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eID Verification Process and Client Onboarding for Financial Institutions

eid verification

eID verification offers endless benefits for financial institutions, but the biggest thing it helps with is eliminating the risk of financial fraud. To streamline the transactions, customer verification, and client onboarding, eIDAS is vital.

It is almost impossible for individuals or business owners to get time out of their schedule to go to banks and financial institutions to open a new bank account or conduct any other kind of banking activity. The hours that banks operate under are not convenient for most and it is tough to go to the bank every other day to sign new documents for mortgages, vehicle loans, or to finance important capital purchases for their businesses.

While limited banking hours can be frustrating, it can also be frustrating for banks as it can disrupt the efficiency of the workflow of financial institutions. Various work processes are delayed while waiting for documentation to be completed.

Having to wait can be extremely costly for banks and financial institutions that are there to make money. This situation has gotten particularly worse since the pandemic, that is why having a fully digital system can be beneficial for banks and other financial institutions. Financial institutions that deal in cross-border transactions especially need to have digital solutions. It is vital that FIs also use electronic ID verification solutions that can help them verify who their customers claim to be. This is where the need for eIDAS becomes more than crucial.

What Is Required for eIDAS?

All the members of the EU are required to follow the guidelines of regulations regarding cross-border transactions. This regulation outlines the legal requirements and standards for procedures used to assure online identification by using several techniques. Section 2.1.2 of eIDAS states all the requirements for “Identity Proofing and Verification (natural person)” as it is applied to three levels of assurance.

  • Assurance level low
  • Assurance level substantial
  • Assurance level high

Bridging the Gap Between eIDAS and AML-Directives

Apart from complying with eIDAS to confirm the identity of their customers, FIs also have to comply with the European Commission’s regulations to tackle threats of money laundering and terror funding. Since the 4th Anti-Money Laundering directive, electronic documents qualify as valid documents for customer authentication and verification. With online document verification software, banks can comply with KYC and AML regulations much faster. This helps save time for both organizations and the customers during the onboarding process. Before the standardization of online documents for customer verification, manual verification, and onboarding used to take up to 2 weeks. 

eIDAS allows for cross-border validity e-identification, thus allowing banks and financial institutions to sell their products and services across nations within the EU.

A Simple Onboarding Workflow

The process of onboarding a new customer and verifying their identity is simple and can be accomplished by using any device capable of internet connectivity. 

  • First, the customer initiates the enrollment procedure using the bank’s website.
  • Then the customer sends information that contains minimal data, including Current first and last name, DOB, and unique identifier.
  • To reduce the risk of fraud, customers may be required to provide additional data including first and family name, place of birth, current address, and gender.
  • To complete due diligence checks, banks, and financial institutions may require additional data according to CDD/KYC rules.
  • If the information is verified during eIDAS, the customer is enrolled, if it isn’t verified banks may consider the person to be illegal, and additional actions may be taken by the financial institutions. 

How DIRO Can Assist in eID Verification?

DIRO’s online document verification software helps banks and financial institutions distinguish between fake, stolen, and authentic documents during the onboarding process. DIRO can help authenticate proof of address documents, online bank account verification and so much more. 

DIRO’s technology can verify over 7,000 document types from all over the globe and provides stronger proof of authentication backed by verifiable credentials. With DIRO, banks, and finance can enhance the customer onboarding and eID verification process.

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Future of Digital Onboarding, Security and Open Banking

Open Banking

Open banking is perfect for changing the environment of the API economy. For the finance and banking industries, as well as payments, insurance, and marketing, open banking offers a whole new scenario in the digital economy. Open banking can offer innovation, disrupt the traditional banking market and greater efficiency inspires optimism, but still, there are some challenges. Educating customers about new opportunities created by open banking will soon become a priority.

Open banking has all the capabilities of the future, but FinTech companies and their partners have to work hard to see open banking become a mainstream service. Customer onboarding, data privacy, and security of services are the three primary elements that’ll allow open banking to continue changing the world.

Current Situation of Open Banking 

Open banking means that banks have to allow FinTech companies access to individual customer accounts and transaction details when the customer requests it. With this, it is easy to reduce friction, increase customer choice, and improve competition. 

Various use cases range from easier small business lending to new payment options like cryptocurrency to better savings accounts. In the UK, the payment service directive, or PSD2 has jump-started the success of the sector. Similar businesses are working around the world, with countries like Japan, Singapore, and Australia focusing heavily on Open Banking initiatives.

Given that the service is relatively new, countries like the U.S. are hesitant to pass the laws that make the service mainstream. The biggest innovation in the space of Open Banking hasn’t happened yet. Open Banking hosts several features but it is new and the lack of education around it makes it suspicious in the eyes of customers and businesses.

The suspicion around open banking is deserved. If you’re giving them access to your bank account to a third party, it is imperative that you trust the entity completely. How is it possible to guarantee security all the while ensuring open banking remains untouched by a regulatory body?

Winning Consumer Trust in Open Banking?

FinTech companies in an open banking environment have to ensure security to potential customers. Open Banking companies will also have to show an original and innovative side while demonstrating that they offer secure data management. For a majority of companies, winning consumer trust will be the biggest challenge. 

But how can FinTech combine innovation with security? In simple words, open banking businesses should follow the lead of traditional banking businesses. Over time, traditional banking has built a huge amount of customer trust by focusing on security and privacy by performing rigorous due diligence.

Customers must be aware of what steps their financial service providers are taking to keep their data and funds safe. Privacy and security aren’t about following Know Your Customer (KYC) and Anti-Money Laundering regulations. Banks and financial services have to be able to provide the best security and privacy to the people they are offering their services.

Centralization of Identity

Verifying customer identities has always been the core of financial services. It is almost impossible to open a bank account without getting their identity verified. Unfortunately, the majority of the world keeps operating with analog tools in an evolving digital environment. Driver’s licenses or passports were mainly intended to be used for in-person verification and not online verification. So proving the identities of people during the account opening process remains a huge challenge. Another big challenge is that more than 1 billion people globally don’t even have an identification document. These people can’t travel, take part in commerce, and receive medical care or government benefits at all without identity documents. 

Things that were industry standard yesterday aren’t the industry standard today. Things are always evolving, and banks and financial institutions constantly need new tools to verify customer identity. In some cases, simple verification is more than enough. Other situations require robust identity authentication checks. Numerous circumstances have different circumstances, but the need for digital ID verification will only grow as time passes. 

Future of Digital ID Verification

New technologies and services can enhance the identity verification process and remove friction from the customer onboarding process. The benefits of technologies and services are extraordinary for both customers and firms. 

The customer has to go through a frictionless process, the business on the other hand enhances the ID verification process and reduces the risk of fraud. While opening a brand new account, each customer has to go through a series of steps that take care of risk and user experience.

The Decade of Open Banking

According to industry experts, the 2020s will be the decade of open banking. Open banking gives birth to new ideas, provides consumers with greater and more control of their financial lives, and it also creates new opportunities for small and medium-sized businesses.

However, there are a variety of challenges to overcome to make open banking a mainstream service. They will have to work a lot to enter the market while educating the public about how they maintain the security of the data.

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Crypto Regulations 2021: How Digital Currency Providers Can Stay Compliant?

cryptocurrency regulations 2021

Since cryptocurrency and blockchain technology has become mainstream, a lot of industry patterns have changed. Bitcoin’s sudden success in 2019 became the reason for the development of more than 2,000 cryptocurrencies. There is mixed opinion about the trail of digital funds, most governments are hesitant about the use of cryptocurrencies. Digital assets (cryptocurrencies) offer anonymity, so cryptocurrencies can be used for money laundering, terrorist funding, and so on. As the market value and popularity of crypto are growing, investors worldwide are seeing it as a good investment option. Regulations surrounding the crypto industry are also growing at an exponential rate, if some challenges are met with strict regulations, cryptocurrencies can change the current flow of the banking industry. 

The U.S government has taken stern measures in ensuring cryptocurrency regulations. Individual states in the U.S and the EU can impose their regulatory laws regarding crypto. The U.S government has shown a positive approach towards cryptocurrencies and blockchain technology. In 2019, the SEC launched a platform where brokers can trade Bitcoin, Ethereum, Bitcoin Cash, Ripple coin, and so on. 

Despite the trust in digital currency, the U.S Government has some concerns regarding the protection of the users. Some of the major concerns regarding crypto are:

  • Crypto-asset funds provide users with a huge level of anonymity. This level of anonymity works in the favor of fraudsters, money launderers, and those who fund terrorist organizations. 
  • Digital currency transactions are irreversible. If the funds are transferred to a fraudster or a scammer, there’s no way to get the money back.

National Defense Authorization Act (NDAA) 

Even though there are some concerns, the government knows that there has to be some level of compromise for compliance. Last year, the congress passed the National Defense Authorization Act (NDAA) for the fiscal year 2021. The act is for tackling terrorism and preventing fraud. Some rules enlisted in the act will affect the ownership and usage of crypto-asset funds, ownership, and usage of crypto and other blockchain platforms: 

  • FinCEN is to collect information and create a database of cryptocurrency companies. Organizations that own, operate, or transact using Cryptocurrencies will have to register with FinCEN to keep operating.
  • The cryptocurrency regulations are not just for the big operations. Even smaller companies are required to provide UBO information.
  • The NDAA act prohibits falsifying, concealing, misrepresenting, or attempting to hide and falsify information.
  • Whistleblowers can get up to 30% of the money in cases where the penalties are more than $100,000. Although the information should be about BSA/AML/CFT regulation violations.
  • Cryptocurrency companies have to report cases of suspicious activities using digital assets.
  • FinCEN (Financial Crimes Enforcement Network) has the authority to punish the firms that don’t comply with current cryptocurrency regulations. The penalties will be based on the violation of the rules.

Additional Cryptocurrency Regulations that Firms Have to Follow

The latest NDAA act can be considered just a start for the regulation of cryptocurrencies. Some rules regarding regulation and ownership of crypto assets can be amended.

  • Provision of information on transactions of more than $3,000. This information can include the contact information of the customer, the type of crypto asset funds used, and the time of the transactions. The level of information is not just limited to the above-mentioned factors.
  • Banks and other money service businesses will have to report transactions that are of more than $10,000 to FinCEN. The time duration for reporting is within 15 days from the date of the transaction.

FinCEN also announced that they are planning to amend BSA’s Foreign Bank and Financial Account regulations. Individuals and entities that possess crypto for more than $10,000 will declare it as their asset. Reporting assets without including cryptocurrencies is a clear violation of FinCEN policies. Now that FinCEN can punish the organizations, the best step is to punish them.

How Can Companies Stay Compliant?

The list of laws that cryptocurrency firms have to follow seems endless and excessive. But Cryptocurrency regulations are focused on making sure that compliance standards are met across all providers. Some of the laws in the new act are against the fundamental principle of blockchain and crypto-assets. Blockchain and cryptocurrency provide users with the authority of deciding who has access to their data. But with the government asking for a database defeats the purpose.

There are other concerns regarding cryptocurrency regulations. One of the biggest questions is how does the government regulate platforms when the government can’t verify the information? According to a report, 46% of legislative decision-makers don’t like the automated authentication process of blockchain and cryptocurrencies. And a further 21% don’t trust automated authentication at all.

Digital currency providers are facing a huge issue, as they can’t decide whether to comply with the regulations or stick with the fundamentals of cryptocurrencies and blockchain? Here are the things that digital asset providers can do to stay compliant.

  • Stay up to date with the latest developments in the cryptocurrency regulations
  • Make it a priority to inform stakeholders of minor and major changes in cryptocurrency regulations.
  • Use the US dollar as a unit of conversion while providing reports of suspicious activities.
  • Implement strong user verification procedures and place restrictions that comply with the law. 
  • Report any suspicious cases as demanded by the law.

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Top Use Cases of Blockchain Technology in the Banking Industry

top use cases of blockchain in banking industry

Blockchain or DLT (distributed ledger technology) is an open ledger that keeps track of transactions between two parties permanently. A blockchain is made up of multiple individual blocks all tied up to each other in a specific order. All the involved parties can share the online ledger using a computer network without any middlemen or intermediaries. This leads to faster transaction processing. Improved transaction speed is just one of the many benefits blockchain technology has to offer for the banking industry. 

How Banking Can be Improved with Blockchain Technology?

The overall benefits of blockchain technology make it clear that banking should be the first industry to fully implement blockchain. Blockchain can improve almost every single aspect of the banking industry and make it more secure and transparent. 

Blockchain technology has global implications and it can make trade more seamless and efficient by eliminating the need for documentation relied processes. A public blockchain can be of great use as no single person owns it and every involved party can access the information. Just a decade ago, blockchain technology was associated with digital assets like Bitcoin or Ethereum. That has changed now, utilization of blockchain in banking can enhance a lot of aspects.

Use Cases of Blockchain Technology in Banking

1. Faster Payments

As of now, sending money from one bank to another bank or sending money from one country to another is a huge hassle. By establishing a decentralized channel (cryptocurrencies) for payments, banks can use new technologies to facilitate faster payments. Wire transfers today cost $25-$50 based on the institution and the country you’re sending money to. The use of blockchain can reduce the time taken for payment processing and lower the cost incurred. 

By implementing blockchain, banks will be able to reduce the need for verification from third parties. Back in 2016, 90% of the European payments council believed that blockchain can change the banking industry in the next 10 years. 

2. Clearance and Settlement Systems

Instead of using existing protocols like SWIFT, banks can use blockchain to settle transactions directly and keep track of them more efficiently. 

Even the largest banks globally have to face tons of challenges while moving money around. Something as simple as a bank transfer has to go through several intermediaries and meet compliance regulations before finally reaching the destination.

The centralized payment processing method “SWIFT” processes only payment orders. The money is passed using a series of middlemen. Each of these transactions costs money and takes up a lot of time. Blockchain can allow banks to keep track of all transactions worldwide. Banks can eliminate the need for intermediaries and regulatory bodies to process and settle transactions instantly. 

3. Buying and Selling Assets

By eliminating the middlemen and asset rights transfer, blockchain technology lowers the asset exchange fee. According to studies and reports, using blockchain for moving securities can help in saving more than $20 million annually in global trade process costs.

It is not easy to buy and sell digital assets like stocks as most of the process requires keeping track of which entity owns what. In the earlier days, the purchase and sale of assets were done with a complicated network of middlemen and exchanges. All these transactions revolved around paper documentation. 

Being able to do the same thing electronically is tough and most of the time, buyers and sellers have to rely on a third party to keep track of documentation. Blockchain technology can change the financial industry by keeping decentralized data of digital assets.

4. Blockchain for Accounting and Auditing

Out of all the aspects of online banking, accounting is one section that has been especially slow to move toward digitization. To digitize the accounting process, a series of regulatory requirements involving data integrity and validity have to be met. The implementation of blockchain can bring drastic changes to the accounting and auditing sector as well. 

Industry experts believe that the implication of blockchain technology can simplify compliance and smoothen bookkeeping systems. Instead of maintaining separate records of transaction receipts, firms can add the information in a joint book. All the entries made will be decentralized and accessible to involved parties. 

Thus, the records will be more visible and secure. Blockchain technology will play the role of a digital notary that verifies all the transactions. 

5. Digital Identity Verification

Most banks, firms, and financial institutions still rely on antique, paper-based manual document verification for customer ID verification. A sluggish process that is full of friction forces customers to switch to another organization. With blockchain integration, both companies and customers will enjoy a faster, more secure, and more efficient customer verification process. Blockchain will allow other organizations to reuse customer data for customer verification for other services. 

Future of Blockchain In Banking

Banking industry experts believe that blockchain technology will improve some banking standards, but only if several conditions are met. To use blockchain to its full extent, banks need to build infrastructure that can support and operate a global network. A thorough implementation of blockchain is enough to bring huge changes in the banking industry.

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Know Your Customer Compliance: How Much Does It Cost To Verify Customers?

know your customer cost

Trust goes both ways, both the customers and businesses need to trust each other for maintaining a healthy relationship. Even in the digital age, earning trust is crucial. If a brand can offer trust in all its services, customers will stay loyal to the product and services. With the heaps of data breaches and financial fraud, firms have to make their customers believe that they are capable of protecting their information and transaction history.

To maintain a brand reputation, firms have to make sure that fraudsters don’t gain access to the internal systems and harm customer data. As most businesses are moving towards an online environment, the process of verifying customers is changing. 

Financial services are regulated by domestic and international bodies that provide a set of rules around Know-Your-Customer (KYC) regulations. Following up with the KYC compliance is important for reducing fraud, preventing money laundering and other financial frauds. 

Maintaining Balance Between Time & Cost 

The need for complying with KYC requirements has complicated the account opening process. A survey conducted in 2017 stated that the customer onboarding process increased 22% in 2016. The time taken is expected to increase by 18% in 2017. To put a number on that, banks took an average of 24 days to complete the customer onboarding process. Banks and financial firms need to improve their customer onboarding process using online verification methods.

Why Developing a 360-Degree Customer Profile is Crucial?

Building a complete 360-degree customer profile can’t happen if businesses rely on only a single source. A lot of information has to be acquired from a series of sources. Traditional systems can’t handle the data sources, and developing a complex set of integrations is costly and time-consuming. Having a proper customer profile helps banks and financial institutions to assess the risk level. With market dynamics changing constantly, there aren’t just enough tools to build the profiles. Building a comprehensive customer profile relies on three factors. 

  • Access to data from multiple sources
  • Collecting and managing customer data in one place
  • Assessing the information and converting it into actionable insight.

How Much Does KYC Know Your Customer Cost?

According to a report, financial institutions end up spending more than $500 million annually for KYC compliance. If we talk about JPMorgan, in 2013 they added 5,000 employees to their compliance team and spent $1 billion on controls. These trends show that the costs revolving around KYC compliance are growing.

KYC compliance processes have internal and external costs. Internal costs directly affect the verification process. The internal costs of KYC compliance include systems, licensing fees to operate checks, and staff/offices. External costs for KYC compliance include regulatory guidelines that require new training for all staff. 

Depending on the business’s scale, firms can have hundreds to thousands of compliance staff for customer verification and monitoring transactions. 

Steps Included in Know Your Customer Verification

KYC procedures are usually defined by banks and they involve necessary actions to ensure their customers are real, assess and monitor the risks. Strong KYC procedures help in preventing and identifying money laundering, terrorism funding, and other illegal schemes. 

KYC verification includes ID card verification, biometrics verification, and document verification (bank statements, utility bills, and more). Banks have to comply with KYC regulations and anti-money laundering regulations to detect and eliminate fraud. To comply with KYC regulations is a responsibility banks have to follow through. Non-compliance with KYC and AML regulations can lead to heavy fines imposed by regulatory bodies. 

From 2008-2018, a total of USD 26 billion in fines have been levied for non-compliance with AML, KYC.

Know Your Customer KYC and Customer Due Diligence Methods

The KYC policy is crucial for banks and financial institutions used for the customer identification process. The regulation is born out of 2001 Title III of the Patriot Act, which aimed to provide tools for reducing terrorist activities.

To comply with the domestic and international regulations against money laundering and terrorist funding. The implementation of strict Know Your Customer procedures have to be implemented. Banks build their KYC policies incorporating four main elements including:

  • Customer policy
  • Customer identification procedures (data collection, identification, verification, politically exposed person/sanction lists).
  • Risk assessment and management (due diligence, part of the KYC process)
  • Continuous monitoring and record-keeping

The process includes verifying customer identity using documents, including government-issued documents. 

Keeping information Up-to-date

To be able to verify customers, the data has to be up-to-date. A customer of a bank from 2018 may now be part of some sketchy activities and continuous monitoring helps the bank achieve that. According to surveys, 58% of all businesses rely on outdated data for verifying customer identities. 46% of businesses reference data that is not accurate and comes from different inconsistent sources.

Costs are Going Up For KYC Verification

Until there’s a standardized process available worldwide, the costs incurred by businesses for KYC verification will keep on growing. During the Covid-19 pandemic, the cost of Know Your Customer verification for some companies grew at a rate of 170%.

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Customer Due Diligence: Moving from KYC to KYB

KYC to KYB Compliance

Banking is one sector that is always profitable but is also constantly surrounded by fraudsters. Frauds, as well as compliance risks, are often complicated and intricate. To combat the fraud, banks and financial institutions are spending a huge amount to keep up with KYC compliance. The average cost of KYC compliance yearly is close to $100 billion globally. Even after investing such huge amounts, banks all over the globe still have to suffer losses at the hands of fraud.

That’s not all, banks have been fined more than $300 billion since 2008. To make things even worse, financial crimes such as money laundering, terrorist funding, and cyber frauds are increasing, that’s why banks and FIs need to buckle up and focus on customer due diligence.

Regulatory bodies all over the world are working round the clock to enforce KYC and KYB regulations all over the globe. One of the first regulations that were enforced was amid the Vietnam War all the way back in the 1970s.

The aim of this regulation was to counter money laundering activities from growing illegal drug trafficking. Under the BSA act, banks are legally obligated to report any suspicious consumer activity and transaction for more than $10,000.

The regulations made it almost impossible for drug dealers, terrorists and other criminals to launder money as every huge and suspicious transaction was constantly under monitoring.

Introduction of KYC to the Financial Sector

The Banking Act of 1970 later became the foundation for the Anti-Money Laundering (AML) regulation. AML regulation came to fruition in 2001 under the US Patriot Act after the incident of 9/11. Customer Due Diligence was declared necessary for all financial institutions. The term for doing CDD is more commonly known as KYC or Know Your Customer.

The KYC regulations became strict over time to reduce the flow of illegal money as much as possible. KYC asks financial institutions to verify the customer and to ensure who they are. Verifying customer identity gave birth to a series of steps and approaches to comply with the CDD and KYC laws. As the US regulatory changes tend to affect the global financial industry, the KYC and CDD laws were soon followed by the banking sector globally.

The financial sector derived several ID verification methods to successfully comply with the laws. These ID verification controls include:

  • Maintaining a thorough Customer Identification Program (CIP)
  • Cross verifying customers against the list of suspicious people released by Law enforcement agencies. 
  • Predicting and analyzing customer behavior and customer risks associated with a particular person. 
  • Constant screening and monitoring of transactions to look for suspicious activities and hints of money laundering. 

KYC is the primary and the biggest line of defense for the financial sector against financial crimes with minor changes. For a regular customer, the KYC laws seem robust and efficient, however, in 2016, a loophole was identified in the KYC compliance regulations. 

 Banks were unable to identify the identity of stakeholders and UBOs of a business they provide services to. The Panama Papers Scandal was the tipping point in the KYC regulations. The scandal brought to light that legit businesses can hide the identities of bad actors and perform money laundering and financial crime. Thus, a new regulation was created known as “Know Your Business (KYB).”

How KYB Improved the KYC Regulations?

Regulatory bodies made some improvements to the KYC regulations and included Customer Due Diligence for financial institutions. Under the new law, Financial Institutions are now required to perform strong verification checks. KYB regulations are built to identify shell corporations that are involved in money laundering, tax evasion, terrorist funding, and so on.

Organizations are legally obligated to verify the person who owns the business legally and also verify the identity of stakeholders holding a minimum of 25% share in the business. The same law was passed by the EU in the fourth AML directive (AMLD4). With the release of AMLD5 and AMLD6, the process was improved to make the business entity’s due diligence more transparent. 

However, KYB compliance isn’t as easy to achieve as KYC regulations. The biggest challenge in complying with KYB laws is verifying the identities of the stakeholders. In a majority of cases, no record of these entities is available. Also, different jurisdiction laws vary which makes verifying identities even tougher. These challenges sometimes make it almost impossible to verify the identities of stakeholders of a business. For firms that want complete compliance, not being able to verify identity can make them susceptible to huge fines by regulatory bodies.

Choosing Technologies as a Solution Provider

Since the financial crisis of 2008, various unique and helpful technologies are rising up to help in reducing the burden of compliance and assist in making the process easier. At its core, new technological solutions can help in strengthening the KYC & KYB programs for better compliance. 

DIRO is also helping countless organizations worldwide to make their KYC and KYB compliance programs easier. DIRO online document verification tool provides instantaneous online document verification for frictionless KYC and KYB verification. DIRO’s online document verification software verifies over 7000 document types from around the globe, it also verifies document data from an original web source, thus eliminating the use of stolen and forged documents by 100%. By incorporating DIRO’s online document verification software, banks and financial institutions can fortify their compliance programs.

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Customer Onboarding: Providing Seamless KYC and User Experiences

customer onboarding

As a business, you’ve built your marketing campaigns and you have interested buyers ready but your customer onboarding process isn’t up to the mark and it’s hard for your business to acquire new customers. The customer onboarding process needs to be efficient and seamless. Whatever the reason, you won’t be able to grow your business without having a proper customer onboarding process.

According to reports, before the Covid-19 pandemic customer account opening process was the make or breakpoint in the relationship for a customer with a brand. That situation is even worse when firms were forced to shift to online methods.

The online sign-up process may seem simple at first, but the choices that a business makes regarding the customer onboarding process make the shape of the process. Finding and implementing ideal technological solutions are often the difference between success and failure. 

Providing a seamless onboarding process to the customer increases confidence and trust while building a great brand reputation. 

Customer Onboarding and KYC

For various organizations, performing Know Your Customer is a vital step in customer onboarding. While KYC isn’t a legal requirement for every business, it still helps in preventing fraud and verifying customer identities. A business should be aware of whom they are doing business with and what kind of risk they pose to the business. 

Sadly, if not carefully considered and optimized, KYC can lead to an onboarding experience that’s slow and tedious. An imperfect process often results in an increased customer drop-off rate. 73% of all customers have stated that the increase in intolerant poor experiences will force them to switch to another business with a better onboarding process. 

So what can an organization do that balances the need for security and speed while onboarding customers. The first thing to do is to use a risk-based approach, different customers have different needs. So being able to handle new clients the same way isn’t ideal. Understanding the different risk levels customers pose and adapting the onboarding requirements to fit specific scenarios offer better results. 

Document verification technologies can be used to verify customers. Verifying ID documents offers a certain level of secure ID verification for businesses.

You need to consider which technologies make sense when onboarding customers in specific situations. Having various options to verify customers and optimizing the workflows to meet the needs of the customers is the best way to enhance the customer onboarding process. Using deep data analysis, ID verification technologies, online document verification tools, and manual verification intelligence can lead to maximum conversion rates and enhanced ROI. 

Improving Customer Experience during Onboarding

Even the smallest of steps count while eliminating friction from the customer onboarding experience. Some common measures to improve the customer onboarding experience include:

1. Minimizing Data Collection

Most customers aren’t too comfortable with sharing their personal information with businesses. Banks, financial institutions, and other businesses need to carefully consider which information they need from the customers. The more information you ask from the customers, the fewer chances are a customer to stick around. Businesses also have to consider the complex set of data privacy laws, the more data they collect, the more risk they face of going through a data breach. Also, managing huge amounts of data isn’t cheap. 

Ask for the really necessary information. Firms can survive without asking for non-essential data from onboarding customers. 

2. Reducing Onboarding Time

 According to a survey, banks in the USA take up to 2 weeks to successfully onboard a new customer. To reduce the onboarding time and eliminate friction from the process, go through the onboarding process. Ask various members of your team to go through the process to figure out the major problem points. For most banks and financial institutions, this step can reduce the drop-off rate incredibly.

3. Measuring Benchmarks

It’s just not enough to go through the onboarding process once and forget about it. As a business, you should track the performance of the onboarding process. Measuring the success and failure points of your customer onboarding process can help your business get better success. Keep an eye out for metrics such as form abandonment and conversion rates. 

You should also monitor the backend process to reduce false positives and the rate of fraud. Analyze how effective your customer verification process is.

4. Optimizing Experience for Different Markets

Businesses need to understand the market in which they operate. Having an insight into the target market can help in optimizing a customer onboarding process based on customer behavior and industry trends. Different audiences have unique expectations from an onboarding process. Even something as small as asking for additional information can lead to instant customer drop-off. 

5. Providing a Safe and Secure Process

More than 70% of all customers consider security as the most crucial part of any account opening process. With the growing rate of fraud across industries, customers are wary of opening new accounts online. To ensure a customer has the best onboarding experience, brands have to establish a certain degree of trust in the process. 

Organizations need to offer the right trust signals and should have robust technologies set in place to detect and prevent suspicious activities early on. 

How does DIRO Assist in Customer Onboarding Experience Enhancement?

Manually onboarding customers is time-consuming, ineffective, and incredibly tough because of the pandemic. Businesses need to go digital and provide a smooth, frictionless onboarding experience to customers. 

With the integration of technologies in manual workflow, organizations can streamline and strengthen the overall process. DIRO’s online document verification software provides instantaneous document verification. With DIRO online document verification tool, businesses can verify customers from all over the world as it verifies 7000+ document types.

DIRO cross-verifies document data from the original web source, thus eliminating the use of fake and forged documents by 100%. It also provides 100% proof of authentication backed up by verifiable credentials. By using DIRO online document verification software, firms can add an element of security and speed to their customer onboarding process.

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Using Screen Scraping Vs. Bank APIs: How Do You Differentiate Between the Two?

screens scraping vs bank api

Many industry experts believe that open banking is the future and it can provide robust protection against money laundering and other types of financial fraud. Since the Covid-19 pandemic and the use of technologies for banking services, open banking has started catching the attention of other people. One thing’s for sure, open banking will become a more common standard in the industry.

Just a year from now, the number of financial institutes offering open banking will climb from 20 to 200. The reason? Well, most of the biggest banking brands in the financial industry have already started implementing these portals because financial institutions want to quickly capitalize on the newly opened market.

Even the smaller institutions in the industry are trying to jump on the open banking bandwagon. As the technologies will become more proficient, the open banking environment will become a crucial part of the financial industry.

To successfully transition to open banking, FIs will need to thoroughly understand screen scraping (which is a traditional way of data sharing) and banking APIs, which are vital for open banking.

So what’s the difference between screen scraping and APIs? And how do banks evolve from one to another to implement open banking?

Screen Scraping

Screen scraping is a common practice for gathering data in the industry. It is the process of collecting data from one app by inputting user credentials (username and password) and displaying that data somewhere else. Scraping is the cornerstone of data access today, mainly because it allows the companies to choose what kind of data they want to gather and which financial institutions they want to scrape data from.

When it comes to APIs, sanctioned API channels allow financial institutions to limit the fields of information. This can also lead to consumers losing the ability to access the data.

The biggest problem with screen scraping practices for FinTechs is that the process relies on scraped institutions’ website structure, this can be problematic when scraping of data happens without coordination with financial institutions. Screen scraping may not even function when the website downtime results in loss of connectivity. When you compare screen scraping with APIs, the connections are slower.

The only reason for FinTechs to rely on screen scraping technology is because it is the only way for them to collect data. Once they have access to a better, reliable, and faster path, FinTechs will abandon the screen scraping process overnight.

One of the major reasons why screen scraping gets a bad rep in the industry is because financial institutions aren’t aware of who is scraping their data and how much data they’re collecting. Also, financial institutions will have to be responsible for data breaches that happen due to scraped data.

Officers that have the job to maintain security throughout the institution have a really hard time distinguishing between legal and illegal activities. Finally, screen scraping based on credentials login isn’t ideal as the credentials can be stolen and used by someone else.

APIs for Open Banking

There are mainly two types of APIs:

  • Open Standard APIs
  • Proprietary APIs
  1. Open Standard APIs

Even in the Open Standard APIs, there are two different standards, “Open Financial Exchange (OFX)” and “Financial Data Exchange (FDX).” OFX access had some great APIs, more than 7,000 according to their official website. Although OFX has some disadvantages too, they aren’t regularly maintained, it requires a relationship with each financial service company FinTechs connected to, and some of the data can be incorrect. This lack of maintenance can lead to a lot of mistakes. 

FDX on the other hand is the newer and more used standard of Open APIs in recent years. There are even talks about OFX and FDX working together to create something much better for financial institutions. If that becomes a reality, this can be the future of Open Banking. 

  1. Proprietary APIs

The proprietary APIs are obviously owned by FinTechs and they share the same benefits as OFX and FDX, especially when it comes to reliability, speed, and consistency. Proprietary APIs are maintained in a better way because they are focused on and there’s a huge incentive to use these APIs.

Although these APIs aren’t really common, the data that financial institutions access through them is limited and sometimes even almost non-existent.

DIRO’s Online Banking Verification API

APIs are easy and simple to integrate into websites and they can cut costs and reduce the mistakes that financial institutions often make. DIRO bank account verification API can assist the financial institution in complying with KYC and AML regulations, fighting financial fraud, and reducing the costs of manual resources.

The DIRO provides financial institutions with a custom API key that can be integrated into their website and verify customer and client documents in an instant. DIRO cross-references document data from thousands of government and private original web sources to provide proof of authentication with verifiable credentials. Financial institutions can use DIRO bank verification API to make their workflow easier and eliminate the need for screen scraping for due diligence checks.

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Best Practices to Follow For Merchant Onboarding and Monitoring

merchant onboarding and Monitoring

Merchant onboarding is the key to growth for any kind of business, regardless of the fact if you’re a merchant acquirer, a payment service provider, or anyone else. As a business, you would want to have as many merchants to support more transactions. But, onboarding more merchants without proper due diligence can cause more losses than benefits. Businesses need to follow the best practices in merchant onboarding and monitoring practices.

As a business, how can you balance trade-offs, ensuring that you can quickly and seamlessly onboard merchants that can be trusted? While good merchants can improve your business operations, bad merchants can put you in heaps of trouble. 

The global payment market is growing rapidly and changing quickly as the sophistication of both technological and fraudulent attacks is advancing. There are numerous ways businesses can utilize to improve the risk assessment, monitoring, management, and onboarding of merchants. 

Before we jump into the methods of merchant onboarding, businesses need to be aware of risk management processes.

Risk Management for Merchants

The risk management approach for merchant onboarding is vital for learning how to onboard merchants:

  • What is the transaction level of the merchant and their network?
  • What is the industry type your business operates in?
  • What is the transaction amount and range?
  • What payment channels are they going to use?
  • What countries do the merchants operate in?
  • What resources are necessary to properly onboard and monitor the merchant?

As not all merchants are the same, the level of risk and the due diligence checks that you need to do are also different.

It’s true that there are different levels of due diligence for each merchant, but there is a standard that must be met across all the due diligence checks. There are some legal compliances that have to be followed, such as KYC & AML. There are some standard rules of the card networks, they demand that there are specific legal contracts with all merchants that control all the relationships. Other rules regarding credit underwriting, as the merchants have to be in effect by offering unsecured loans.

How does Merchant Onboarding work?

Onboarding the right merchant can be tough, but with the right steps you can successfully onboard a merchant:

  • Pre-screening
  • Merchant KYC procedure
  • Merchant history checks
  • Business and operational model analysis
  • Web content analysis
  • Information security compliance
  • Credit risk underwriting

One major factor for creating a more successful onboarding process is blending automation with human effort. Most of the industry runs around manual work such as data entry, which has to be done multiple times. Manual work takes up a lot of time and it has a lot of room for human error. This is why a blend of human error and automation is necessary for detecting and preventing merchant onboarding fraud. Combining human and machine efforts can be considered one of the best practices in merchant onboarding and monitoring.

Automation allows businesses to have a smoother integration between the merchant onboarding steps. With the right technologies, you can make the whole merchant onboarding process automated. Businesses need to understand the importance of best merchant onboarding practices.

What is Merchant Monitoring?

Payment service providers and other businesses shouldn’t stop their risk management after they’ve onboarded merchants. What happens when a merchant changes the nature of their business? A change in the risk criteria requires reevaluating the risk profile of the merchant. When a merchant changes their business model, they can be doing damage, so it’s better to reassess the merchant profile:

Here are some of the best merchant monitoring best practices:

  • Spikes in activities
  • Exceeding thresholds
  • Out of area or cross country transactions
  • Changing website products or links
  • Including people from the sanction lists
  • Adverse media mentions

For monitoring the merchants, automation has seen some efficiency. The industry is getting tougher to survive in. There’s a lot of competition, encouraging growth in high-risk segments and markets. There is a huge rise in CNP fraud, as counterfeit fraud becomes more difficult.

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How to Perfectly Ace Address Verification During KYB & KYC Process?

address verification during kyc and kyb

Customer address verification is vital for opening accounts, signing up for new services, and more, but verifying customer addresses isn’t as easy as it seems. The new automated method offers an up-to-date source for address verification and digital methods for address verification are perfect for businesses to reduce fraud. 

The biggest reason for identity fraud is the use of synthetic identity, where a fraudster uses a combination of fake and real information to create a brand new identity, which is one of the reasons why verifying an address is crucial for businesses to mitigate fraud. 

Also, using proof of address as a form of ID verification means that your business will comply with AMLD5 and protect it from other fraudulent risks.

What’s the Need for a Proving Address?

To avoid risks of fraud, proving customers’ addresses is vital for companies like financial institutions, eCommerce platforms, online marketplaces, and gambling sites. Businesses that have to prove customer identities to offer their services need to verify customer addresses. 

High-value eCommerce transactions also need proof of address verification, so that expensive purchases such as cars, technical equipment go to the correct addresses. If a fraudster can use the potential to use stolen card details to buy something and send it to a different address, they will. However, businesses that use robust address verification solutions can mitigate the risks of fraud. 

The Need for Regulations

Businesses, financial institutions, eCommerce marketplaces, and so on have to follow KYC and AML regulations to reduce the risk of fraud. If you follow KYC, KYC, and AML regulations, you reduce the threat and risk of fraud to your company. Using strong ID and document verification software and tools can assist businesses in mitigating fraud, and legal complications and establish trust in our customer base.

Proof of address is a basic requirement for complying with KYC & KYB and AML compliance. But that’s not the case with all countries, Hong Kong doesn’t require proof of address verification to comply with KYC, KYB, and AML compliance. The reason for that is simple, customers often change addresses and their documents can be easily forged.

Top Ways to Verify Addresses

The most commonly used methods of proof of address verification across the globe are:

1. Driving License

A driving license is the most commonly used document type for proof of address verification. However, using a driving license is not an efficient solution. Many people had their driving license issued years ago and chances are that they have changed their home since the issuing of the license. Another issue is that a driving license can be easily forged and thousands of fake licenses are used every day.

2. Passport

Passports usually show addresses, but the data available on passports can also be outdated. With many customers currently living at a different address than what’s shown on their passport that was issued almost 10 years ago, the use of a passport isn’t ideal. Also on some passports, current addresses aren’t printed and a space is left for residents to write their addresses themselves.  

3. Bank Statement 

Financial institutions, banks, eCommerce platforms, and so on have recently started using bank statements for proof of address verification. A recent bank statement can easily be used as proof of address. However, customers have security concerns regarding offering their bank statements. Financial services in Europe have seen almost 40% of customers abandon the customer onboarding process when they were asked for bank statements for address verification. Customers are hesitant to provide their sensitive data.

4. Utility Bill

Utility bill verification has been used for proof of address verification for a long while. Earlier the process was strictly paper-based, but since the pandemic, it has gone digital. This is the strongest form of address verification as the document is recent and hard to mimic. Utility bills provide the most recent address of a consumer, while most people don’t care about changing addresses on driving licenses, they are likely to pay their utility bills every month.

DIRO Online Document Verification Software for Address Verification

Verifying proof of address can help businesses fight fraud. DIRO’s online document verification tool helps businesses verify the signs of fraud early on. DIRO’s online document verification service verifies document data directly from the web source thus eliminating the use of fake and forged documents. By using DIRO’s online document verification solution, businesses can verify proof of address documents without having to worry about the use of fake and forged documents.