Finance
ID&V and Covid-19: a case study for the financial services sector
Global Banking & Finance Review®
Company
By Colum Lyons, CEO and Founder, ID-Pal
Throughout the coronavirus pandemic, governments around the world rushed to offer unprecedented levels of financial support to businesses and individuals. In the UK, between May 2020 and March 2021, £47 billion was loaned to over one million companies to help them survive the pandemic. This came in the form of the three main schemes – Bounce Back Loans, Coronavirus Business Interruption Loans (CIBLs) and a scheme for larger loans, Coronavirus Large Business Interruption Loans (CLBILs).
However, because basic know-your-customer (KYC) measures were lacking, an initial estimate of £4.9 billion of taxpayers’ money was lost to criminals as usual checks to prevent fraud were dropped amid pressure from the Treasury to expedite the schemes. This opened the door to fraudsters as the necessary checks, including identity verification and credit checks, to qualify borrowers were not being carried out.
This was not an isolated incident, either. There have been reports of covid-related fraud globally, including in the Republic of Ireland. The government there supported 850,000 citizens with a Pandemic Unemployment Payment (PUP) when lockdown restrictions were imposed. However, in a review of a sample of claims, the state auditor found that just under half of claimants were receiving this unemployment support while still working. The entire scope of fraudulent activity is yet to be exposed in full, but it was estimated that an average of at least €1.2 million was lost every single month to PUP overpayments between March 2020 and July 2021. This again indicates a serious weakness in the KYC processes, specifically in the area of identity verification. Many covid loan schemes around the world were not sufficiently protected from the risk of bad actors wanting to take advantage and commit financial fraud.
These costly instances of fraud raise a couple of questions. How could governments have acted differently to launch these schemes without sacrificing standard fraud-prevention protocol? For the financial sector, are existing systems up to the challenge posed by fraudsters who have mastered ways to overcome traditional checks?
In the UK, banks were “more confident” in prioritising existing customers who had passed previous checks for loans versus a new customer. In turn, this leads one to ask if the process to identity and verify new customers in financial institutions has the flexibility to adapt to changing circumstances and still be accurate. Ultimately, the lack of a robust solution that could confidently verify and qualify both new and old loan applicants ended up costing the British taxpayer s.
A multi-layered approach
In recent years, there has been significant, industry-wide investment in KYC programmes to provide financial services with the agility needed to innovate quickly in a rapidly changing market and keep pace with compliance requirements. Despite that, KYC and compliance processes have not been digitalised to the same extent as other core functions. The technology used by criminals is evolving quicker than legacy systems can keep up with. Many businesses and financial professionals are burdened with a manual or hybrid process of verifying customer identities to meet their anti-money laundering (AML) and KYC obligations. This way of working is far more costly and time-consuming than digital alternatives. There is also a greater risk of human error when verifying identity documents manually, resulting in a lack of General Data Protection Regulation (GDPR) compliance and a far greater risk of Personally Identifiable Information (PII) falling into the wrong hands.
As a result, there is an urgent need to make compliance frameworks more technologically advanced to improve security and efficiency. When it comes to verifying identities, financial institutions should look to craft a unique layer of technologies that all work together at once, including document and address verification, facial matching and liveness testing. It is far more difficult, both technically and financially, for fraudsters to get the better of such multi-layered systems.
Leveraging advanced technologies
Innovative, new technologies can also help, particularly those offering data-driven solutions. Artificial intelligence (AI) and biometrics can all help verify documents and identities within seconds. A solution like ID-Pal, for example, This technology can combat fraud at its source, immediately flagging documents that have been forged in any way. It can verify whether the individual completing the submission is the document’s rightful owner, and whether this verified identity matches the given address as an additional layer of protection – all while adhering to GDPR requirements.
This is especially crucial for payments companies or government bodies who need to ensure that they are remitting funds to a legitimate recipient. A GDPR and AML compliant, digital ID&V solution can assess the validity of any document submitted in real-time and verify the identity and address of a valid applicant within seconds. This dramatically reduces the risk of payments to fraudulent applicants, saving money and time spent on recouping lost funds.
The benefits of using AI-powered identity verification technology are widespread. Manual internal processes are digitalised, ensuring peace of mind from quicker, more accurate results. This leaves KYC staff free to Moreover, investing in advanced technology can allow companies to scale globally, while onboarding new clients quickly and in compliance with regulations across multiple jurisdictions. A seamless onboarding process is proven to reduce drop-off rates and impress legitimate customers, as well as improve the chances of retaining existing customers who need to update their expired PII.
All of this can power businesses to enter new markets and reach new audiences, expand client bases and strengthen revenues. Most importantly, robust compliance with a secure ID&V process offers both company and customer the peace of mind that they are well-guarded against fraudulent activity.
KYC stands for Know Your Customer, a process used by financial institutions to verify the identity of their clients to prevent fraud and ensure compliance with regulations.
Fraud prevention refers to the measures and strategies implemented by organizations to detect, prevent, and mitigate fraudulent activities.
Identity verification is the process of confirming that an individual is who they claim to be, often through documents or biometric data.
Biometrics are unique physical characteristics, such as fingerprints or facial recognition, used for identification and access control.
AI, or Artificial Intelligence, in finance refers to the use of algorithms and software to analyze data and automate processes, enhancing decision-making and efficiency.
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