Home Online ID Verification – A Primer for Fintech Businesses

Online ID Verification – A Primer for Fintech Businesses

Organizations such as banks or financial institutions that offer any form of financial services or products are required to comply with government regulations. These regulations include such as things as Know Your Customer (KYC) and Anti-money Laundering (AML). Here is online ID verification, a primer for fintech businesses.

Fintech Regulation

All these regulations correspond to identity verification measures just the traditional banking institutes perform. ID verification in the banks corresponds to the understanding of onboarding customers. There is a risk assessment completed on each individual and a decision about whether an individual is capable of being dealt with by the bank or not.

Financial Institutions

Financial institutes have been prone to several threats in the past, including financial crimes such as money laundering, terrorist financing, and other suspicious transactions.

As a result of these threats, regulators across the world are stringent concerning security measures. These systems can identify the bad actors and activities in the system and fight against them accordingly.

Fintech businesses face similar challenges. Financial technologies are harnessing the best of the technologies that are advancing digital banking methods.


The reason there are many security issues in Fintech is the cybersecurity of the systems that hold highly confidential information related to customers and their financial status.

To secure the information of customers from data breaches, proper measures need to be taken in place. Today, ID verification systems are integrated with digital platforms. The identity and verification of each onboarded individual must face specific standards as they opt to perform the digital transactions or open an online account – while sitting at home.

The KYC process to consider in Fintech businesses correspond has several forms.

The approach towards identity verification covers these areas.

  • Customer Due Diligence (CDD): The CDD corresponds to customer identification and verification of its personal details. 
  • Enhanced Due Diligence (EDD): EDD refers to detailed identity verification in which AML screening is also performed thoroughly to check if an identity is in criminal watchlists across the world.
  • Customer Identification Program (CIP): The CIP is a proper ID and is done to verify the identity and its credibility to sustain the financial system.
  • Ultimate Beneficial Ownership (UBO): The ownership verification is done in which the beneficial owners of businesses are authenticated. This process checks to verify that the individual is not involved in any criminal activity. These people must be registered entities and hold a credible profile in business infrastructure. 

All these processes are different however, lie in the loop of KYC operations. Each of these processes is done by regulatory bodies and is essential for each Fintech business to conduct.

The discrepancy in compliance can lead to worse circumstances. For instance, as per regulators, the penalty for non-compliance can lead to harsh monetary fines, business asset abandonment, business freezing, and even years of imprisonment.

Components of KYC Process

For Fintech businesses, the implementation and execution of the KYC process while balancing all other aspects is crucially important.

For an online financial business, there are many perspectives concerning performance and security that need to be given proper attention. The attention to detail in the thorough KYC process is essential as any careless step can contribute to the suspicious financial flow.

The KYC process is performed to assign a risk against each identity. Risk assessment is done against each individual to identify the risk associated with it.

Continuous monitoring of accounts is done to make sure that transaction not to cross the particular limit and reaches an honest destination.

The following are three components of the KYC process.

  1. Customer Due Diligence: This process is what financial institutions do while onboarding a customer. Risk is assigned to individuals by performing a set of operations. These operations are identity verification, fraud analysis, and AML screening against sanction and PEPs (Politically Exposed Persons) records.
  2. Enhanced Due Diligence: If an individual or business is considered high-risk, then a more in-depth analysis corresponding to customer/client should be performed. For instance, a thorough screening of individuals against updated adverse media, data by law enforcement agencies and against news, etc.
  3. Continuous Monitoring: Identity monitoring is done through the customer lifecycle. It is done mostly against high-profile customers. Moreover, account mentoring is done to see if it is under the threat of data breach or to any other cyberattack. Suspicious activities and transactions are also monitored in this process.

Technology Incorporating KYC Process

The innovative KYC operations are integrated with the system of Fintech businesses that serve the purpose of identity verification. By employing Artificial Intelligence, machine learning, and other reliable technologies, the process of online ID verification is performed.

ID verification API is integrated with online systems that conduct documents as well as biometric verification of customers.

In mere seconds, using Optical Character Recognition (OCR) technology, the information from the document will be extracted and verified.

Moreover, based on robust underlying AI algorithms, facial recognition systems will perform facial biometric authentication.

In this way, the online KYC process will be performed. Technology has the power to keep intact both aspects of customer experience and online security simultaneously.

Online Identity Proofing

Each online individual that either wants to open an online customer account, perform digital transactions, transfer funds, or use any online financial service would require an individual to prove the digital identity to the system.

In this way, risk categorization is done dynamically. Based on real-time identification, a person is marked with a rating in risk assessment matrix and based on which the online processes are processed. Third-party ID verifications service is integrated with online systems whose operations are as per the regulatory requirements.

For online fraud prevention, identity proof is asked from a customer in the form of some official ID document that could be an ID card, driving license, passport, or credit/debit card.

The document authenticity is checked online, and screening of individuals is done against global watchlists and updated sanction lists.

An automated online process of KYC verification in the Fintec businesses can drive a vast and clean customer base. The regular KYC operation in the physical banks involves manual verification that takes hours and a lot of visits to the branch.

Fintech businesses promote the use of online id verification to shape a secure and honest digital community. Moreover, it ensures customer experience in which now the process of hours could be done in mere seconds. Approximately ID verification services tend to verify the identity of an individual in less than 30 seconds.

The ID verification system includes an identity screening process in which by extracting the name from the user-uploaded document, it is checked against global watchlists, sanction lists, and PEP records.

During the facial recognition process, technology, and many checks are performed.

For example, liveness detection is done in which the presence of an individual during KYC process verification is ensured. In this process, minor facial movements are detected, such as smile, lip movement, expressions, eye blinking, etc.

By identifying this, the 3D face mask will be created and stored in the database. The information is stored in some mathematical formula. The face live-captured is checked against the one stored previously in the database. If both formulas match, identity is verified.

A specific precision and accuracy rate are previously defined in which the facial features are verified. Among the live-captured photos that are different and cross the defined limit — the face will not be confirmed.

The reason these are not widely used is that the online fraudsters use printed and photoshopped images, or the ones that contain spoofing elements.

Such malicious components are detected by advanced facial recognition technology, and after identification gives the status of ‘face unmatched.’

The facial recognition feature is now part of the mobile phone. Hence Fintech businesses get the advantage of mobile ID verification.


Whether they are physical banks or advance technologies that are promoting Fintech businesses, KYC compliance is a vital part as well as regulatory requirements.

The challenges Fintech businesses face as a result of digitization correspond to security during digital payment and customer experience. By employing fast and secure ID verification services, the Fintech business can protect several incidences of data breaches.

Thankfully the bad actors from entering the legitimate financial systems are beginning to be eliminated.

Compliance for Fintech businesses has become much easier and systematized.

With just a single KYC API integration, digital banks can comply with regulatory obligations. Digital banks can verify customers, identify them, authenticate them, and screen them against global watchlists.

With authorized and controlled access over user accounts, using facial recognition can be met, and hence, the clean customer base can be harbored.

Along with this, identity theft, account takeover, and credential stuffing attacks can be reduced from digital financial systems.

About ReadWrite’s Editorial Process

The ReadWrite Editorial policy involves closely monitoring the tech industry for major developments, new product launches, AI breakthroughs, video game releases and other newsworthy events. Editors assign relevant stories to staff writers or freelance contributors with expertise in each particular topic area. Before publication, articles go through a rigorous round of editing for accuracy, clarity, and to ensure adherence to ReadWrite's style guidelines.

Jeff Parker

Jeff Parker is an identity fraud expert and author of various blogs writing about advanced technologies including artificial intelligence, machine learning and data science. Previously, he has worked as a consultant, often assisting small businesses in digitalization and online fraud prevention.

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