Mastering customer Identity Verification in fintech: Unlocking higher conversions!
Identity verification adds important, and often compulsory, steps to your conversion funnel. Here’s how to set it up to stay compliant without losing conversions.
Raul Liive
Customer identity verification enables businesses to confirm customers' identities, helping prevent fraud and comply with legal requirements. Customer identity verification prioritizes accuracy and speed, aiming to confirm an individual’s identity without delay. Done well, it helps businesses build trust with customers.
In the rapidly evolving financial services and eCommerce sector, maintaining a high conversion rate is essential. However, the digital age brings about certain regulatory standards that require companies to step up their verification process. Hence, we provide a comprehensive guide to navigating these processes without compromising your conversions.
Customer identity verification is becoming increasingly important, as digital transactions continue to rise globally. As more consumers and businesses turn to online platforms for transactions, ensuring the authenticity of these interactions is crucial. According to Juniper Research projections, such checks will surpass 70 billion in 2024, up from 61 billion in 2023. This growth is primarily concentrated in technologically advanced regions like China and Western Europe, where digital adoption is accelerating.
Verifying customer identity helps create a safe space for legitimate customers, but also plays a pivotal role in keeping out fraudulent actors. Fraud prevention is crucial in today's digital economy, as businesses face sophisticated threats that can compromise sensitive information. By implementing robust identity verification processes, companies can ensure that every customer's private information remains secure, safeguarding both their reputation and customer trust. Here's what every business should know about customer identity verification: it's an essential component of modern digital security strategies, requiring awareness and continual adaptation to emerging threats and technologies.
Types of customer Identity Verification
Biometric authentication
- This method uses unique physical characteristics, such as fingerprints or voice patterns, to confirm a customer's identity. Biometric identification systems store authentic data and then compare this information with a user’s physical traits. They’re very useful both for onboarding new customers and reverifying returning customers. Read more about different forms of biometric authentication methods in our latest blog here!
Knowledge-based authentication
- With knowledge-based authentication, a person’s identity is verified by answering a unique security question.
These questions are simple but difficult for others to answer. Common examples include ‘What was your first pet’s name?’ or ‘Who was your favorite teacher?’
While knowledge-based authentication offers ease and convenience, it's becoming easier for hackers to find the required information through social media and social engineering.
Online verification
- Online verification methods (like our id verification software) determine whether a government-issued ID is legitimate and belongs to the person trying to access a service. All the customer needs to do is snap a selfie and provide a photo of their ID.
Online verification is secure and can be completed in seconds.
3rd party verification
- 3rd party verification (TPV) involves a business using a third party to review and confirm a customer’s information and intentions. It’s also commonly used in situations where a customer wants to provide or update information, but cannot readily deliver a contract or physical copy of that information.
2-factor authentication
- 2-factor authentication adds an extra layer of protection to the sign-in process. Once a customer has entered their username and password, they’re then asked to provide a separate piece of information, such as a PIN or a piece ofbiometric information. A great example of the 2-factor verification process is how customers gain access to their bank accounts. In addition to providing a username and password, some banks will ask for a customer’s fingerprint when they’re using a banking app. Others will provide the user with a small box that will produce a unique numeric code each time they want to access their Internet banking account.
The impact of Identity Verification on conversion rates and user experience
Identification Verification (IDV) is a fundamental, yet compulsory step in your conversion funnel. If you are an IT Manager or Head of Product in an online business, you understand how critical conversions are. You may track conversion rates based on sign-ups on your website or from trial to paid customers. Regardless of the metric, the important aspect is understanding how leads convert into customers and using this knowledge to bolster sales.
However, in some industries like fintech or blockchain services, you must refrain from mitigating the essential stage of verifying the identity of your new customers. This process, albeit necessary, can only improve your conversion rates if handled appropriately.
Identity verification services play a vital role in enhancing user experience and ensuring KYC and Anti-Money Laundering (AML) compliance. However, different factors can affect the conversion rates during this process.
One of the major challenges is the user's familiarity with the identity verification service. This familiarity varies across industries, with new industries where familiarity is low often scoring the worst. This is especially true in industries like Cryptocurrency, which operate in markets with limited digital banking services and low internet penetration rates.
Moreover, other controllable factors that impact drop off rates include limited user guidance during the verification flow, too many steps in the customer journey, lack of supporting information during identity verification, and absence of various language options.
"One of the major challenges is the user's familiarity with the identity verification service. This familiarity varies across industries, with new industries where familiarity is low often scoring the worst. This is especially true in industries like cryptocurrency, which operate in markets with limited digital banking services and low internet penetration rates."
How to set up Identity Verification in a way that converts
1. Expect a drop in conversions at the start
Effectively setting up the identity verification process that boosts conversion involves several steps. Firstly, it's important to be prepared for a drop in conversions at the start of the process. However, with ongoing adjustments, you will see a positive impact.
2. Inform your users before identity verification begins
Secondly, providing your users with as much information as possible before the verification process will increase their chances of progressing through the conversion funnel. Thirdly, offering real-time feedback during the verification process will smoothen the user experience.
3. Give them feedback during verification
Reminding your customers to complete the identification verification process can also help increase conversions. Additionally, keep your customers informed after the verification process, especially in cases of declines or resubmissions. The best way to avoid this? Instant feedback. This is why we created Assisted Image Capture. It shows onscreen messages to your users, letting them know if the photo is blurry, or badly lit, or if a piece of their ID is missing. This means users only need to complete verification once.
4. Build trust whenever you can
Trust-building is another crucial aspect of the identity verification process. It can involve informing users about data safety, displaying GDPR badges, or providing a guide for the process.
The guide to setting up an effective identity verification process is ongoing. It requires continuous updates based on customer feedback. It's an integral part of enhancing user experience and improving conversion rates. Therefore, partnering with a reliable identity verification service provider, rather than opting for an in-house solution, can make a significant difference.
Legal & regulatory considerations
The legal and regulatory ramifications of customer verification are extensive. Below are some considerations for businesses to bear in mind:
Global Regulations and Standards
- Businesses must adeptly navigate the complex framework of global and regional regulations governing identity verification. Key guidelines include the Financial Action Task Force (FATF) recommendations, the EU's Anti-Money Laundering Directives (AMLD), and the USA PATRIOT Act. Each regulatory framework dictates specific standards for customer verification, often shaped by the risk levels tied to various transaction types.
- Know Your Customer (KYC) and Anti-Money Laundering (AML)
KYC and AML regulations compel businesses, especially those in the financial sector, to rigorously verify client identities. The objective is to prevent inadvertent involvement in money laundering or the financing of terrorism. - Data Protection and Privacy Laws
Data protection and privacy laws, notably the EU's General Data Protection Regulation (GDPR), mandate a secure handling of customer data collected for verification. Businesses must ensure transparency regarding data usage and storage, honor customer rights, and strengthen trust.
In conclusion, customer identity verification is no longer just a regulatory requirement. It is a vital component of building trust, ensuring security, and maximizing conversions in today’s digital economy. As online transactions continue to grow, businesses must balance robust fraud prevention measures and a seamless user experience. By leveraging the right identity verification methods—whether through biometrics, 2-factor authentication, or other solutions—companies can protect their customers while fostering growth. Continuously refining these processes, offering real-time feedback, and building transparency around data protection will ensure higher conversion rates and long-term customer loyalty. Partnering with a trusted identity verification provider will further streamline the journey, allowing businesses to focus on what matters most—growing and maintaining their customer base.
FAQ
1. What is identity verification, and why is it important for fintech companies?
Identity verification is the process of ensuring that a person’s identity matches the information they provide. It is crucial for fintech companies to prevent fraud, comply with regulations (like KYC and AML), and build trust with customers by ensuring the security and legitimacy of transactions.
2. How does identity verification impact customer conversion rates?
A well-designed identity verification process can streamline onboarding, reducing friction and abandonment rates. Customers are more likely to complete the process when it’s fast, simple, and secure, leading to higher conversion rates. Conversely, a complicated or slow process can deter potential customers.
3. Can identity verification improve the onboarding process for new customers?
Yes, a seamless and automated identity verification process can significantly enhance onboarding by reducing time-to-complete, minimizing manual checks, and offering a smooth, user-friendly experience. This can lead to quicker sign-ups and higher customer satisfaction.
