Customer Identification and Verification: What Is it and How Does it Work?

Identity security has become a topic of utmost importance. According to PwC data, 47% of companies worldwide have experienced at least one identity theft in the past 24 months. These incidents are not limited only to large corporations (if only!) but also affect small businesses, freelancers, and even ordinary individuals who have been victims of identity theft by cybercriminals.

The increasing frequency of these attacks poses a significant challenge for all parties involved. Customer identification and verification have become crucial tools to combat this threat and ensure the security of online transactions. Moreover, identity validation has become even more essential in a context marked by the fight against money laundering.

In this article, we will explore in detail what customer identification and verification mean, why they are vital, and how Silt can offer effective solutions to protect your business and your customers’ personal data.

Customer Identification and Verification: What is it good for, and why is it so important?

Customer identification and verification, commonly known as KYC (Know Your Customer) in the financial and business sectors, is a process designed to confirm that a person or entity is who they claim to be when making transactions or accessing services.

This process involves collecting and validating personal or business information, such as names, addresses, identity documents, and other relevant data, to ensure that customers are legitimate and comply with regulations and legal requirements.

The importance of customer identification and verification lies in several key aspects:

• Fraud prevention: Identity theft and fraud are growing threats in the digital age. Customer verification helps prevent unauthorized access and protects both businesses and individuals from potential financial crimes.
• Regulatory compliance: Many sectors, such as finance, gambling, and health, are subject to strict regulations that require customer identity verification. Complying with these regulations is essential to avoid legal and financial penalties.
• Transaction security: Customer identification and verification ensure that business transactions are secure and reliable, reducing the risk of economic losses and disputes.
• Building trust: Customers trust companies that take steps to verify their identity. This creates a relationship of trust that can be beneficial in the long run.
• Data protection: Customer verification also contributes to the protection of personal and business data, helping to prevent unauthorized access to sensitive information.

What are the differences between identification and authentication?

Before we delve into the process of customer identification and verification, it is crucial to understand a fundamental distinction: the differences between identification and authentication.

These two terms are often used in the same context, but they have distinct meanings that are essential for understanding identity security in the digital world.

Identification: To identify is to say who you are

Imagine you knock on your neighbour’s door, and he asks, “Who is it?” At that moment, you are identifying yourself by responding with your name. Identification is the act of declaring who you are.

Authentication: To authenticate is to prove that you are who you say you are

When your neighbour looks through the peephole and sees your face, that serves to authenticate you; he recognizes that you are who you claimed to be because he recognizes you by your physical features. Authentication is the process of proving that you are indeed the person you claim to be.

• Note: Humans can authenticate others using biometric characteristics such as facial features, voice, or gait. Our brain primarily uses the face as a source of information to recognize the identity of other people.

In the realm of computer systems, the definitions of identification and authentication are the same as for humans. When you want to access a computer system, you first identify yourself with a username. Then, you allow the system to authenticate you through a password, which is something you should know only. The password is a factor the system uses to verify that you really are who you claim to be.

In some situations, such as bank transactions, a PIN number is used as a method of authentication. In this case, you first identify yourself by providing information such as your ID number and date of birth to tell the system who you are. Then, you authenticate yourself using the PIN number, which is known only to you, to prove that you are the person you claimed to be. And this is just one example.

This distinction between identification and authentication is essential in the process of customer identification and verification, as both play a vital role in ensuring the security of transactions and the protection of identity in the digital environment.

What types of identification and identity verification exist?

Here’s a list of the most notable methods for verifying a person’s identity in the digital environment:

• Verification through credentials: This method involves using passwords, PINs, or usernames that are known only to the user who chooses them. Despite their common use, this approach has limitations, as there is a risk of these credentials being stolen or forgotten.

• Knowledge-Based Verification (KBA): This involves questions designed so that only the user attempting to be identified can answer correctly. These questions may relate to personal information that only the individual should know.

• OTP (Time Password) or two-factor authentication: This method involves generating a unique code valid for a short period and sending it to a device that only the user has access to. OTPs can be transmitted through various channels, such as SMS, email, phone calls, letters, or push notifications.

• Biometric verification: Biometrics use unique characteristics of the human body to verify identity. This can include facial recognition (using unique facial patterns), voice recognition, iris analysis, or fingerprint scanning. The advantage of biometrics is that it is extremely difficult to forge and offers a high level of security.

• Liveness detection verification: An integral part of biometric verification, this method focuses on conducting thorough checks to ensure that biometric factors correspond to a person present in real-time during the verification process. This helps prevent the use of photos or recordings to deceive the system.

• Document verification: This approach focuses on the review and checking of data and the integrity of an identity document. It uses advanced controls to ensure that the document is genuine and has not been tampered with.

In face-to-face settings, the traditional method involves verifying the identity document by an agent, who also checks that the person presenting themselves is the same as the one shown in the image of the official document issued by a competent entity. Although this method is secure, digital solutions offer more comprehensive and error-free controls.

Each of these methods has its advantages and challenges, and the choice of the appropriate method will depend on the level of security required and the context in which identity and verification are implemented. Silt, as a company specializing in KYC and KYB, offers biometric solutions that adapt to the specific needs of your business and ensure a high level of security in the identification of clients and businesses.

How does customer identification and verification work with KYC?

At Silt, we primarily focus on the KYC process, known as “Know Your Customer,” and on digital onboarding, which is essential to ensure security and regulatory compliance in business relationships.

These controls and checks aim to avoid business relationships with individuals linked to terrorism, corruption, money laundering, and other financial crimes. Essentially, the KYC process verifies that the client is who they claim to be, allowing them access to the services and products they wish to contract, always in compliance with legal regulations.

Key steps in the KYC process:

1. Establish the client’s identity unequivocally: The first step is to confirm the client’s identity in a secure and verifiable manner. This may involve presenting documents such as a driver’s license, passport, or valid proof of address (at Silt, for example, we accept over 12,000 documents from 200 different countries).
2. Understand the nature of the client’s activities: To ensure the legitimacy of the client’s activities, it is crucial to understand the nature of their business or transactions. This step helps detect any suspicious or unusual activity.
3. Assess money laundering risks: A crucial part of the KYC process is assessing the risks associated with the client in terms of money laundering. This involves detecting potential signs of illicit activities and taking steps to prevent money laundering.

How is customer identification and verification KYC applied across different sectors?

Yes, this process can be integrated into many different sectors. Here are some examples:

Fintechs:

Fintechs, companies that merge technology and financial services, are constantly evolving and offer exciting opportunities for clients. However, they can also be targets for financial criminals. To combat this, Fintechs rely on advanced verification tools, such as biometrics and optical recognition, to ensure transaction security and user authentication.

Financial Services:

Financial institutions, such as banks, insurance companies, and also Fintechs, handle large amounts of money and daily transactions. Therefore, they are on the front line of defense against financial crime. Financial regulations often establish strict KYC requirements to verify the identities of customers, track the origins of suspicious transactions, and maintain detailed records. Regulatory compliance is essential for ensuring the integrity of the financial system.

Real Estate Sector:

The real estate sector handles considerable sums of money, making it a potential target for money laundering. Real estate companies must comply with KYC and AML (Anti-Money Laundering) regulations to verify the origin of the funds used in real estate investments. This helps prevent the use of properties for criminal activities and ensures transparency in the sector.

Gaming Industry:

In the world of online gaming, gaming companies must verify the identity, age, location, and source of players’ funds. This ensures that their services are not used for illegal activities and protects both the company and the players. KYC verification is essential for building trust and maintaining the security of customer personal information.

And it doesn’t stop here; there are many more sectors that are yet to apply automated KYC processes, such as the mobility sector, among others…

How can Silt help you?

At Silt, we are committed to providing advanced customer identification and verification (KYC) solutions that help businesses across all sectors ensure security and trust in their business relationships.

Our technology can be your ally in protecting against fraud and regulatory compliance:

• Quick and Secure Verification: Our IDaaS (Identity as a Service) technology verifies the identity of your users securely in less than 5 seconds thanks to our artificial intelligence model trained with thousands of documents. You can use it to verify new users or re-authenticate existing ones, thus streamlining your verification processes.

• No Document Photos Needed: With Silt, users don’t need to send photos of their documents repeatedly. Once verified, they can reuse their verified digital identity in any application integrated with Silt simply by granting the necessary permissions.

• Customization of the Process: We offer the flexibility to customize the verification process to fit your brand. You can adjust the corporate colours and select the font that best suits your preferences to achieve a consistent user experience.

• Custom Rules: You have complete control to establish verification rules that fit your specific needs. This allows you to prevent issues and control fraud according to your own criteria.

• Phone and Email Verification: Add an additional layer of security by verifying the authenticity and existence of your users’ phone numbers and email addresses.

• Misconduct List: Increase security by creating your own internal misconduct list and sharing it with other Silt clients. This allows you to flag users with malign behaviours and contribute to a safer environment.

• Management of Expired Documents: Avoid issues by automatically verifying the validity of your users’ documents and reminding them when it’s necessary to update them.

• AML and PEP: Check if your users are on public AML (Anti-Money Laundering) or PEP (Politically Exposed Person) lists to ensure the integrity of your business relationships.

With Silt, you can be assured that whoever uses your services is a verified person, preventing unauthorized use of verified accounts. Guarantee the authenticity and security of your transactions and have peace of mind of being legally supported.
Ready to enhance the security and efficiency of your KYC process? Discover how Silt can benefit your business! Try our free demo and experience firsthand the advantages of our identity verification solution.