Online Identity Verification – An Introduction for Fintech Companies


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 things like Know Your Customer (KYC) and Anti-Money Laundering (AML). Here is online identity verification, a guide for fintech companies.

Fintech regulations

All these regulations correspond to identity verification measures that only traditional banking institutions perform. Identity verification in banks corresponds to the understanding of customer integration. A risk assessment is performed on each individual and a decision as to whether an individual is likely to be treated by the bank or not.

Financial institutions

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

Because of these threats, regulators around the world are strict about security measures. These systems can identify the wrong actors and activities in the system and combat them accordingly.

Fintech companies face similar challenges. Financial technologies harness the best of technologies that advance digital banking.


The reason there are so many security concerns in FinTech is the cybersecurity of systems that contain highly confidential information relating to customers and their financial situation.

To protect customer information from data breaches, appropriate measures must be taken. Today, identity verification systems are integrated into digital platforms. The identity and verification of each person on board must face specific standards when choosing to conduct digital transactions or open an account online – while staying at home.

The KYC process to be taken into account in Fintech companies corresponds to several forms.

The identity verification approach covers these areas.

  • Customer Due Diligence (CDD): The CDD corresponds to the identification of the customer and the verification of his personal data.
  • Enhanced Due Diligence (EDD): EDD refers to detailed identity verification in which AML screening is also carried out extensively to verify if an identity is on criminal watch lists around the world.
  • Client Identification Program (CIP): The CIP is an appropriate piece of identification and is used to verify identity and credibility to support the financial system.
  • Ultimate Beneficial Ownership (UBO): Ownership verification is performed during which the beneficial owners of businesses are authenticated. This process verifies that the person is not involved in any criminal activity. These people must be registered entities and have a credible profile in the business infrastructure.

All of these processes are different, however, and are part of the KYC loop of operations. Each of these processes is carried out by regulatory bodies and is essential to the conduct of every fintech business.

Deviation from compliance can lead to worse circumstances. For example, according to regulators, sanctioning non-compliance can result in hefty fines, abandonment of business assets, business freezes and even years in jail.

Components of the KYC process

For fintech companies, implementing and running the KYC process while balancing all other aspects is of utmost importance.

For an online financial business, there are many perspectives regarding performance and security that should be given careful consideration. Attention to detail in the in-depth KYC process is essential as any careless step can contribute to a suspicious financial flow.

The KYC process is performed to assign a risk to each identity. The risk assessment is carried out for each individual in order to identify the risk associated with it.

Ongoing account monitoring is performed to ensure that the transaction does not exceed the particular limit and reaches an honest destination.

Here are three elements of the KYC process.

  1. Customer Due Diligence: This process is what financial institutions do when onboarding a client. Risk is assigned to individuals by performing a set of operations. These operations are identity verification, fraud analysis and AML screening against sanctions and PEP (Politically Exposed Persons) cases.
  2. Enhanced vigilance: If an individual or business is considered high risk, a more in-depth analysis corresponding to the client / client should be performed. For example, an in-depth look at individuals against updated adverse media, law enforcement data and news, etc.
  3. Continuous monitoring: Identity monitoring occurs throughout the customer lifecycle. This is mainly done against high profile clients. Additionally, account mentoring is done to see if it is at risk of a data breach or other cyber attack. Suspicious activities and transactions are also monitored in this process.

Technology integrating the KYC process

Innovative KYC operations are integrated into the system of Fintech companies which serve for identity verification. Using artificial intelligence, machine learning and other reliable technologies, the process of online identity verification is carried out.

The Identity Verification API is integrated with online systems that perform document verification as well as biometric verification of customers.

Within seconds, thanks to optical character recognition (OCR) technology, document information will be extracted and verified.

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

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

Online Identity Verification

Each online individual who wishes to open an online customer account, conduct digital transactions, transfer funds or use an online financial service would require an individual to prove their digital identity to the system.

In this way, the categorization of risks is done dynamically. Based on real-time identification, a person is marked with a score in the risk assessment matrix and on the basis of which online processes are processed. Third-party identity verification service is integrated with online systems that operate in accordance with regulatory requirements.

For the prevention of online fraud, proof of identity is requested from the customer in the form of an official identity document which can be an identity card, driver’s license, passport or credit card. /debit.

The document is verified for authenticity online and individuals are screened against updated global watch lists and sanctions lists.

An automated online KYC verification process at Fintec companies can generate a large and clean customer base. Regular KYC operation at physical banks involves manual verification which takes hours and many branch visits.

Fintech companies encourage the use of online identity verification to shape a secure and honest digital community. In addition, it ensures a customer experience in which the process of hours could now be completed in seconds. Roughly identity verification services tend to verify an individual’s identity in less than 30 seconds.

The Identity Verification System includes an Identity Filtering process in which, by extracting the name of the document uploaded by the user, it is verified against Global Watchlists, Sanction Lists, and PEP records.

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

For example, liveliness detection is performed in which the presence of an individual while checking the KYC process is assured. In this process, minor facial movements are detected, such as smiling, moving lips, expressions, blinking, etc.

By identifying it, the 3D face mask will be created and stored in the database. The information is stored in a mathematical formula. The face captured live is compared to the one previously stored in the database. If the two formulas match, the identity is verified.

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

The reason these are not widely used is that online scammers use printed and photoshoped images, or those that contain elements of impersonation.

These malicious components are detected by advanced facial recognition technology and, after identification, they give the status of “unmatched face”.

The facial recognition function is now part of the mobile phone. Hence, Fintech companies benefit from mobile identity verification.


Whether it’s physical banks or advanced technologies that promote fintech companies, KYC Compliance is an essential as well as regulatory requirements.

The challenges that fintech companies face due to digitization correspond to the security of digital payment and the customer experience. By using fast and secure identity verification services, the Fintech company can protect multiple cases of data breach.

Fortunately, bad actors entering legitimate financial systems are starting to be eliminated.

Compliance for fintech companies has become much easier and more systematic.

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

With authorized and controlled access to user accounts, the use of facial recognition can be satisfied and hence the clean customer base can be accommodated.

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

Jeff Parker

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


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