The Evolution of KYC, KYB, and ID Verification: What’s New in 2024
Sharpen your knowledge
Two woodcutters began their day by cutting wood. One of them tirelessly swung his axe, never taking a break, while the other would occasionally step away from his task and then return after some time. Surprisingly, by the end of the day, the woodcutter who had taken breaks had cut more wood than his nonstop counterpart. The diligent woodcutter couldn’t help but wonder how this could be possible. Curious, he asked his colleague for an explanation. The response was simple yet profound: every time he took a break, he would sharpen his axe, making it easier to cut through the wood efficiently.
The moral? In the complex world of digital onboarding, we must be creative and open-minded, and sharpen our knowledge about the latest practices and technologies that enable financial institutions and regulated entities to reduce fraud and build trust, navigate evolving regulatory and compliance requirements, and cut operational costs.
As part of this effort, The Paypers launches the first edition of the Emerging Technologies and Trends in Identity Verification, KYC, and KYB Report 2024. The report offers industry experts and tech vendors a platform to share the latest trends and developments in identity verification, trust orchestration, and compliance automation.
2024: A year of transformation
The last 18 months have been very challenging for businesses. Rising interest rates, massive layoffs in the tech sector, conflicts in different parts of the world, and expectations of a possible recession have forced people to seek means of living in both positive and negative ways.
The development of generative AI has provided fraud perpetrators with new and easy tools to automate and spread attacks. Moreover, there has been an increase in fraud statistics and types and cyberattacks. The dynamic regulatory landscape (AML, KYC, eIDAS 2.0, and MiCA in Europe, etc.) has pushed compliance leaders to tap into tech solutions that are not only efficient but also effective.
The availability of a variety of payment methods (A2A payments, instant payments, crypto, CBDCs, etc.) has been pressing financial crime prevention systems to deliver faster and more accurate results. Furthermore, trends such as heightened discussions about the use and importance of verifiable credentials, the adoption of digital wallets, and the development of passwordless solutions have been revolutionising the security space and shaping the investment sector.
In this context, three pivotal challenges dominate the industry’s agenda in 2024: onboarding new customers quickly and scaling faster, staying compliant, and cutting costs. The Emerging Technologies and Trends in Identity Verification, KYC, and KYB Report 2024 addresses some of these concerns, as payment and security experts share a plethora of insights, solutions, and services that financial institutions (Fis) and regulated entities can leverage to minimise risk and maximise confidence.
Highlights of the Identity verification, KYC, and KYB report include:
What’s new in digital onboarding in 2024
Customers and businesses alike now expect financial products and services that are accessible anytime, anywhere, and at minimal cost. However, the pursuit of rapid service delivery has also ushered in new challenges, particularly in combating fraud, ensuring data privacy and security, and maintaining regulatory compliance. As such, Verifiable Credentials and reusable identity verification solutions, the use of AI and data in identity verification (IDV), and fraud insurance technology might be seen as a panacea for the KYC process.
‘Trusted’ digital ID wallets
Digital identity wallets are more than simple credentials carriers, but they have become ‘trusted’, as Nick Mothershaw, Chief Strategist, Open Identity Exchange (OIX) mentions in the report. Nick coined the term ‘trust anchor’ for a key trusted ID credential — such as the EU’s national ID card or UK credentials verified to a level of trust by certified ID Service Providers — placed securely within a wallet, transforming the wallet into ‘trusted’.
Efforts in the EU to enable digital identities
The rise of digital identity wallets and digital credentials represents a shift towards reusable identity (which allows individuals to access multiple online services with a single set of verified credentials). This shift reduces the need for one-time verification, changing the business model of identity verification, and streamlining many processes that require high identity assurance, according to Anne Bailey, Analyst with KuppingerCole. This effort to spin up a reusable, verified digital identity ecosystem is spearheaded in Europe by eIDAS 2.0.
Detecting and preventing sophisticated types of fraud by proving Liveness
There’s a risk that the person using the device or presenting credentials isn’t the authorised user. This could occur due to device cloning or an impostor obtaining new keys for a separate device. To mitigate this, Kevin Alan Tussy, CEO of FaceTec, emphasises the importance of biometrics and 3D Liveness Detection. Ensuring liveness confirms that the genuine user is physically present when biometric data is verified, preventing unauthorised access.
The power of progressive profiling in identity verification
In a world where the lines between KYB and KYC and the nature of who and what is a business become increasingly hard to define, maintaining a seamless onboarding process while combating fraud and ensuring compliance requires progressive profiling. According to Caf’s CEO Jason Howard, this strategy involves collecting information incrementally as needed, minimising stored sensitive data, and reducing privacy law risks.
Challenges, trends, and best practices in business and entity verification
Business Entity Verification (BEV) plays a critical role in the banking, payments, and fintech sectors. To balance the evolving regulatory expectations surrounding KYC and KYB processes, and a rise in customer demands, financial institutions must contend with the complexities of digital onboarding. To mitigate these aspects, Will Charnley, Managing Director at Liminal, advises regulated entities to integrate technology (AI, machine learning, blockchain, data analytics, etc.) and adopt best practices for risk-based strategies.
Advice on scaling digital onboarding in different jurisdictions
Expanding into new territories and engaging with unfamiliar customer bases can present challenges, especially when unforeseen circumstances arise. To overcome these hurdles and facilitate cross-border growth, Jeff Sakasegawa, Trust and Safety Architect at Persona, suggests partnering with an onboarding specialist. Effectiveness in KYB processes can be measured by observing high completion rates and minimal drop-offs across regions during expedited onboarding.
With so many geopolitical, technological, economic, and societal transformations, all financial services processes have become more complex and difficult to manage — including the KYC, KYB, and identity verification. That is why financial institutions and regulated entities look for efficient and effective ways to reduce fraud, build trust, navigate regulatory and compliance requirements, cut costs, and stay competitive. Emerging technologies used in KYC/KYB, and IDV such as AI, blockchain, data analytics, biometrics, etc. cater to their needs, enabling FIs to thrive.
This editorial was initially published in the Emerging Technologies and Trends in Identity Verification, KYC, and KYB Report 2024. The report dives into the latest practices and technologies that enable financial institutions and regulated entities to reduce fraud, build trust, navigate evolving regulatory and compliance requirements, and cut operational costs.
You can download your free copy here.
Mirela Ciobanu is Lead Editor at The Paypers, specialising in the Banking and Fintech domain. With a keen eye for industry trends, she is constantly on the lookout for the latest developments in digital assets, regtech, payment innovation, and fraud prevention. Mirela is particularly passionate about crypto, blockchain, DeFi, and fincrime investigations, and is a strong advocate for online data privacy and protection. As a skilled writer, Mirela strives to deliver accurate and informative insights to her readers, always in pursuit of the most compelling version of the truth. Connect with Mirela on LinkedIn or reach out via email at mirelac@thepaypers.com.
