What is Documentary Verification?
Documentary verification is the process of confirming someone’s identity by checking their official documents, like a driver’s license or passport. It’s a simple idea, but it’s incredibly important for keeping things secure in many different areas.
Financial institutions, government agencies, and countless other organizations rely on it to stop fraud, follow the rules, and generally ensure that things are safe and sound. It’s how they know who they’re really dealing with.
Documentary verification has come a long way. It started with carefully checking physical documents by hand and has evolved into using digital solutions and even non-documentary methods to confirm identities.
This article will give you a complete look at documentary verification, the challenges that come with it, and what the future holds for confirming who people really are.
Understanding the Customer Identification Program (CIP)
When banks open new accounts, they are required to follow certain rules. These rules and regulations are part of the Bank Secrecy Act (BSA) and anti-money laundering (AML) compliance program, and they’re designed to help the bank know who its customers are.
Regulatory requirements for Customer Identification Programs
Banks are required to have a written Customer Identification Program (CIP). The CIP has to be appropriate for the bank’s size and the type of business it does. The bank’s board of directors has to approve the CIP and integrate it into the bank’s BSA/AML compliance program.
CIPs must include risk-based procedures for confirming a customer’s identity. These procedures must give the bank a reasonable basis for believing that it knows the true identity of each customer.
Customer information required
Banks must collect specific information from customers when they open an account. This includes the customer’s name, date of birth, address, and an identification number. An exception is made for customers who have applied for a Taxpayer Identification Number (TIN) but haven’t received it yet.
Banks are also required to check customers against government lists of known or suspected terrorists or terrorist organizations. Banks must notify customers that they are gathering this information.
Documentary Verification: The Old-Fashioned Way
Documentary verification is the process many financial institutions use to confirm a customer’s identity when they open an account. It involves reviewing a government-issued ID.
Examples of acceptable documents include:
- Driver’s licenses
- Passports
- National identity cards
- Utility bills
The process works like this: the financial institution collects documents, reviews them, and validates their authenticity to confirm the individual’s identity.
The review process is usually manual, meaning skilled personnel have to examine the documents and look for signs of fraud.
The Rise of Non-Documentary Verification
Traditional documentary verification methods are being augmented, and in some cases replaced, by tech-driven approaches.
Definition and Overview
Non-documentary verification uses technology and alternative data sources to verify identities. Instead of relying on scanned images of your driver’s license or passport, these systems tap into data from government agencies, banking institutions, and other reliable sources. The aim is to streamline identity and address verification processes.
The benefits of non-documentary verification are many: increased security, cost savings, improved accuracy, faster onboarding, and enhanced scalability. These systems can significantly reduce fraud while simultaneously improving the percentage of legitimate users who successfully pass the verification process.
Benefits of Non-Documentary Verification
- Faster Onboarding: Without the need to upload documents, verification can happen in milliseconds across dozens of countries. This can speed up the onboarding process by a factor of six.
- Reduced Fraud: Non-documentary verification can lead to a dramatic reduction—as much as 75%—in fraud-related attacks.
- Improved Pass Rates: By reducing friction and false positives, these methods can improve customer onboarding rates by more than 35%.
Compliance Considerations
While non-documentary verification methods are often compliant with legal and regulatory requirements, you may need to take additional steps or considerations depending on the specific jurisdiction. For example, compliance with Anti-Money Laundering (AML) regulations is key when using document-free verification methods.
How to Balance Compliance and User Experience
When it comes to documentary verification, you have to think about two things at once: complying with the law and making things easy for your users. Finding the right balance is key.
A unified approach to identity verification is crucial for streamlined onboarding, fraud prevention, and regulatory compliance in a digital world. Ongoing risk assessment and adaptation to regulatory changes are also crucial.
To achieve that balance, banks can choose from a few verification methods:
- Document-based verification, which relies on things like driver’s licenses, passports, and utility bills.
- Non-document-based verification, which might involve things like knowledge-based authentication (security questions) or biometric data (fingerprints, facial recognition).
- A combination of both.
The best choice will depend on the specific needs of the bank and its customers.
Technology’s Role in Enhancing Documentary Verification
Technology is changing the way businesses verify documents, making the process faster, more efficient, and more secure.
Automation and Efficiency
Banks are now using technology to automate their compliance processes. This helps them improve results without having to rely on paper documents. Online account opening software, for example, can improve identity verification and risk assessment.
Advanced Verification Techniques
Newer techniques are also being used to verify documents, including:
- Biometrics: Fingerprint scans and facial recognition are making it harder for fraudsters to use fake IDs.
- Multi-factor authentication: Combining different verification methods adds an extra layer of security.
- Liveness checks: These simple checks can quickly verify that a person is actually present during the verification process.
Data Sources and Analysis
Businesses are also using data from government and banking sources to verify documents. Alternative data sources can also be used to verify identity and address.
Case Studies
For example, Sumsub offers a Non-Doc Verification solution in the UK that uses eVisa data. This covers over 4 million holders of Biometric Residence Permits (BRPs) and Cards (BRCs), Passport Endorsements, and other physical documents covered by the UK Non-Doc Identity Verification (eVisa).
Sumsub’s Non-Doc Verification also allows verification across 35+ countries in milliseconds, without requiring people to upload documents.
Challenges and limitations of documentary verification
While documentary verification is a key tool in the fight against fraud and money laundering, it’s not without its challenges. Here are some of the limitations to keep in mind.
- Risk of fraudulent documents: Counterfeit IDs and manipulated documents are becoming increasingly sophisticated, making them harder to detect.
- Manual review bottlenecks: Reviewing documents by hand is time-consuming and prone to human error.
- Data privacy concerns: Protecting sensitive customer information is paramount, especially with evolving data privacy regulations.
- Compliance complexity: Navigating varying regulations across different jurisdictions adds another layer of complexity.
And, of course, there’s the matter of what to do when verification fails. You’ll need to have procedures in place to decide when to close an account and whether you’re obligated to file a Suspicious Activity Report (SAR).
Also, banks must provide adequate notice to customers about the documentary verification process. Customers need to know what information is being collected and why.
The Future of Identity Verification
Identity verification is changing fast. While documentary verification will remain important, expect to see the continued growth of non-documentary methods.
Artificial intelligence (AI) and machine learning will play a huge role in the future. These technologies will help to detect fraud and improve the accuracy of verification processes.
Blockchain technology offers another potential avenue for secure and decentralized identity management.
The most effective strategy will likely involve a unified approach. By combining documentary and non-documentary methods, organizations can achieve more comprehensive verification.
It’s also important to balance security with a positive user experience. Businesses need to streamline onboarding processes while still meeting all compliance requirements. Striking this balance will be key to successful identity verification in the years to come.
Final Thoughts
Documentary verification is a vital part of confirming someone’s identity, but it’s becoming more complicated in our increasingly digital world. To make sure your verification processes are robust and efficient, it’s important to use a holistic approach that combines tried-and-true methods with the latest technologies.
The identity verification landscape is constantly evolving, and staying flexible and embracing new solutions is crucial for maintaining security and meeting regulatory requirements. By adapting to these changes, you can protect your organization and your customers in an ever-changing world.