Out-Law News 2 min. read

Software business outlines the 'robust case' for mobile identity verification


There is a "robust case" for customer authentication to be carried out entirely digitally, according to a report published by software business Mitek Systems.

The report, authored by Nick Holland, digital marketing manager for payments at Dunkin' Brands, said the main drivers for "digitising identity verification processes" are consumers' increasing "mobile-first" preferences, regulatory requirements, and the potential benefits to be gained from returns on investment and in cost savings.

"Combined, these factors make a robust case for mobile identity verification," Holland said.

Holland said that digital identity (ID) verification can help financial firms meet regulatory obligations, such as 'know your customer' (KYC) and anti-money laundering (AML) rules, including under the EU's 4th Anti-Money Laundering Directive. He suggested such software has the potential to serve as a global regulatory technology (regtech) tool.

"Physical barriers can be overcome with the help of technology, while mobile identity verification solutions will play a pivotal role in the fight against financial crime by the time it helps financial institutions to be in compliance with the latest regulatory frameworks," Holland said. "Furthermore, for the achievement of an optimal international banking ecosystem, a truly global regtech solution would be required as to cope with the multitude of national and international identity documents utilised to authenticate the identity of customers across different jurisdictions."

The total cost of identity assurance processes in the UK is £3.3 billion, Holland said. Half the cost is attributed to business processes and the other half consumers' time costs, he said. The vast costs present a "business opportunity for regtech companies", Holland said.

He said: "If the identity problem can be solved, more transactions can move online creating order of magnitude savings for banks and financial institutions. Add the convenience of the mobile channel to the equation and the cost-efficiency ratio will be exponentially grown. The key then is to provide an entirely digital onboarding experience via mobile that meets today’s customer expectations and banks regulatory needs. By capitalising on the nascent opportunity for full digital onboarding, banks can attract and retain customers both now and in the future."

In July, the Financial Conduct Authority's (FCA's) director of strategy and competition Christopher Woolard said AML and KYC regulations were no barrier to verifying the identity of customers via wholly digital processes.  At the time, the FCA also set out its intention to play "an active role" in regtech.

Fintech expert Luke Scanlon of Pinsent Masons, the law firm behind Out-Law.com, said: "Ultimately the provider of a financial product will be liable for ensuring that it has conducted the necessary steps required to verify that its customers and potential customers are who they say they are. Product providers therefore need comfort that reliance on any third party through a digital only process will not fall below the level of assurance required."

"Online financial services will take a giant step forward once regulatory and industry guidance describes in clear language how digital only processes can be used to meet all aspects of a client identification process, whether that be for onboarding a client initially or for other know your customer purposes as the relationship progresses," he said.

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