November 6, 2020 | Veratad Blog | Category: Uncategorized

Compliant Fintech Customer Onboarding: 4 Best Practices

A smooth online customer onboarding process is one of the keys to fintech success. But fintech companies also need a way to protect themselves from money laundering, identity theft and government regulations. That means a best-in-class identity verification solution is a necessity. 

Identity verification technology uses identity data, identity documents and other methods to ensure your customers are who they say they are. This allows fintech companies to remotely onboard users while preventing money laundering, fraud and regulatory penalties.

But to get started with identity verification – and get your compliance house in order – you’ll need to configure your ID verification solution according to industry standards. These are the four essential best practices for getting started.

Best Practice #1: Integrate Using a Centralized API

To verify a customer’s identity, you’ll need to integrate your systems with those of your chosen ID verification solution. There are a lot of ways to do this, but a direct API integration is the most efficient. They’re easy to set up and deliver rapid verifications directly into your onboarding interface.

A centralized API delivers multiple verification methods (documents, data, etc.) through only one JSON connection. This saves time and money because it requires less programming work.

Best Practice #2: Use Appropriate Verification Methodologies

There are multiple ways to verify a customer’s identity. The methods you use and the options your ID provider offers will determine the effectiveness and cost of your solution.

The most-used method is matching customer-provided personal data to trustworthy databases. This generates confident reads with minimal impact on the user experience; it’s almost instant.

Many fintech companies also capture identity documents, like driver’s licenses. This method uses automation to verify a user’s identity at high confidence levels. You can also enhance your verification of identity documents with biometrics, selfie liveness checks, and escalation to manual reviews.

Many fintech providers use two-factor authentication (2FA) to protect user accounts. This keeps user identity secure by making hacks and account takeovers more difficult to conduct. However, a growing number of fintechs are using 2FA in the onboarding process. This technology, known as Smart 2FA, combines traditional 2FA with identity data. 

Smart 2FA establishes trust and user identity by verifying:

• The person exists
• The phone number they provided is real
• The phone number is registered to that person
• That person has possession of an associated device

These additional layers of authentication make Smart 2FA a highly effective and low-friction way to verify users during fintech onboarding.

With so many ways to identify identity, it can be challenging to know what the ideal methods for your business are. Most verification providers offer guidance on this process, and the best provide access to multiple methodologies via a single integration.

Best Practice #3: Stay Flexible

If there’s one constant in fintech, it’s change. Fintech platforms are constantly innovating and rethinking the way users manage their money. 

There’s also the numerous and constantly changing regulatory frameworks to worry about:

• KYC
• AML
• KYB (know your business)
• USA PATRIOT Act & CIP
• FFIEC
• BSA
• Red Flags Rule

(Not to mention CCPA and GDPR, which impact many fintech platforms.)

With this rapid pace of change, a new problem emerges: How can your identity verification keep up?

The answer is flexibility.

Flexible identity verification leverages multiple verification technologies and methods to adapt to a specific business practice. It also makes adjusting verification criteria easy and cost-effective. All of these factors allow fintech companies to rapidly scale and customize their onboarding process to address new challenges.

Best Practice #4: Maintain an Audit Trail

Once you’re compliant with KYC and other regulations, you’ll need a way to prove it. Government agencies conduct regular audits of fintech and finserv companies to enforce KYC, AML and more. When they audit your company, they’ll expect you to produce thorough documentation that proves your compliance. If you can’t, the alternative can be steep regulatory penalties.

To create an audit trail, you’ll need to maintain a record of each onboarding verification you conduct. At the same time, privacy concerns mean you likely can’t store all of the identity data you verify. 

The middle ground most fintech companies take is to capture and store a portion of the data for verification. This gives you enough data to prove regulatory compliance without raising privacy concerns. With identity verification technology integrated into your system, this is easy to configure during onboarding.

Conclusion

Identity verification helps fintech companies protect themselves from money laundering, identity theft and government regulations. By following these best practices, you can safely produce a compliant fintech customer onboarding process that’s also customer-centric.