliation. All the process of payment processing happens within seconds. 

What makes real-time payment so fast is that it combines immediate fund availability, settlement finality, instant confirmation, and integrated information flows that ensure payments are made within seconds. This is the simple way of how does real-time payment works?

What’s Special about RTP?

The RTP is the only payment system in the US that offers instant and cheap money transfers. In short, currently, businesses operating under the financial industry have to choose between speed and cost in providing payments. Fast payments are possible with credit/debit cards or wire transfers but customers have to pay the huge fee by choosing those options. Cheaper methods like ACH transactions and paper checks are slow and inefficient. 

RTP is a payment system that allows businesses to separate themselves from the current catch-22. The fee for RTP is pretty low, at $0.045 per transfer, and transactions are completed in seconds 24/7. This is significantly faster than credit card payments or wire transfers at a fraction of the cost for financial institutions. 

What’s even more important is that RTP comes with an increased level of security, thus improving the fraud prevention techniques. Merchants also get the benefit of guaranteed payments without worrying about chargebacks.

The Real-Time payment systems support all types of transactions (P2P, B2B, B2C, C2B), consumers, businesses, governments, and all other entities can use RTP. Finally, RTP offers better communication during transactions, which means real-time messaging between the receiver and sender, which can be helpful in reducing fraud in the internet age.

Why is RTP Not Widely Used?

So, even after these features why is RTP not the standard practice in the industry? While there are complex reasons for this, there are two major factors. 

Firstly, it’s the lack of incentives. Up until 2020, there weren’t many incentives to use alternative payment methods to paper checks and cash. However, the pandemic has increased the demand for new contactless payment methods. The most popular methods currently are debit and credit cards, however, after months of continuous use, financial institutions have understood that card fees aren’t worth the convenience. Because of this, financial institutions will focus more on trying out new payment methods like RTP.

Secondly, it is difficult to integrate. While businesses can integrate payments directly into their systems, they need to integrate with each bank individually. As the US has more than 4,000 banks, RTP integration is almost impossible for small to medium-sized banks. For RTP to become standard in the industry, there needs to be a simpler and more unified solution. Thoroughly understanding real-time payments is the way to make the payment system standard.

Categories
Fintech

Embedded Finance: What It Is? Can it Change the Future of the Financial Industry?

Over the last decade, the definition of financial institutions has been changing. We are used to thinking of financial services as the domain of banks and specialized firms. But recently, that has been changing. Embedded finance is the concept that financial services can be offered by all kinds of traditional non-financial software and applications. FinTechs recently have been offering digital banking services that are significantly better than traditional banking services. 

One of the best examples of embedded finance is Uber, as it allows its customers to pay for their rides within the application, instead of having to use their physical card or having to take out their wallet and pay with cash. Some e-commerce vendors are also offering the option of “Buy Now Pay Later,” which also signifies automatic loans from the store rather than getting a loan from the third-party provider.

The concept behind this is that extra products and services related to primary products can be bundled together. This eliminates third parties from financial transactions. Finance is no longer a separate domain, instead, they’re becoming part of product offerings. 

 There’s a wide variety of applications for embedded finance, these includes: 

  • E-commerce service providers offering loans and payment processing
  • Ridesharing companies offering digital wallets and debit cards
  • FinTechs offering loans and debit/credit cards
  • Tech companies offering online payment options (PayPal, Payoneer, etc), P2P payments, and cards
  • Car dealerships offering embedded insurance.

Embedded finance offers improvements for both businesses and customers. Businesses of all kinds can generate revenue from different models. Modern financial technologies are also inexpensive and allow for lower profit margins. Embedded finance is also better for user experience since these applications can create a more unified customer journey and use big data to provide personalized products and services. 

If tackled right, embedded finance can become the future of the financial industry. Traditional financial institutes such as banks, credit card providers, and insurance providers will need to implement digital transformation or join with FinTechs to provide the perfect combination of human touch and technology.

Categories
Bank

Future of Open Banking: Why Banks Need to Take the First Step?

The digital revolution for banks and financial institutions is underway at full speed. While the major tipping point for the digital transformation in the financial industry was the COVID-19 pandemic, the seeds of a secure and agile digital environment were available in the industry. Banks and financial institutions were trying their best to keep up with the increasing rate of demand for digital services.

The events of 2020 only pushed the already existing demand for digital transactions and interactions. As banks and financial institutions make way toward digitization, the concept of Open Banking and Open Finance seems even more enticing. Open Banking is sure to help banks stay competitive, provide a series of personalized products and services and enhance the financial institutions to a greater level. 

Open banking is enabling banks to be more innovative and try a thing that has never been tried before. The slow yet steady shift to open banking is underway in Europe, Hong Kong, and Singapore. Consumer protection rights, especially PSD2 which was released in January 2018, are the primary reason behind the adoption of Open Banking in Europe. After President Joe Biden’s statement, the use of Open Banking is well on its way to the USA as well. With a focus on increasing innovation and competition among banks, PSD2 made Open Banking API mandatory for banks operating in the EU. 

The result of this has been a sudden surge in consumer-focused FinTech technologies all revolving around open banking API standards. Open Banking APIs like online document verification API, proof of address verification API, and bank account verification APIs can help banks streamline their most tough tasks (complying with KYC and AML regulations).

Benefits of Open Banking

Open Banking isn’t only for benefiting consumers, the shift towards open banking has given birth to dozens of new FinTechs that are focused on building new solutions that can enhance banking operations. Open Banking APIs are creating a new ecosystem for small, medium, and large scale businesses that can benefit directly by connecting APIs to financial businesses or using the endless data available to provide personalized services to customers. 

While the whole financial industry can benefit from the use of open banking, banks can make themselves the gatekeepers of the one most essential key in open banking: Data. Banks can also utilize this new technology to its extent and enhance their customer business relationships by assisting customers in managing their finances better rather than being a medium for financial transactions. 

Additionally, open banking will allow retail and commercial clients to choose from a broader set of products and services rather than settling for the only option available. The new connectivity among consumers-banks-third party service providers that open banking will make possible will make things better for clients as data sharing will lead to faster lending, smarter lending, and better credit-worthiness assessments. 

Regulatory bodies are already working on guidance for Open banking in the USA, and banks will have the choice of whether or not to invest in this new technology to enhance the customer experience and build a better financial industry. 

According to some industry experts, banks that won’t welcome Open Banking with open arms will only be limiting their customer interactions and also limit the opportunity to be the leader in this newly emerging market. Instead of being unprepared when the regulatory bodies in the USA release guidance for Open banking APIs, banks should start preparing in advance and build their strategies in a way that they can make the most of Open Banking. 

Open Banking is Inevitable

There’s already widespread use of online document verification APIs, Proof of address verification APIs by leading banks and financial institutions. Currently, the EU and the UK are the most dynamic market in open banking all thanks to the EU Policies that facilitated the widespread use of open banking APIs. The Second Payments Services Directive (PSD2) required banks operating under the EU to allow licensed third-party payment providers to bank’s infrastructure and data using a specific open banking API protocol.

By 2022, open banking is expected to generate over $9 billion of profit opportunities for financial service providers. While the US has yet to take a new approach, to generate the same amount of revenue, USA banks need to embrace open banking. 

In the USA, the need for open banking, and open banking APIs has been pushed forward by consumer and business demand. This enhanced level of demand with an enhanced level of activity in the Atlantic is enough for the US to adopt Open Banking. Up until now, the move toward Open Banking has been driven only by regulation, but there’s another approach that banks can take and embrace the Open Banking landscape without government rules and regulations. 

How Banks in the USA Can Seize the Opportunity?

Before pouring millions of dollars into building technologies that can support open banking, the first thing that banks in the USA need to do is to build their strategies. Leaders first identify how open banking can drive value for the bank and what type of return on investment banks can expect, both in terms of revenue and customer loyalty. 

The overall methodology requires banks to secure funding for new investments but also align multiple departments that will be working relentlessly to drive success for the Open Banking infrastructure. It’s a good option for banks to survey customers to gain insights into the type of tools and services they would want to provide their financial data. Mid-market banks on the other hand should use foundational data capabilities to utilize the benefits of open banking. A condition to successfully leverage open banking and gain all the benefits is that banks, financial institutions, and third-party payment providers are to protect customer data at all costs. This isn’t just a requirement for open banking, this is a practice that every bank or financial institution should use. 

In the future, banks will want to focus their investment on their internal infrastructure and ensure that tools, policies, and procedures are in place to support the open banking infrastructure.

Categories
Fraud

20 Internal Controls Methods That Businesses Can Use for Fraud Detection and Prevention

Businesses all over the world lose billions of dollars to internal and external fraud. Unfortunately, this kind of fraud is easily preventable with a little bit of strategy and reinforced structures. According to a survey conducted in 2018 by the “Association of Finance Professionals (AFP) Payments Fraud and Control Survey” 78 percent of businesses were a victim of payment fraud in 2017. 

What’s even more concerning is that only 47% of those organizations were able to uncover the fraud in less than 2 weeks. There are a lot of steps to follow to be able to detect and prevent fraud. Streamlining data management, building a comprehensive checklist for month-end close, time spent on documenting and implementing strong internal controls, eliminating redundancies, and so on.

It is important for businesses to build a strong checklist to prevent themselves from internal and external fraud.

Top 20 Internal Controls for Businesses

1. The company’s tone and how fraud tolerant a firm is should be well communicated throughout the organization. If the employees understand how strict the fraud prevention policy is, the chances of internal fraud will reduce dramatically. 

2. Firms need to make sure that all employees must comply with a code of conduct. Employees should also be aware of the consequences if they don’t comply with internal policies. 

3. A Segregation of Duties policy needs to be established throughout the organization.

4. The Delegation of Authority policy should be set in place for all organizational expenses and commitments.

5. Monthly or quarterly customer monitoring checks are vital to keep track of suspicious activities and monitor fraudulent transactions. 

6. System Access Controls have to be reviewed by organizations on a monthly basis. If that’s not possible, then they should happen after a system upgrade or organizational change.

7. The compliance managers are responsible for implementing effective internal controls in all sectors of the company. This includes identifying, assessing, and managing the risk of fraud from internal and external sources.

8. All representations and assertions relating to internal controls have to be supported with proper documentation. 

9. Costs and expenses of all the operating units must be maintained under budgetary controls. Comparing actual expenses to be budgeted amounts must happen regularly. 

10. All operating units have to develop a system of internal controls to make sure the assets and the records of the company are protected from loss, destruction, theft, or illegal access to data. 

11. Critical transactions happening inside the business process have to be traceable, authorized, authenticated, have integrity, and should be retained in accordance with established policy.

12. To ensure the reduction of fraud, background checks have to be done for all the employees and customers. 

13. All the business records must be maintained and retained in accordance with the firm’s policy. 

14. The business’s network and information program and corporate policy must be followed perfectly. Employees, merchants, and third-party payment providers must refrain from disclosing sensitive information.

15. All computer systems and software applications that can impact the operations of a business process must have the adequacy of their internal controls verified before the implementation. Unverified systems and software can cause a lot of fraud. 

16. Contracts or documents that bind the organization to any obligation can be executed by purchasing personnel or individuals duly authorized under the organization’s delegation of authority policy. The legal team should be able to review and approve all the contracts and legally binding documents. 

17. All suppliers must be verified before they become a part of the business. The verification process includes:

  • Requires a W-9
  • Performing a TIN matching
  • Compliance screening
  • Address and phone verification

18. All payments over a certain amount should be reviewed and approved. Firms should pay special attention to international payments and wire transfers.

19. All the intercompany payments that are sent and received should be verified on a monthly basis. 

20. A physical inventory process should be set in place to keep track of fixed assets. A physical inventory and counting process should be established for businesses that manufacture and supply the products. 

Categories
Onboarding

Best Practices for Keeping Millennials Hooked to Account Onboarding

Banking has gone digital, and when was the last time you went to a physical bank? Traditional brick-and-mortar banking is slowly becoming obsolete, over the last six months, 40% of Americans haven’t stepped foot in a traditional bank. Most generations are in the favor of digital banking as it saves time and offers all the features of traditional banking. Millennials are taking the lead when it comes to using online banking, 47% of all millennials are relying on digital banking instead of traditional banking services. Millennials are more apt to adopt mobile banking, but they’re also the most likely ones to walk away if they don’t like the services. Almost 93% of all millennials abandon the customer onboarding process whenever they run into any trouble. 

Financial institutions have a huge opportunity to win all millennial customers by offering seamless mobile account opening, or digital account onboarding. Customers aren’t willing to sit through the cumbersome digital customer onboarding process. 

Identity verification is a vital process in the customer onboarding process and more than often the step where countless potential customers abandon the process because of the time and effort it requires. ID verification is important because that’s the step that will help banks determine which online customers are legit and which ones are fraudsters. By enhancing the number of fraudulent checks, banks can increase the chances of reducing the risk of fraud, this additional due diligence steps can also increase the level of friction during customer onboarding leading to an increased rate of abandonment. 

According to a report by IBM, more than 75% of all millennials have no problem in leveraging biometric authentication for digital onboarding. This signifies that traditional ID verification methods like Knowledge-Based questions and Multi-Factor Authentication will no longer be relevant. Millennials are more than comfortable with mobile-based ID verification methods that are needed to prevent fraud. 

So how is it possible for financial institutions to find a balance between tackling fraud and ensuring that new customers have a seamless experience while opening a new account? By working with a perfect online ID verification solution, you can make the customer onboarding process as smooth as possible.

Best Practices to Provide a Seamless Customer Onboarding Experience

1. Speed Up the Process

The biggest reason behind abandoned customer onboarding applications for banks is because the processes take way too long. Traditional customer onboarding methods are used to take up to 3-5 weeks. Millennials don’t have the time or the attention span to wait this long. For banks to keep millennials engaged in the onboarding process, it’s essential to quickly and correctly verify users within the mobile experience in minutes.

2. Better User Experience

User experience is a major part of customer experience and is mindful of the number of screens in use. Banks can utilize on-device data extraction to pre-populate forms during the ID verification process, thus reducing the amount of information a customer has to add manually. Create a custom journey for users by providing different colors and themes to the screens and sections. Make sure that you take care of the needs of every customer by adding multiple functionalities. 

3. Provide Clear Instructions

Not every user is tech-savvy, so banks should focus on making the process as clear as possible. There should be clear language on each screen so that every step is explained easily to the user. Provide clear instructions in simple English. It’s vital to clearly explain why banks require a picture of the ID document and the selfie and what they’re willing to do with the information. 

4. Instant Feedback is the Key

Users want to know their application status in real-time. If there are any issues with the ID document or photo submitted, then users would want to get that feedback in real-time too. Providing instant feedback allows users to understand how long it’ll take for their application to be completed. 

5. Omnichannel Support

For companies that want to capture as many users as possible, it makes sense to ensure that you provide Omnichannel support for potential customers. For example, a variety of ID verification solutions support smartphone image capture and exclude other channels such as desktop webcams. By doing so, banks are leaving out customers that are more comfortable on their desktops and laptops. 

Categories
Fraud

What Businesses Should know about ID Fraud

It’s pretty clear now that identity fraud isn’t going anywhere, the threat of identity fraud is evolving. In the last couple of years, the number of identity fraud has grown steadily. The overall cost of identity fraud is $42 billion for businesses.

Now that the pandemic has adversely affected businesses, the threat of identity fraud seems even bigger now. With most businesses pushing towards digital transformation, the types of identity fraud are going to get bigger. Weak and inefficient digital systems developed and used by financial institutions act as a magnet for fraudsters. Businesses need to be prepared for upcoming identity fraud trends.

6 Things to Know About Identity Fraud

Businesses and financial institutions that don’t follow the common identity fraud trends. Here’s all a business should know to protect themselves against evolving fraud.

1. Fraudsters Will Continue to Develop New Methods

As more and more customers are relying on online solutions because of the pandemic, the environment is also inviting fraudsters. 

Documents and biometric IDs that are presented by customers manually can’t just happen in a digital environment. It is almost impossible to check the signs of manipulation and identity fraud is more scalable online. This works in the favor of fraudsters.

Bad actors are using sophisticated methods for document fraud. In the upcoming years, there will be an increase in fraud documents and fake ID cards. That shows that fraud techniques are getting more sophisticated and the pandemic has given birth to first-time fraudsters in need of financial help. 

Businesses in this digital environment face attacks from two fronts. First-time fraudsters with low-level fraud and unsophisticated techniques and experienced fraudsters with evolving types of fraud with the use of sophisticated techniques.

2. Biometric Fraud Will Soon Evolve

As of right now, businesses use AI and machine learning solutions that leverage biometric data for verifying customer identities. Current biometric fraud is simple and easy to detect using intelligent solutions. But deep fakes will make things more challenging.

Deepfakes are digital media, such as videos in which a person’s existing video/photo can be replaced by someone else’s. While this technique is mostly used by social media users to make entertaining videos. However, this can also be used for malicious activities like bypassing the ID verification systems. Sophisticated efforts like these are less common in the real world as they take up too much time and money.

Over time, with the improvement of technology, the costs will come down and biometric fraud will evolve and be hard to detect by businesses.

3. Synthetic ID Fraud Will Rise

Synthetic identity fraud is one of the biggest threats, it combines stolen information with fake details like names and addresses to create a completely new identity. Fraudsters can then use this identity to apply for loans, credit cards, and more. 

In recent years, synthetic fraud has grown a lot. Data breaches in the past few years have worked as a helping hand for synthetic ID fraud. The hack of the US Census is one such example. Because of the amount of stolen customer data available online, credit and database checks won’t be good enough for verifying identity. Businesses will need to consider other methods of verification like third-party technologies.

4. Coercion Attacks will Become a Huge Concern

Coercion attacks are a huge threat for businesses as they don’t need any technical experience and are difficult to detect. Instead of stealing an identity, fraudsters persuade victims into opening legal accounts and use them for illicit activities. 

To identify coercion attacks, businesses need to verify the intent of account opening which is almost impossible for humans. One sign of coercion attack is if someone else is in the shot when a biometric check is being completed, however, that’s still too big of a stretch. Businesses and ID providers need to be aware of this undetectable fraud.

5. Cash Incentives Will Continue to Increase Fraud

It seems like a thing of the past but frauds promising cash incentives continue to affect businesses. Fraudsters take advantage of a marketing campaign that promotes cash incentives. They do so by targeting bonus promotions while opening a new account, referral bonuses, or extreme currency fluctuations. Fraudsters open several accounts using an original identity but with some different details like email address and address and so on. They open the account and get the monetary perks.

6. Financial Industry is Always the Biggest Target

Out of all the industries, the financial industry was impacted the most by online fraud. The financial industry is always at risk of ID fraud, but suspicious behavior has become harder to catch because of changes in spending habits. Businesses are having trouble being able to distinguish between legit and fake users. To successfully onboard customers, businesses need proper bank account verification software that facilitates security and agility.

This is one of the main reasons why businesses are focusing more on transforming their channels. Most businesses combine machine learning with biometric verification instead of username and password. This is one method that can help in verifying between legit users and bad actors. 

Categories
KYC/KYB

Enhanced Due Diligence: How Important is it for Banks?

In today’s business and regulatory climate, a business has to take all precautionary steps to prevent fraud. This means identifying and verifying customer’s identities and meeting KYC guidelines. Whenever a financial institution starts a new business partnership with individuals or organizations without fully knowing their past and present business dealings, it can open the business to huge lawsuits and fines. EDD (Enhanced Due Diligence) can help businesses understand their customers.

As a matter of fact, over the last decade over $26 billion in fines have been imposed across the U.S., Europe, APAC, and the Middle East against financial institutions for KYC/AML. But KYC compliance goes beyond ticking some checkboxes. KYC helps financial institutions understand and serve their customers in a better way.

The KYC process is often carried out by financial institutions while opening new accounts with online users. Customer Due Diligence (CDD) is a vital part of KYC verification, which usually involves background checks to assess the risk they pose to a business. In the financial sector, this usually involves verifying the users for creditworthiness and ensuring that these people aren’t on a money laundering or counter terrorism financing watchlist.

Fortunately, most of these verifications and AML verification processes are becoming automated so businesses can offer a better customer experience during onboarding. With Customer Due Diligence (CDD) financial institutions perform important checks.

What is Enhanced Due Diligence?

(EDD) Enhanced Due Diligence is part of the KYC verification process that offers a greater level of scrutiny of potential business partnerships and highlights risks that can’t be detected by customer due diligence. Enhanced due diligence requirements are an upgraded version of CDD that looks to establish a better level of identity verification by using customer ID data and evaluating the risk category of the customer.

EDD is specifically designed for dealing with high-risk customers and large transactions. These customers and the transactions they conduct pose greater risks to the financial sector, these customers and transactions are continuously monitored to ensure that nothing is out of place. 

There are several characteristics that EDD from regular KYC policies:

  • Rigorous & Robust: EDD policies have to be rigorous and more robust and should require more data for customer authentication.
  • Detailed Documentation: The EDD process has to be documented in detail, and regulators should be able to have immediate access to enhanced due diligence reports.
  • Reasonable Assurance: EDD requirements require “reasonable assurance” while building a risk profile. 
  • Going Through PEPs: Banks and financial institutions need to pay attention to Politically Exposed Persons (PEPs) lists. People on these lists are viewed as being a higher risk because they are in positions that can be exploited for money laundering. 

Another major challenge with EDD is knowing how much information is there to collect. Regulators have consistently favored financial institutions that leverage documented policies & procedures.

More and more companies are combining online identity verification and automated AML screening during the account onboarding process.

Enhanced Due Diligence Checklist

So, what do banks and financial institutions get out of using EDD as part of their KYC verification process? Here’s the Enhanced due diligence checklist:

1. Better Serve Your Customers

The EDD and identity verification process offer a bunch of useful information regarding your customers, including employment status, age, and so on. This data can be used to provide customers with better services. 

2. Enhance Brand Reputation

Whenever a bank, financial institution onboards a new customer with EDD, they can help in the prevention of corrupt politicians, criminals, and terrorists from entering the ecosystem. This also means that taking the precautions to know your customer at a more fundamental level.

Businesses need to build robust safeguards that help in defending against losses for fraud, non-compliance fines, and loss of brand reputation.

3. Financial Crime Prevention

All the ideas of knowing your customers, verifying identities, making sure they’re real, and cross-referencing customers from PEPs and Sanction lists. Enhanced due diligence and other fraud prevention methods such as bank account verification software allow businesses to focus on scaling their businesses instead.

4. Build Trust

Unfortunately, as more and more cases of data breaches, money laundering, and financial fraud are being uncovered, customers are losing trust in the banking sector. It is high time for banks, financial institutions, payment providers, and others to stop the flow of money laundering and other financial crimes. 

This can happen by integrating identity verification and identity screening technologies into the KYC workflow. With a secure digital-first approach, it is possible for banks to digitally onboard customers from all over the world while ensuring security and enhanced positive customer experience.

Categories
ID Verification

Understanding Artificial Intelligence & Identity Fraud Solutions

In December 2020, 4iQ discovered a single file with personal data of over 1.4 billion people which is the largest database found to date on the dark web. What was even scarier was that none of the passwords were encrypted and the passwords that were tested turned out to be authentic. This is a major issue for all of us. A recent report published by a cyber-security firm stated that almost 80-90% of the people that log in to a retailer’s e-commerce site are hackers stealing PII (personally identifiable information). Unsurprisingly, cybercriminals use techniques that have the least resistance and they simply buy the stolen credentials from data breaches from the dark web to create fake accounts and access internal systems. And obviously, passwords alone aren’t enough. 

Unfortunately, traditional methods of verification such as knowledge-based authentication (KBA) and two-factor authentication/ multi-factor authentication, aren’t enough to keep fraudsters aware of internal systems. Fortunately, the latest AI-based technologies tend to be efficient when it comes to online identity verification.

AI and Online Identity: A New Era

How is it possible for modern companies to evolve beyond usernames and passwords? When verifying identity matters the most (home rental, creating new bank accounts, funds transfer), companies have to add a layer of real-world ID/identity verification to ensure that the person using the username and password is the same person to whom the account belongs to. This is where artificial intelligence comes into play.

Machine learning solutions and deep learning algorithms are slowly changing the industry trends where ID verification delivers a smooth experience that doesn’t compromise a positive customer experience for security. These technologies are being utilized for online ID verification to protect your consumers and businesses against fraud and account takeover.

Artificial intelligence, machine learning, and deep learning solutions are extremely efficient in distinguishing between real and fake documents used by fraudsters. With the growth of technology, it is easy for fraudsters to build fraudulent documents including driver’s license, proof of address documents, passports, and so on. These documents are scanned to onboard customers during account opening. AI and Machine Learning solutions can detect even the smallest of discrepancies in the documents, including the presence of genuine microprint text and other features, these solutions can even link the individual to an ID document.

Machine learning creates a more efficient and accurate process compared to relying on an untrained eye to examine and verify an ID document. Over the last four years, there have been hundreds of ID solutions popping out that help in simplifying the overall customer onboarding and verification process.

As customer IDs are physical documents, they tend to face wear and tear and they may even contain manufacturing defects. Plus, the way those documents (driver’s licenses, passports, and ID cards) are captured also possess a challenge while verifying customers. In most cases, the cameras in smartphones and laptops fail to provide the ideal quality for AI-based solutions to read the details on ID documents. In other cases, the user takes blurry photos or clicks a photo in insufficient light. In these cases, which happens more than often, the best machine learning solutions are tried and tested.

Solutions Apart from AI-Based Solutions

AI, Machine learning, or deep learning-based solutions are only as good as the algorithms and the data that is fed to them. In case the data is bad, the solutions won’t be able to find out the errors in the documents.

Other solutions help in simplifying the document verification process for KYC and AML compliance. DIRO online document verification software can help in instantly verifying documents by cross-referencing them with private and government sources. DIRO online document verification software can help banks, financial institutions, crypto, and other businesses to easily comply with regulations. The technology helps in eliminating screen scraping, and other tedious tasks from customer onboarding.