Categories
ID Verification

A Deeper Insight Into Digital Identity – Transforming the Future of Digital Identity

The world has gone digital. Work, food, education, entertainment, or everything else you can think of has become completely digital. Your digital identity plays a vital role in how your experiences will be online. If you don’t follow the right measures, hackers can get access to your digital identity. Your digital ID can be sold on the dark web for a couple of dollars. So, what can you do to stay safe online? Before we dive deeper into the concept of digital ID, and how it is slowly changing the way we operate online, let’s try to understand Digital identities.

What is a Digital Identity?

A digital identity is online data that’s connected to an individual, a business, or any entity. This information can be anything ranging from social media posts, banking information, usernames, passwords, or more. Hackers work around the clock to get access to this sensitive information.

Traditionally, proof of identity is something all of us provide to prove we are who we claim to be. Proof of identity is required for a number of reasons. However, when it comes to digital identity, the term is used for digital data or digital interactions. 

In both versions of identity, one factor is common. Any version of identity uses credentials and data to identify ourselves, and access products and services. Both traditional identity and digital identity allow users to prove who they are and then access resources. 

At its core, your digital identity is a web of information. Your Digital ID information can include aspects, information, and credentials. Any information that helps you verify your identity, is part of your Digital identity.

For a social media user, their digital identity would include:

  • Personal information (Name, DOB, and more as asked by the platform)
  • Login credentials (usernames, passwords, and biometric data)
  • Any additional information related to user behavior on-site (user permission, subscriptions, connections, settings, etc)

Components of Digital Identity

If you want, you can easily break down digital identities into two primary components:

  • Attributes: Attribute is the information that’s related to your representation in the system. This information includes personally identifiable information (PII) such as ID number, payment details, login credentials, and more
  • Activities: Activities are a record of what you’re doing as a user. All the activities you do become a part of your identity. It can be something as simple as reading comments or posting online. In government environments, these activities include digital signatures, search queries, or legal activities. 

As the world is continuously evolving about digital identity, it makes sense that digital identity data is leveraged to verify identity data.

Challenges and Risk Revolving Around Digital Identity

While there are endless benefits of having a digital identity, they’re also at most risk of getting hacked or stolen. If you’re also concerned about the risk of digital identity verification.

Businesses and other institutions face a lot of challenges while managing digital identities. Here are all the risks of digital identities:

1. Security and Privacy

The biggest question around digital identity data is security. If you have any kind of business, you have to rely on identification and authentication services to protect your systems and the identifying information of your customers and employees. 

2. Regulatory Compliance

Many forms of digital ID also include some type of sensitive data. A user in a healthcare portal will have a corresponding ID that includes protected information under HIPAA. 

3. Ownership and Ethical Handling

Recent data collection processes, especially in the United States, haven’t emphasized user ownership of digital identities. Companies can collect and sell user data as per their preference.

The question of ownership of data and ethical management and use of digital ID is a huge question. Modern compliance frameworks like GDPR and CCPA are attempting to improve the data handling for users. 

4. Fraud

Proving who a user claims to be is crucial for businesses. Without proper measures in place, businesses can end up onboarding fraudsters that look like real users. A hacker can easily use a digital identity for harmful purposes if they want.

Global Impact of the Use of Digital Identities

The above-mentioned challenges are ever-present in the modern digital ID landscape. Digital identities are becoming more crucial for having a proper online experience. Here are some of the recent trends that have come from the use of digital Identity:

  • Modern smartphones have made using digital forms of payment much easier. There is a push in the UK, and the United States to expand the use of this technology. 
  • A major discussion point during the ID2020 summit in New York was for the UN to start considering the potential of blockchain technology. The reliance on digital marketing technology can support universal forms of digital ID verification. 
  • Germany has been circulating E-versions of ID cards for their citizens. While these don’t replace physical IDs, they are used in multiple locations and provide a better online experience. 
  • Canada is also making plans to roll out its digital ID scheme known as the Pan-Canadian Trust Framework to provide national digital IDs and unified logins. 

Conclusion – Understanding Digital Identity

Now that digital identity is about to become an industry standard, verification and authentication of digital identity are becoming crucial. ID management solutions are helping in reducing the challenges in digital ID management. 

Proper adoption of Digital ID can lead to more innovation in several industries. Verifying and authenticating digital Identities is the need of the hour. This can be achieved via online document verification solutions.

Categories
Verification

Age Verification: Use Cases, Regulations, and Guidelines

Digital age verification is crucial in this day and age. So in this article, we will talk about how age verification works, different rules and regulations, and minor protection in different parts of the world. Almost everyone can get easy access to digital products and services. According to a survey in 2015, almost 1.46 billion consumers purchased goods over the internet. This number increased drastically by 46% since 2021. This can be credited to the COVID-19 Pandemic. In the current situation of the world, more and more people love to purchase products online. While the rising number of online customers is great for online businesses, it also creates challenges.

Today, minors can easily get access to age-restricted content from all over the internet. Unlike the offline world, where minors can’t get access to alcohol or tobacco, buying goods online is completely different. According to research, more than 1 million minors fell prey to ID theft in 2017, which resulted in a $2.6 billion loss.

What Is Online Age Verification?

Online age verification is a process to protect individuals and audiences from consuming non-age-appropriate content. Merchants of age-restricted products need to take responsibility to sell their services only to people over their age. For online businesses, it is essential to understand the age of their users, and digital age verification is a great way to get around it. It is a safe way for minors to perform online activities, and maintain regulatory compliance.

Digital Age Verification vs Manual Age Verification

Since the inception of adult-based services, verifying your age has become a common practice. Tobacco and alcohol stores don’t allow minors to purchase and consume these products. According to regulations by the Food and Drug Administration (DSA), the minimum age for buying and selling tobacco products is 18. These laws can perfectly work in offline stores as there is someone available physically to verify age. When it comes to online stores, verifying the age of an individual becomes challenging. 

So, it makes sense that minor protection rules should also apply to digital businesses. Digital business vendors often just ask for usernames and passwords to protect the users. There’s a huge need for verifying the age of minors before they interact with these platforms. Fortunately, just recently there have been huge developments in the online age verification methods. 

Compared to a couple of years ago, verifying an individual’s age has become relatively easier by relying on biometrics technology. There are several age verification systems available today that rely on AI and Machine learning to smartly identify if the individual behind the screen is minor or grown-up.

How does Digital Age Verification Work?

Age verification helps businesses onboard legitimate customers and prevent minors from using age-restricted processes. Here’s how most age verification processes work:

1. Submit the Date of Birth

The user has to submit date of birth information including date of birth using an online form as provided by the vendor. 

2. Upload Documents

Users upload date of birth documents that are issued by the government. These include documents such as ID documents, driving licenses, or passports.

3. Verification Process

Based on the information provided by the users, businesses verify the age of the users. This happens by using a document verification solution or an online ID verification solution. Based on this verification, the end-user is verified and declined.

Global Age Verification Guidelines

Different geographical locations have different guidelines when it comes to age verification. If there’s one thing similar about all the guidelines, it’s that all of them focus on parental controls. The main purpose is to make parents aware of appropriate services for their children and obtain consent for the children to use these services. 

1. Age Verification in UK

The UK government made some changes in 2017, to make sure that a country is a safe place for children. Following that, some changes have been made to the laws to limit easy access to age-restricted products and services. 

The online age verification provider, interactiveAgeCheck (iAC) is responsible for minor protection. This is backed by CitizenCard, UK’s biggest photo-ID and age verifier organization. It thoroughly considers recommendations made by the UK Council on Child internet safety.

2. Age Verification in Europe

The GDPR (General Data Protection Regulation) is issued by the European Union and applies to the citizens living in EU states. It has a complete set of rules and guidelines for the collection of personal data. This information includes biometrics, health, and genetic information. The GDPR’s Article 8 allows the age of consent to be anywhere between 13-16. This suggests that anyone over the age of 16 in the EU is allowed to consume age-restricted products and services. 

3. Age Verification in USA

The Federal Trade Commission’s minor protection law is named COPPA. It’s one of the most impressive and crucial minor protection laws in the USA. The rule book outlines how companies should collect and verify information related to children under 13. complying with these regulations doesn’t just include age-restricted content warnings, or integrating an age verifier.

The Cellular Telecommunications and Internet Association issued guidelines on restricting career content not suitable for younger audiences. It outlines different content rating standards so that the parents are aware of the type of content suitable for their children. By using internet access control offered by major internet carriers, consumers can limit access to specific websites using filters or block certain websites. 

4. Age Verification in Australia

The Australian Communications and Media Authority (AMCA) put out a new guideline in 2008 to prohibit minors’ access to age-restricted content. These regulations apply to anything aired in Australian media or hosted on TV channels within the country. The broadcasting Services Act of 1992 played a vital role in the development of these frameworks. 

For every content rating group, these rules offer a different set of customer verification, the MA15+ guidelines require:

  • A warning message that the content is MA 15+
  • Safety information for parents to protect their children who are below 15

The RA18+ guidelines contain rules regarding:

  • Warning about the risk of using proof of age by another person or someone who’s not eligible based on their age
  • Consider which evidence is provided, and how it’s presented

Risks of Not Completing Age Verification Checks

There are some risks of not having the age verification methods. These include non-compliance and a drop in market reputation for offline and online businesses at the same time. Generally, the perceived level of risks involved figures out the level of control and application of the regulatory framework.

Here are some risks of not having proper age verification mechanisms in your process:

1. Compromised Market Reputation

Building a great business requires providing customers with the best customer experiences. User satisfaction is crucial in building loyalty for customers and building a good reputation for your brand. Not investing in age verification software can hurt your business by having a negative brand image. Not having a proper age verification process can lead to easy access to age-restricted products and services, it puts minors more at risk. 

2. Non-Compliance fines

All kinds of vendors and organizations have to comply with GDPR, regardless of the type of products and services they offer. The purpose of this regulation is to maintain privacy and secure record-keeping. These regulations are equally important while verifying the age of individuals during onboarding processes. Non-compliance with GDPR can lead to hefty fines for businesses. 

Till 2016, non-compliance fines for COPPA were 160,000, which were later increased to 43,280 dollars.

3. Financial Losses

Online businesses can reduce fraud in chargebacks by parents for non-consenting transactions. Having an age identifier or verification process integrated into your onboarding process can help in reducing financial losses. 

Conclusion: Importance of Age Verification

In the end, the age verification process is crucial to protect the young generation from the adverse effects of age-restricted products and services. Merchants have to take on the social responsibility to secure minors and restrict their access.

Categories
KYC/KYB

What Is The Importance of KYB and Ultimate Beneficial Ownership (UBO)?

Today’s topic is Know Your Business (KYB) and Ultimate Beneficial Ownership (UBO). We will also understand the need and the importance of KYB – know your business and Ultimate beneficial ownership. 

There are B2C companies that follow various steps to verify their customers’ identities. This is known as the Know your customer (KYC) process.

Other businesses and financial institutes are obligated to do the same verification process for businesses they onboard. This process is also known as Know Your Business (KYB) or Business Risk Assessment. In the past few years, the need for KYB regulation has been changed by the Financial Action Task Force (FATF).

What is Ultimate Beneficial Ownership (UBO)? 

UBO is a beneficiary or a legal entity that is responsible to verify the identity of the customers and ensure that it is not fake. The Ultimate Beneficial Owner also gets the profits for businesses, this is why financial institutions need to identify UBO’s identity. 

UBO verification plays an important step in Know Your business verification and provides relevant information to decide whether FIs should onboard specific businesses. This helps to reduce the chances of various frauds and financial losses. So, you know the importance of Know Your Business. 

When it comes to UBO, the United States FinCEN (Financial Crimes Enforcement Network), the European Union’s 4th and 5th Anti-Money Laundering Directives, and the CDD rule, all are intended to guarantee a better way to assess risks that would be helpful to strengthen the anti-money laundering measures.

What is the Customer Due Diligence Rule? 

The FinCEN Customer Due Diligence rule has four fundamental requirements to ensure the transparency of the financial Institutes and to detect any mishaps related to this: another step that explains the importance of know your business. 

Here are the four key requirements:

  1. The identity of the users and the customers is verified. 
  2. The account of the beneficial owners is verified. 
  3. To verify and identify beneficial owners who own 25% or over 25% of a legal entity. 
  4. Developing a customer risk profile for a better understanding of the customer relationship, customer purpose, and customer nature. 

What is the Importance of Know Your Business (KYB)? 

This process helps various businesses to catch the upcoming risk related to the business and their customers or clients. 

This process also helps the regulated entities and banks to stay compliant with the industry regulations.

When we talk about the importance of Know Your Business (KYB), we are trying to say that it is crucial to identify deterring frauds and to protect businesses from mishaps that can lead to huge financial losses. 

This process includes verification of the documents related to the bank records, incorporation, and the source of wealth. And, various KYB platforms are helpful for the businesses to create records with the UBOs and to get access to the databases. Best KYB platforms also help to perform KYC on the UBOs (as an individual) and the operational workflows, and investigation to track the data. This helps to get access to the information for the brief analysis, relevant parties and reporting by regulators. 

As per the regulatory requirement, maintaining a robust compliance program (with KYB) and using risk mitigation strategies with proper due diligence for UBOs is necessary to prevent your business from nefarious intent and also a regulatory requirement.

How does DIRO Play an Important Role in Know Your Business Process? 

It is crucial for business and financial institutes to maintain the integrity of their organization, firm, or institute without neglecting the compliance regulations. This also includes managing and detecting the risk related to the businesses and financial institutes. 

DIRO online document verification technology can play a vital role to reduce the load of the verification process in KYB, and UBO verification processes. This is crucial to avoid identity theft and various other financial threats.

DIRO document verification technology provides a quick way to verify incorporation documents, bank accounts, business documents, utility bills, credit bureau reports, tax returns, etc.

DIRO also helps to ease the KYB compliance process with the real-time document verification solution. We as DIRO also assist with UBO identification and shareholder information.

Categories
Bank

State of Europe Open Banking Revolution

While the open banking APIs are being used commonly in the EU, the APIs in Europe still have a long way to go. There are some fragmentation-related challenges that have to be overcome and several challenges around stability and availability. Open Banking payments still have to reach a tipping point, what is required now is regulatory and industry pressure to overcome these challenges in open banking.

A Fragmented Europe

On the issue of SEPA instant adoption, not all banks in Europe support that and support is even inconsistent within the banking groups. For example, between 2-3 regional branches of tier 1 banks in France don’t support SEPA instant. 

This lack of harmony in the bank processes comes from the fact that it wasn’t taken care of in the PSD2. As a result, Europe has a highly fragmented market with different technological standards of APIs and on top of that, we are ignoring the fragmentation of the transaction processing. 

The utilization of SEPA can easily provide an answer to these questions as the payment happens in real-time which eliminates the problem of cut-off times, and the fact it is also instant means predictable statuses and transaction outcomes. These are the major reasons why the European Banking Authority and NCA should focus on SEPA instant adoption. 

As there is not a single pan-European Open Banking API supporting payments, industry initiatives have resulted in API standards for accessing bank accounts. 

However, in terms of variation across banks, there are fewer frameworks. Some banks have also taken and decided to implement their own payment standards. Given the complexities and broken system of Open Banking APIs in Europe, having the right solution to help you overcome fragmentation in the market is vital to delivering value back to your organization. 

While SEPA is part of the solution, customers have to pay a certain charge for these transactions, which could prevent users from adopting it more widely. This is why there need to be other standard solutions for Open Banking.

Unlocking Data Access Across Industries

As the open banking landscape is slowly shifting towards open finance, embedded finance is often highlighted as the ultimate application of open banking technology. An ideal example of how FinTech journeys can boost customer experience. 

Convenience is the key to creating superior user experiences, that’s why embedded finance is highly anticipated. It’s this kind of “under-the-hood” thinking that we believe will become the future of finance. But before we can try to perfect embedded finance and prepare for open data economies, we have to level the playing field by providing access to data.

The Future of Open Banking 

Overall, Open Banking APIs offer stability and are improving at a significant rate. The UK has achieved a significant amount of success in embracing Open Banking, and Europe is right on track. But there’s still a long way to go for banks in Europe to embrace Open Banking APIs. If they take the right measures, it can be great for the future of open banking.

Notifications of planned and unplanned downtime are inconsistent, and banks often go offline for hours or even days without notice. The primary question is what banks can do to enhance the industry? It is high time that regulators step in and build regulations. These regulations can lead to better customer-business relationships and reduce the flow of fraud. Some of the basic measures include bank account verification, proof of address verification, and KYC. Admittedly, there’s no real solution here, but the only solution is that regulators need to put their minds together and focus on their projects. 

Categories
Finance

ACH Payment

Payments have come a long way over several decades. All the way back in 1974, people had to carry dimes with them to make calls from payphones, and copies were made on a mimeograph. Over time, payments have changed and so has ACH payment. The ACH payment method has improved with the help of technologies and the network keeps on providing better services to consumers and businesses. There’s a lot of rich history behind ACH transfers and what makes them one of the most preferred payment methods. 

ACH is a financial tool that millions of users rely on and only a few of them understand the payment method. ACH payment network supports tens of billions of transactions within the US every year and many consumers know ACH payments by other names. Several businesses still don’t know how to boost consumer adoption of ACH payments and how to make sure all involved leverage the benefits of ACH transfer. 

While the ACH payment network is a widely known and used method, millions of customers don’t know how to set up ACH payments, or how to make an ACH payment.

What is ACH Payment? Brief History

ACH (Automated Clearing House) is a network for electronically moving money between bank accounts throughout the USA. ACH is the electronic evolution of the paper check and with time and technological improvement, it became a digital process. The digital process was adopted to improve efficiency and reduce the need for human input. 

As consumer needs and preferences changed in the early 1970s, banks in the US had to find new ways to keep up. The astounding growth in volume and geographic spread of checks required banks to devise new methods of handling and sharing information. The best solution that banks could think of was to turn to newly commercialized computer technology to build a payment network. Then this newly formed payment network was named “Clearing House”. If you don’t know about clearing house, it was a place where banks went at specific times to exchange checks and settle transactions.

Clearing Houses came into existence to help banks to settle checks between each other with relative ease. They facilitated the exchange of checks and calculated the net settlement amount per bank. The use of Clearing Houses makes the use of checks an open-loop payment system. Open Loop payment systems leverage intermediaries (banks, credit card providers, etc) to facilitate payments between two entities (individual accounts). 

Till the end of the 1950s, magnetic ink character recognition (MICR) became a standard practice. This technology utilizes a check number, account number, and bank routing number at the bottom of a check. Ach became a natural extension of MICR technology, it was created as a way to exchange MICR directly and not extracting MICR data from checks. 

ACH transactions in the beginning included:

  • High-volume
  • Low-risk
  • Repetitive

With time, ACH payments became a norm around the entire US financial industry, becoming so standard that it’s not connected to every US demand deposit account. The popularity of ACH transactions is understandable as ACH was designed to be a low-cost service, providing banks with a profitable alternative to processing and storing paper checks. 

The ACH Payments system was designed to allow corporations and consumers to reduce the use of paper-based checks and use digital methods to make payments. Users can use ACH transfers to process huge volumes of payments electronically, and with time it has become the biggest payment system in the country. In 2000, the ACH payment network processed over 4.8 billion payments, their value totaling over $12 trillion in the same period. To date, most of the payments transferred over the ACH include recurring credit card payments, interests and dividends, and other programs endorsed by the US Government. 

However, the ACH payment method isn’t perfect. Compared to swift and seamless payment methods offered by FinTechs of today. Regardless of the slow processing, it is still used to process billions of payments every month.

How does ACH work?

In both Push and Pull transactions, ACH works in a similar way:

1. A bank originates the transaction. This bank is denoted with the term “ODFI” Originating Depository Financial Institution. Banks then send ACH entries in batches, working on a fixed schedule. 

2. An ACH operator (The Federal Reserve or The Clearing House) puts the entries into deposits and payments. 

3. Once the entries sent by banks are sorted, the ACH operator sends legit entries to RFDI (Receiving Depository Financial Institution).

4. RDFI receives the transactions and debits or credits the amount according to the payment. 

5. Money is settled among banks at the end of the day. 

Since 2001, ACH payments have been available for customers online. In 2015, NACHA (the organization regulating the ACH network) created single-day ACH transactions. Before that, ACH transactions used to take 2 days – to 1 week depending on the banks. While single-day ACH transactions have improved the transactions by a lot, they don’t offer real-time payments. 

What is NACHA?

Commercial ACH payments rely on a set of rules and regulations set forth by the National Automated Clearing House Association (NACHA). While the Treasury payments are governed by Federal regulations that are built upon the NACHA regulations. 

NACHA’s membership is composed of representatives of the 40 regional ACH Associations in the USA. All the institutions in the ACH associations have to be depository institutions, commercial banks, savings banks, savings and loan associations, U.S. branches of foreign banks, Edge Act corporations, and credit unions. Today, over 25,000 depository institutions are participating in the ACH system.

Role of Federal Reserve and Private Sector AC Operators

The Federal Reserve Banks have been authorized by the regional ACH associations to operate automated clearinghouse facilities to settle for items they process. The Federal Reserve handles almost 75% of all the items in the ACH payment network in the United States. 

Some ACH businesses have designated private sector operators to process the item exchanges between their members.

Social Security Tests Direct Deposit

The Social Security Administration began testing DD (Direct Deposits) in 1975. While that was just an initial choice, no one expected that 99% of SSA payments will use Direct Deposits. 

While government payments gave ACH a big starting boost, the uses of ACH payments have grown over the years. Ever write a check and wonder why you never saw it getting canceled? All thanks to the ACH payment network, your check was converted electronically. The ACH payment method was considered innovative at the time, and it definitely transformed the financial industry. Due to ACH, no one gets back a canceled check, regardless of how the check was processed.

Uses of ACH Payment Network?

An ACH transaction informs member institutions (Financial institutions) to debit/credit accounts as they’re present on a physical check. Common information around check include:

  • Account number
  • Routing number

It’s also why businesses ask for a canceled check for setting up the payroll for a newly hired employee. Voided/canceled checks provide banks with necessary information. 

What makes the ACH payment process confusing is that they’re also called by several other names. ACH transfers are commonly called “eChecks”, “direct debit”, “automatic withdrawal”, “ACH credit & debit”, and others. While their names may be different, they’re all the same process. Here’s everything you can do with an ACH payment process:

  • Consumers can send funds between banks 
  • Employers can use ACH transfers to pay their employees
  • Customers pay service providers such as Internet providers, utility bills, and so on. 
  • Taxpayers pay taxes using IRS
  • Businesses pay suppliers

The ACH payment method isn’t the only method to move money around, and it may not be the most efficient process, but it’s still the biggest process. In 2020, over $62 trillion worth of payments were facilitated via the ACH payment network.

Types of ACH Payments

All ACH transactions fall into one of the two categories debit (pull) or credit (push). In the ACH payment debit process, an organization could be “pulling” money from a customer account for an automatic bill payment. In an ACH credit transaction, an organization could be “pushing” money to your employees “pushing” money to an employee’s account to pay wages. 

As one person’s credit is another person’s debit, the naming helps a business identity which process to set in an ACH transfer. An employer usually asks the ACH network to push money out of their accounts to send money to an employee’s accounts. If the employee has initiated the request, it would be an ACH debit transaction even though it will be the one who received the funds.

Who Runs the ACH Network?

NACHA, which stands for National Automated Clearing House Association, is the primary rule-making entity for ACH-using financial institutions in America. However, the complete ACH Network is an amalgamation of two systems run by different operators:

  • The Electronic Payment Network (EPN), is run by the “Clearing House” (an association made up of 24 banks)
  • FedACH, is run by the Federal Reserve banks to handle ACH transactions on behalf of the federal government. 

To understand this better, you can think of it as a partnership between two delivery companies that had their own zones and routes. Government financial institutions are serviced by FedACH, and private banks are supported by EPN. 

So NACHA, working with several government entities, makes up the rules, and then both the operators work together to route and deliver all ACH messages accordingly.

How Long Does an ACH Payment Take to Process?

As we mentioned above, ACH transfers are the most used method of sending and receiving money in the USA. But the time taken for finishing the payments vary, it can take anything from a few hours to a few business days. The time is based on:

  • When the day the transaction was initiated
  • Whether the transaction returns an error message before the target settlement date because of incorrect information or insufficient funds.
  • Whether the payment originator paid for the “same-day ACH Payment” service. 

Now that ACH messages are being delivered up to 5 times per business day, the default results are a bit faster. And the ACH payment network can easily accommodate same-day payment processing. The use of same-day ACH payments has been pretty low compared to general payments, which is the opposite of what everyone expected. In 2020, only $460 billion worth of payments were same-day transactions. That’s roughly 0.7% of all ACH transfers.

This slow adoption of same-day ACH payment can be credited to the additional cost, and also the fact that faster processing doesn’t mean faster payment settlement. Unlike a wire transfer, ACH transactions are recallable but the timelines regarding the payment returns are extremely complicated. So, if you didn’t get any notification, you can assume that the payment process is going just fine. Consumers have up to 60 days from when the statement containing the unauthorized transaction was transmitted to consumers. 

Depending on a given institution’s standard payment practices, and their risk level assessment, the payment process may be delayed until the maximum deadline. It doesn’t matter if the receiving institutions already have the details in hand.

ACH Payment vs Wire Transfer

ACH transfers and wire transfers both help in moving funds from one bank account to another one. They’re almost identical at first glance, but once you dive in deeper there are several differences. If you’re researching ACH payment vs wire transfer, then understanding the difference can help you out a lot.

During ACH transfers, information such as account numbers and routing numbers are sent in a batch to the automated clearinghouse, which then clears the payments and sends them to the bank. The ACH payment network acts as a middleman when it comes to payment clearing. 

Wire transfer on the other hand transfers funds from one account to another, but instead of the ACH, banks act as a middleman.

1. Speed Comparison: ACH Payment vs Wire Transfer

Depending on different details, an ACH transfer can take two to three business days to complete. They take more time because several payments are processed by the banks at the same time. 

Wire transfers send funds almost instantly. The funds aren’t left on hold and the receiving entity can access the funds right away. 

2. Cost: ACH Payment vs Wire Transfer

Some ACH payment providers have a fixed flat fee ranging from $0.20 to $1.50 per transaction. Businesses may also have to pay a separate fee ranging from $5 – $30 per month just for using the ACH service. There are some other charges such as ($2 – $5 per return), reversal/chargeback fees ($5 – $25 per incident), and batch fees of less than $1.00.

The good news is that ACH fees are still lower than other payment methods. Typically, ACH transactions often cost a business under one dollar per transaction based on transaction volume and potential risks. This is what makes ACH transactions an attractive choice for most users. Plus, the more ACH transactions you do, the less you have to pay per transaction. 

Wire transfer, on the other hand, can cost both the sender and the receiver. Many financial institutions charge $10 to $35 to send, and smaller institutions may also charge a fee to receive a wire transfer. For high-end payments, these costs can add up to $55 when combining all the fees, and sending money internationally can cost even more. 

3. Payment Security: ACH Payment vs Wire Transfer

Businesses and individuals need to send and receive money securely. ACH transfers are safer for the senders. Unlike most wire transfers, funds can be reversed if any fraud or payment error is detected. 

Wire transfers have a few disadvantages for the recipient. They’re a full step above cashier’s checks, which are pretty easy to fake. When you receive a wire transfer, you can access and use the money instantly. 

For senders, there’s a lot more risk involved. It’s important to know or confirm the person or account you’re sending money to, if you make a mistake and send money to the wrong party, they can withdraw those funds. Wire transfers are only insecure if you make a mistake in the sender’s information, or if someone has scammed you into sending money.

Benefits of ACH Transactions

The reason why the ACH payment method is so famous in the USA is that it offers 3 main benefits:

1. Cost-Effective

For an organization that uses ACH payments, ACH payment fees can range from a few cents to a few dollars, based on transaction size and volume. Compared to domestic wire transfers, ACH payments cost almost next to nothing. 

2. Easily Repeatable Payments

ACH payments are repeatable. Credit cards and debit cards expire or get stolen. On average the US checking account is 14 years old, so you need to link your account just once to the ACH payment network. This makes ACH a great solution that reduces the transaction risk with each wire transfer involving the same accounts. 

3. They’re Convenient

Older methods of sending and receiving money aren’t ideal and they offer a poor customer experience. Handling paper checks can be labor-intensive for everyone, wire fees aren’t ideal for the receiver, and credit cards require a lot of data inputs. And we can all agree that cash is a security risk that also requires trips to banks and standing in queues. ACH transfers are convenient and reduce the level of risk and hassle for users.

Limitations of ACH Payments

ACH payment network isn’t perfect, and here are the limitations of using ACH payments:

1. Speed

Default ACH transfers can take multiple business days to process, and even same-day ACH isn’t exactly same-day. This can leave parties with difficult decisions regarding withdrawals, shipping products, or honoring service contracts during the interviewing time. With slow processing, you can also have confusing balances, where consumers can forget about pending debit and end up with overdrafts and end up paying other charges.

2. Risk

As receiving entities won’t know for hours or days after a transaction has cleared, scammers and fraudsters can take advantage of this delay. This particular risk has eliminated ACH’s adoption for single-transaction uses and has also forced banks to place limits on how much money consumers can transfer.

How to Set Up ACH Payment?

Here’s how to set up ACH payment for your money transfer needs:

1. Set Up Your Account

Regardless of the industry, you’re in, ACH payments can increase revenue. ACH payments come with lower transaction fees compared to wire. Before you can set up an ACH payment account, you’ll need to choose a payment processor which is the next step.

2. Choose an ACH Payment Processor

You should contact your bank to figure out the ACH payment processing fees. It may be more efficient for you to connect with an ACH operator or payables automation solution. Comparing the details of features and the workflow from 3-4 different providers can help you choose the ideal ACH payment processor according to your needs. 

3. Finish the Paperwork

You’ll learn a lot about ACH payment processing when you fill out the necessary paperwork. ACH payments work by sending money from one account to another electronically. If you’re using wire transfer up until now, you can save a lot of money by switching to the ACH payment method. 

Visit your bank and complete the paperwork as directed by them.

4. Understand the Types of ACH Payments

To learn how to set up ACH payments, you’ll need to learn about the types of ACH payments. There are 4 basic types of ACH transactions:

  • PDD: this means there has been written permission from the payer to have funds debited from their accounts. Writing a check won’t qualify as permission when conducting a PDD transaction.
  • WEB: When the payer permits the internet to have the funds debited electronically, it’s known as a WEB ACH transfer. Specific authorization language is used in the permission process, and this language should be understood by the payer. 
  • TEL: With TEL ACH transactions, the payer provides information over the phone for money to be debited from their account. When a TEL ACH payment is processed, the phone call is recorded for verification. 
  • ARC and BOC: In ARC and BOC ACH transactions, a written check acts as permission however, the payer has to be notified that the paper check can be converted for conducting an ACH transaction.

5. Choose the Right Entry Class

Businesses have to familiarize themselves with several entry classes before processing ACH Payments. Most of the time it’s ideal to choose a service provider who will help you in processing the payment correctly. 

There are more than a dozen entry classes and you need to make sure to choose the one that suits your spending habits. 

6. Carefully Go Through ACH Payment Terms and Conditions

It’s essential that you go through the terms and conditions carefully. If you choose to sign up with an ACH payment provider, then you’ll get a detailed terms and conditions document that will help you understand almost everything. It will also detail the steps you can take to learn more and it will answer all the questions.

How to Make An ACH Payment?

Contrary to popular belief, it is pretty easy to learn how to make an ACH payment. Here are all the steps you need to follow for an ACH transfer. 

1. Gather Crucial Information for ACH Transfer

To make a transfer, you’ll need to provide your name, your routing/ABA number, account number, account type, and transaction amount. If your account has check-writing privileges, you should be able to get the account and routing number on the check. Besides bank accounts, credit unions can also be used for ACH payments.

2. Choose Between ACH Debit and ACH Credit

To execute the correct payment, you’ll need to differentiate between ACH debit and ACH credit.

ACH Credit is used to pay bills, with these transactions you provide your financial institutions with the authorization to pay a utility company or a loan provider. 

With ACH debit, you establish the transaction with the payee. In this transaction type, you’ll submit your payment details such as account and routing numbers to the payee. Compared to ACH credit, ACH debit poses a higher level of risk. 

Regardless of the type of payment you choose, you get the same level of convenience and cost-effectiveness. 

3. Finish the ACH Transfer

Before you go through the final process and transfer funds using ACH, you have to complete some paperwork. Now, most of that paperwork has gone digital and it provides a greater level of convenience. Some institutions may still ask you to fill out the physical paperwork, either way, these are the steps you need to follow:

  • Link account. This is an essential step and it can be completed fairly easily. To complete this step, you’ll need to fulfill the ACH instructions mentioned to the financial institutions who’ll be handling the transaction. 
  • Clarify if the transaction will be a credit or debit to the account where the transaction will initiate. 
  • Enter the payment amount. 
  • Specify the payment date. Most financial institutions will allow you to post-date a payment. 

Final Take: Understand ACH Payment

If you’re looking for a solution to move funds from one bank account to another one electronically, then the Automated Clearing House is an ideal option. This is also the case if you’re on a tight budget and want to keep costs as low as possible. And with the introduction of same-day transfers, the speed, and convenience of payments have been improved.

Categories
Bank

AML and KYC Compliance with Open Banking

Regulatory compliance is the biggest challenge for most financial institutions as it keeps changing. Financial services must have regulations that minimize the risks of customers engaging in illicit financial activities such as money laundering. Every financial institution is aware that collecting and leveraging financial data is costly. The time taken to onboarding customers tends to be lengthy and most customers leave the KYC compliance process in between. Businesses operating in the financial industry are finding it hard to access financial products due to the extensive information it requires.

Compliance costs are increasing annually due to the constant changes in the KYC and AML regulations which is vital to reduce the risk of financial crimes. According to a report, major financial institutions spend up to $500 million annually to stay compliant with KYC and AML regulations. Open banking can help in reducing compliance costs by streamlining the onboarding process by leveraging customer data to mitigate risks. The use cases of Open Banking can include retrieving information about the customer and the institution onboard. With open banking, the basic data such as name, DOB, country of residence, and address can be accessed easily. Without open banking APIs, a huge series of information won’t be available to banks such as a source of wealth, transactional data, and other sources of information.

Although, open banking is a helping guide to the traditional banking compliance teams instead of a substitute for the compliance team. Many onboarding and AML decisions will keep relying on the judgment and risk factors of financial institutions.

Open Banking and KYC

KYC is a due diligence process that financial institutions need to follow during the initial relationship with clients. In its entirety, KYC and background checks help banks and other institutions determine if the person is who he/she claims to be and if they are involved in some illegal activity. 

Depending on the financial service that’s being offered to the customer, the level of due diligence and the amount of risk faced by businesses change. There are three levels of KYC verification and all of them have the same objective. The only major difference is the amount of information that has to be collected from the customers. 

  • Simplified Due Diligence: This level of due diligence is applied to customers with the lowest level of financial risk. The information required to complete this is basic such as name, surname, and date of birth. In the EU, each state is allowed to make up its policies regarding data collection and they have to apply the guidelines offered by regulators. 
  • Ordinary Due Diligence: This level of due diligence is applied to low to medium-risk customers. Medium risk customers can be businesses that offer financial services of their own as insurance and credit services. Ordinary due diligence requires more data compared to simplified due diligence such as the location of the business and customers, source of income, and national insurance number (if required). 
  • Enhanced Due Diligence: This is the strictest due diligence that’s applied while onboarding high-risk customers. High-risk customers can be businesses that deal in financial services, politically exposed persons, persons on sanction lists, and businesses that operate in high-risk countries such as the Cayman Islands. 

In the current regulatory landscape, there is no fixed information that’s required by banks or regulators. A common or centralized digital ID verification method is required for banks and other financial institutions to reduce the risk of financial fraud while offering a seamless customer onboarding experience. While this is almost impossible to achieve, the ideal thing to do is a partner with FinTechs that can offer seamless online document verification software, online KYC verification software, and other solutions that can mitigate risks and improve customer onboarding.

Open Banking and AML

In the current environment, banks have a limited view of what their customers are up to. The information available is limited to the information that firms can collect from clients or public data sources. It also means that to comply with AML regulations and to monitor transactions, banks and regulators have to rely on information that comes from unreliable sources. 

With the widespread implementation of open banking and open banking APIs, this situation can be easily solved. As open banking relies completely on data sharing among banks and third-party service providers, collecting trustworthy data to onboard and monitor customers becomes seamless. By embracing open banking APIs, banks can access data from a trusted entity about any particular client, thus making KYC and AML compliance easier.

Instead of accessing only a fraction of customer financial data, firms would be able to gain a broader view of the entities they’re doing business with. This would make banks and financial institutions better at detecting fraudulent behavior and patterns in a customer’s transaction history.

This is why digital transformation is crucial in the financial industry. Being able to access data will allow a standalone financial service provider to provide customized services to customers. Tedious and risky processes like lending and assessing creditworthiness will also become easier. Open Banking APIs will allow firms to collect quality data about customers and businesses which will not only help them but other businesses and service providers in the industry.

Conclusion: Open Banking and Regulatory Compliance

To summarize, Open Banking opens new doors for banks and other businesses operating in the financial landscape by allowing them to access more data. More customer data means a better assessment of customer behavior and the risk level a customer poses. Widespread use of open banking APIs will also boost innovation in the industry, as the third-party service provider will try to offer customized services to the customers.

Categories
Document Verification

Health Insurance Verification Process: All You Should Know

Verifying patient insurance data has multiple benefits, even though it is an overwhelming task for most institutions. No medical professional wants to deal with insurance as it’s an enormous hassle. It’s difficult to comply with and verifying insurance means going through a plethora of steps. With the rising amount of insurance fraud since the global pandemic, healthcare institutions need to verify insurance documents. The insurance verification process is not at all simple, there are several things involved. Verifying insurance is crucial for hospitals to ensure they can provide the best possible care with minimum fraud.

What Is the Health Insurance Verification Process?

The entire process of insurance verification revolves around a series of steps that check whether a patient can make a reimbursable claim to the insurance provider. The verification process involves multiple parties, which makes the process more complicated. Different patients have different insurance providers, each insurance provider has its own set of rules.

Steps for Verifying A Patient’s Insurance Information

While different insurance providers have different policies, the foundation of steps remains the same. There are three main steps any healthcare institution has to follow to successfully verify a patient’s insurance data.

1. Collect Patient’s Insurance Data

The foremost thing that you have to do is to collect some basic information from the patient as soon as possible. Insurance verification can be tiresome and time-consuming, so the sooner the verification process starts, the better. Lack of time in the insurance verification process leads to error, and that’s the only thing fraudsters aim for. 

It is ideal to ask for insurance information when the patient calls for the first time to set an appointment. Vital data that you should collect initially are:

  • Patient’s name and date of birth
  • Name of the insurance company
  • Name of the primary insurance holder (and their relationship with the patient, if applicable)
  • Patient’s policy number and group ID number
  • Address and phone number of the insurance company.
  • Confirm whether the patient holds any secondary insurance policies (if they do, you’ll need to ask the same questions for every policy)

2. Reach out to the Insurance Company Before the Patient Visit

This is probably the most time-consuming process out of all the steps. The process can easily take 24-72 hours. The ideal scenario is to reach out to the insurance company 72 hours before the patient visits the hospital. Completion of this step will ensure you have all the information you need before the patient walks through your doors. 

A. Contact By Phone

The most common and straightforward way of reaching an insurance company is to just call them. From the information that you’ve got from the patient, it’s easy to find the number of the insurance carrier. 

Once you get through to them, the first thing to do is to ensure you’re in touch with a representative. A lot of insurance providers have contact numbers for hospital admissions and referrals. Once you confirm that you’re in touch with the entity you want to talk to, the representative on the other side will ask you for some information to confirm whether this is a HIPAA-secure exchange. Once you’re through that, the representative will ask for the patient’s information for cross-checking with their database. 

Most of the time, you’ll be able to get through to a representative pretty easily. If you’re unable to get in touch with them, calling at a different time or on a different day is the only solution. 

B. Search Online

Some healthcare institutions don’t have the resources that can sit around the phone all day trying to reach out to a representative. Fortunately, there’s a way to skip telephonic communication altogether and seek out online eligibility checking resources. There’s no one particular source that can act as a gold standard, you may have to go through a series of resources and directories. If the patient has a huge insurance carrier, then chances are hospitals can submit insurance-related questions on the website and verify the insurance data. The top players in the health insurance industry in the USA are “Humana, United Healthcare, Aetna, and Cigna”.

3. Acquire As Much Information As You Can

Let’s say you got through to a representative, it’s crucial that you gather as much information as you can for insurance verification. There are some common questions that you need to ask. Most healthcare institutions have their own set of questions they need to ask for verification. Some common questions are:

  • Can you confirm the patient’s policy number and group number, the name of the primary insurance holder, and the relation of the primary holder with the patient?
  • What is the claims address?
  • Is this policy currently active, and what’s the end date?
  • How many therapy visits does the patient have left this year?
  • What is the patient’s deductible?
  • Does the insurance company require physician referrals, pre-authorizations, and certification of medical necessity for reimbursement? 
  • Are there any specific coverage limitations or documentation required?

The list of questions above are some of the most common questions, however the list increases and decreases based on the insurance type, hospital, and other factors. That’s all a healthcare institution has to do to verify insurance policy for reducing fraud and confirming eligibility. 

Reverify Insurance Every Month 

To stay on top of things and ensure that you’re aware of any changes in the insurance policy, hospitals must re-verify every month. Patients don’t have enough time to remind hospitals of every slight change. It is just a good practice to verify your patient’s insurance plan on a monthly basis.

Categories
Fraud

How to Prevent Fraud Proactively?

Today’s topic is related to the three important and effective ways to prevent the risk of fraud with a proactive approach. In order to use anti-fraud strategies, you need to be more alert and look around the corners to detect such happenings before they happen.

Since the rise of Covid-19, Fintech companies and other financial services have faced challenges to prevent fraud. 

According to the Aiteo Group, from 2018 to 2020, the cases of mobile and online fraud losses increased. And as per 27% of financial institutions’ surveys, online losses were more than 10%, and mobile losses were also over 10%. So, how can financial institutions and Fintech companies prevent such losses? 

The best way to prevent fraud is to build a proactive approach against the growing number of frauds. Here’s how FinTechs can prevent fraud proactively.

3 Key Elements to Prevent Proactive Frauds in Fintech:

1. Digital and Physical Identity Elements for Accurate Risk Assessment

According to Kount, it is important to have 100% verified documents of each user and customer to prevent fraud. Financial institutions and companies need to focus on verifying all the users’ documents with the help of digital and physical identity elements to ensure the accuracy of the documents. This helps in preventing the use of fake and stolen documents during onboarding.

When we talk about physical identity, we include social security numbers, payroll information, credit history, phone number, addresses, and tax IDs. And, when we talk about digital identity elements, we include account modification information, email addresses, login behavior, device information, payment information, account creations, and geolocation. The physical and digital elements are helpful for Fintech companies. Even financial institutions use digital ID data to get a complete profile of their users to minimize the risk of fraud.

2. Adaptive Authentication for Minimal Friction Customer Login Experiences

Adaptive authentication is an important step to verify a user’s identity to be able to trust the user or customer.  

If a user or customer is doubtful about their identity, then the financial institutions and banks can step up for multi-factor authentication. With the help of multifactor authentication (MFA), it will be easier to determine a user’s trust based on their transaction frequency, billing address, geolocation, IP address, a device used, and account age. 

According to the financial surveys, the account takeover fraud rates are over 10%, which is more than before the pandemic. 

The two key benefits of using adaptive authentication are that it helps prevent account takeover attacks, and the second is that it helps provide a smooth login experience for returning and new customers. Adaptive authentication is valuable for banks and Fintech companies to expand their customer base with less friction and risk of fraud. 

According to Benjamin Teal, Fintech and AltFi Industry Expert for Equifax, “As we start to see younger consumers seek financial services, fraud mitigation strategies need to be refined to incorporate evolving consumer behavior. “

He further said, “We know that younger consumers are digitally native and have fewer obligations requiring them to remain in one place. As a result, they engage in behavior that looks very different to older consumers. Sophisticated strategies will factor in these generational differences and create experiences that lead to higher conversion while keeping bad actors out.”

3. Deep Data Insights to Determine Identity Trust

Financial institutions and FinTech companies need more than just payment-related data to uncover identity theft issues. Identity theft can appear in different stages during the account creation process, application, and payment event, and log in. And, to prevent the risk of identity theft, the FinTech companies and financial institutions need relevant data to decide if the customer is genuine or not.  

In the recent webinar, O’Neill, the Enterprise Account Executive for Kount, said, “It’s not necessarily enough to look at payments data to compete against some of the largest banks and card brands, which have massive data networks. “

O’Neill further said, “When it comes to payments-related data, it’s really easy for big banks to say they know what a normal payment looks like and therefore know what an abnormal payment looks like. And that’s true, but you need more than that to make the best decisions.”

There are other fraud indicators like email addresses, geolocation, country codes, transaction amounts, and BINs.  

And to prevent the fraud related to these indicators, it is better to use a global network of fraud and trust-related signals. 

Once the payment data is combined with all the above elements, you can get a more accurate image to prevent proactive fraud in Fintech.

DIRO for Proactive Fraud Prevention

  1. DIRO’s document verification technology is great for Fintech companies and financial institutes for the instant verification of documents from the original source.
  2. With the help of DIRO’s document verification, the companies can save time and resources.
  3. Manual verification of data can lead to various errors, and the chances are high that manual a person could not identify real or fake documents.
  4. With the help of DIROs, you can get 100% verified documents from the sources, which means no chance of fraud and fake document threats that can lead to huge losses if not identified at the time.
Categories
Onboarding

Customers Onboarding Under KYC & AML Requirements

Financial institutions have to comply with various AML, CFT, and KYC regulations while onboarding customers. Businesses operating in the financial industry have to provide a risk assessment to their new customers. The reason why these compliances are vital is to enable companies to identify the level of risk a customer poses to the business. They can then apply appropriate fraud prevention methods to mitigate the level of risk each customer possesses.

The AML regulation is made up of a variety of factors to fight against money laundering and terrorist financing in banking. Banks spend millions upon millions to develop measures that can help in fraud detection and prevention during the initial stages of customer onboarding. Financial institutions and banks that fail to comply with these regulations have to face huge fines imposed by regulatory bodies. One of the biggest examples of this is the $5 billion fine faced by Facebook for not having measures that protect customers against data breaches.

Relationship between Customer Onboarding and AML

AML (Anti-Money Laundering) regulation is set in place to ensure stability in the financial system and prevent financial crimes including money laundering, terrorist financing, and so on. The losses due to money laundering are equal to 2-5% of global GDP. Every year, a global bribe of almost $1 trillion is given. The money that is laundered helps the growth of illegal businesses such as drugs, human trafficking, and so on. Therefore, regulatory bodies ensure that AML compliance is followed strictly by companies during the onboarding process to prevent financial crimes.

Most financial crimes happen because of the financial institution’s inability to detect fraudsters in the early stages of onboarding. When financial institutions fail to prevent fraud, the financial stability of an economy is impacted. 

Regulatory bodies do their best to prevent financial crimes by setting down a strict set of rules and instructions. Companies are legally obligated to perform customer due diligence checks and KYC checks to assess the risk level. Companies that perform robust due diligence checks comply with KYC requirements.

KYC & AML Requirement for Customer Onboarding

Companies have the authority of building their own unique verification process for complying with KYC and AML regulations as long as it yields results. Businesses need to hire compliance officers to fulfill and conduct the liabilities of the companies during compliance. Identifying and verifying customer ID is the most critical part of the KYC process. If a company fails to build a proper customer and ID verification process during onboarding, it could lead to huge fines imposed by the regulatory bodies.

The next step involves the company investigating the customer’s history. Based on the previous transaction history, any previous suspicious transaction is investigated and a risk profile is created. Based on the profile created by financial institutions, businesses choose a transaction monitoring pattern for the customer. Having too many high-risk customers can be risky for a business as monitoring can take up a lot of time.

The risk assessment part of the compliance contains Customer Due Diligence procedures including checking sanction lists, PEP lists, and adverse media screenings. These lists are created by regulatory bodies and they contain high-risk customer profiles for companies. Companies should determine customer risks during customer onboarding and proceed accordingly. Some things that FIs should consider while determining the risk level are:

  • Whether the documents submitted are real or not?
  • Industry in which the customer works?
  • Sanction and Politically Exposed Person List Screening
  • Financial Transactions History

If the customer is identified as a high-risk customer, enhanced due diligence (EDD) methods are applied. If there aren’t any suspicious activities during this period, the customer’s account is opened. To ensure that no illegal activities happen, continuous monitoring is required. To comply with regulations, companies need to control the financial transactions of the customer and analyze them.

How Can Companies Improve their Customer Onboarding Process?

Banks, financial institutions, payment providers, and others that provide financial services have to comply with KYC and AML regulations. The guidelines that they have to follow are seemingly endless. Financial service providers, such as banks, should ensure that they uphold a good customer experience while performing strict checks. Using manual methods of verification to combat financial fraud is outdated and ineffective. With the rise of the latest FinTechs, companies can comply with regulations all the while providing the best possible customer experience.

DIRO’s online document verification software can assist businesses in verifying customer documents like proof of address documents, bank statements, Income tax return documents, and so on. Document verification is instantaneous with DIRO, and it also provides a stronger proof of authentication with each verified document.