Shieldpay stories

Inside the identity verification boom

Everyone knows that we’re paying for more things online. But most people don’t know how quickly online payments are growing. In 2021, over 2.1bn people worldwide are expected to buy goods and services via the internet, up from 1.7bn in 2016.

The rise of online payments presents brands with huge opportunities - and huge risks too. In order to prevent financial crime, payment providers must verify customer identities.

These so-called ‘Know Your Customer’ and ‘Anti-Money Laundering’ requirements are driven by financial regulations and internal corporate policies, and they’re bringing the previously obscure world of identity verification into sharp focus.

Identity verification 1.0

Companies, governments and regulators require solutions that enable people to identify themselves. They need to know that we are who we say we are. So, when you apply to open a bank account, take out a credit card, or obtain a mortgage, you have to verify your identity. This means providing key personal information, answering questions about yourself, obtaining third-party notarisations and submitting documentation in branch. It’s slow, expensive and annoying for staff and it’s a complete pain for customers. However, it remains an essential part of the compliance process that protects companies and their customers from financial crime.

For years, the way banks and other financial service providers have managed this process has been sub-optimal and vulnerable to fraud. Research recently carried out by Forrester found that the UK is lagging behind the US, Australia, Singapore and China in its approach to identity verification, with 84% of financial service firms concerned about their ability to identify customers.

Reliance on outdated analogue practices has compromised the user experience, negatively impacting customer acquisition and retention. It’s a lose-lose scenario for brands and customers, but one that’s now starting to change thanks to the rise of digital technology.

A new model for identity verification

Digital technology makes identity verification fast, straightforward and secure by leveraging technologies such as photography, video, biometrics, optical character recognition, cryptography, and in some cases, blockchain.

  • Checkr uses AI to perform compliant background checks on users for brands like Uber and Zenefits.
  • Facebook recently acquired, a startup that uses advanced forensics to pull information from an ID card, as well as mobile biometrics and facial recognition, to confirm a person’s identity.
  • HYPR is building an enterprise identity verification solution that supports multiple forms of biometric data, from simple authentication algorithms for facial and voice recognition to more complex algorithms such as the way you type on a keyboard, the rhythm when you text on your phone, or how you walk on the street.

By combining different verification techniques, providers can deliver a fast onboarding process without compromising accuracy or adherence to best practices. In some cases, it can even be tailored to suit a brand’s specific compliance needs and policies.

More use cases will emerge as the market matures, but current areas of focus are:

  1. Account opening - open a new account quickly and easily with your phone. Use cases go beyond banking to credit cards, betting accounts, SIM cards, trading, wealth management and utilities.
  2. Account management - manage your account without having to waste time proving your identity on multiple occasions. Annoying tasks like password resets, change of address and bill queries become a piece of cake.
  3. Transactions and payments - pay for things online quickly, and above all, securely. Large online purchases become effortless and ubiquitous.

The bottom line is that brands are not typically set up for verifying customer identities. Remaining compliant is tough, it demands specialist expertise and infrastructure and is particularly hard to deliver at scale across the length and breadth of a global consumer-facing business. Instead of managing identity verification in-house, brands are partnering with specialist providers who are more agile and therefore responsive to user expectations and the overarching regulatory environment.

In recent years we’ve witnessed the emergence of a new business model - ‘identity verification as a service’. By outsourcing this vital process, eCommerce platforms, financial service providers and brands can expedite customer onboarding and increase retention. Identity verification specialists have the technological know-how, regulatory awareness and operational scale to make onboarding fast, seamless and secure, enabling brands to focus on their core offerings rather than get bogged down in the complexities of identity verification.

Onfido is perhaps the leading player. The identity verification startup works with the likes of Google, Revolut, Deliveroo and Nutmeg to make customer onboarding and identity verification easy. Husayn Kassai, CEO & Co-Founder at Onfido makes a strong case for the product.

"In the digital world, it’s very difficult to know that people are who they claim to be. That presents a risk for businesses, as they need to be sure that their users aren’t money launderers, criminals, or somebody who’s going to put them at risk. Naturally, they want to extend access to their services to as many people as possible – but it’s difficult to do that securely, and expensive to do it at scale.”

Scalability is the key element here, making identity verification cost-efficient for enterprises that operate on a global level. Trulioo is another name doing big things in this space, offering secure access to global data sources and identity authentication solutions to help companies meet compliance obligations and reduce the risk of financial crime.

The biggest prize in history

When the digital payments first emerged on the scene, there was widespread scepticism regarding the efficacy and security of paying for things online. As the years have drifted by, this has changed. People have become accustomed (perhaps even addicted) to the convenience of eCommerce and online banking. Consumers are increasingly comfortable with sharing valuable personal data and processing very large transactions online - even house purchases - and the new wave of digital identity verification providers is facilitating this trend.

The market for identity verification is already vast, but it’s going to explode as more companies and brands go digital and expand their online presence. The proliferation of digital currencies and blockchain technology will expedite this trend as more and more people go online to pay for things and manage their finances. For brands, the prize for getting identity verification right is huge. They simply need to step up and claim it.

Shieldpay protects both buyer and seller in any transaction so that you can deal with anyone, anywhere with total confidence.

How do we do it? We verify the identity of both sides, funds are held securely in the Shieldpay vault and only released when both sides agree they’re happy. If anything doesn’t go to plan, we help out with any disputes! 

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