KYC verification explained
What forms of ID verification are used for payments?
As a merchant, you can’t stop bad actors attempting to take advantage of vulnerabilities in online payments systems to steal data and funds. But you can make it much, much harder for them by implementing robust ID verification procedures.
That means establishing the validity of a range of documents that show proof of identity, proof of address, and proof of income for every customer, and utilizing advanced verification techniques.
Doing so will not only protect your business and your customers, but help to build trust with all parties in your supply chain for successful commercial relationships.
Read on to find out about acceptable documents for identity verification, why ID verification is so important in payments, and how Checkout.com can help your business.
What is identification (ID) verification?
Identification (ID) verification is the process of confirming the authenticity and validity of a person’s identity. It is commonly used when someone is attempting to make a financial transaction, create an online account, or to access secure platforms or sensitive information.
ID verification typically involves the collection of official documents that contain personal and unique information. These could include government-issued identification cards (such as driver's licenses, passports, or national identification cards), birth certificates, social security numbers, or other legally recognized forms of identification. Which types are considered valid can vary depending on the region you operate in and what the person is attempting to do.
The purpose of ID verification is to ensure that the person claiming a particular identity is indeed who they say they are. By verifying the information provided, organizations and institutions can reduce the risk of identity theft, fraud, and unauthorized access.
Types of ID verification used in payments?
Verification of someone’s identity can be successfully completed by checking the validity of a combination of the following types of ID. This is usually done by comparing the provided information against databases or third-party sources to verify the consistency and accuracy of the details.
This involves examining the physical or digital copies of identification documents to check for any security features, or signs of tampering or forgery. Typical documents might be government issued IDs, driver's licenses, passports, or national ID cards.
ID numbers are sequences of letters and/or numbers that act as an exclusive identification code for one particular person. They usually follow a standardized format and can include figures that relate to specific details about that person, such as their name or date of birth. ID numbers are found on many official documents, including national identity cards, driving licenses, and passports.
Face verification confirms the identity of an individual by using their smartphone camera to compare their physical face to the image on their driving license or passport. The difference between face verification and facial recognition (below) is that the former compares the face to a still image and the latter compares it to a previous scan of the customer’s live face.
Biometric verification involves scanning the unique physical or behavioral traits of an individual, such as fingerprint recognition, face recognition, or voice recognition, in order to confirm their identity. It compares the scan against a stored template or reference image from an initial scan to check that the two match.
Know Your Customer (KYC) isn’t a specific type of verification, but rather a formal process used by financial institutions and other organizations to verify someone’s identity in order to prevent theft, fraud, and money laundering. The process typically involves ID verification (using the documents listed above), address verification (proof of address from utility bills or bank statements), the collection of other supporting documents, risk assessment, and ongoing monitoring.
What documents are acceptable for ID verification?
The documents accepted as valid forms of ID verification vary from country to country, but generally can include:
Proof of Identity
Typically, any document that shows your name, date of birth, photograph and ID number, including:
- Passport - a passport is an internationally recognized document that certifies a person’s identity and nationality. It usually includes a photo, date of birth and ID number
- National ID Card - national identification cards serve as proof of identity and citizenship. They typically contain the individual's name, photo, unique identification number, and other relevant information
- Driver's License - a driver's license can serve as a valid form of identification, as it contains a person's name, photo, address, and unique ID number
- Identity Card - some countries issue specific identity cards that are separate from driver's licenses or national ID cards. These are designed solely for identification purposes and can contain similar information to other identification documents
- Resident Card/Permit - if someone is a non-citizen but resides in a country, a valid resident card or permit issued by the government or immigration authorities can act as valid proof of identity
- Birth Certificate - a birth certificate, which is an official record of a person's birth and national identity, usually includes their name, date of birth, place of birth, and parent's names
- Social Security Card - some countries issue a social security card or equivalent document to individuals for social security and taxation purposes. It typically includes a unique identification number and other relevant information
- Voter ID Card - voter identification cards can be used as proof of identity for various purposes beyond voting
Proof of address documents
Any document that shows your current residential address, including:
- Utility bills - such as electricity, water, gas, or landline phone bills, are often accepted as proof of address. These bills should be recent (within the last three months) and show the individual's name and residential address
- Bank statements - official bank statements or credit card statements that show the individual's name and residential address. Similar to utility bills, these statements should typically have been issued within the last three months
- Rental/lease agreements or mortgage statements - a valid rental or lease agreement signed by both the tenant and the landlord, as long as it contains the individual's name, their residential address, and the duration of the lease or rental period. Similarly, a mortgage statement could also be used
- Insurance Documents - insurance policies, such as home insurance or car insurance, that indicate the individual's name and residential address. Again, these documents should have been issued recently
- Government-issued Documents - certain government-issued documents, such as a tax assessment or tax return, a property tax bill, a voter registration card, or a residency certificate issued by the government
- Official letters - official letters or correspondence from government agencies, financial institutions, or even a courthouse that include the individual's name and residential address can be accepted as proof of address
- Driving license - if a driving license includes an individual's current residential address, it can serve as valid proof of address
Proof of income
Any document that shows how much money is coming into an individual’s account over a certain period of time, including:
- Pay slips - salary slips provided by an employer are one of the most common forms of proof of income. These should detail the individual's earnings, deductions, and other relevant information over a set timeframe
- Tax returns - personal or business tax returns, or income tax assessment notices, can be used, as they outline an individual's taxable income and demonstrate that they have financial means
- Bank statements - bank statements that show regular deposits or income-related transactions. These statements should provide a clear overview of the individual's financial activities over a significant period of time
- Pension statements - pension statements that show the amount of pension or retirement income received can be accepted for retirees
- Profit and loss statements - for self-employed individuals or business owners, profit and loss statements, which summarize the revenues, expenses, and net income of a business over a specific period, can be used to demonstrate their earnings
- Investment or dividend statements - likewise, statements from investment accounts, stocks, or mutual funds that show dividends, interest income, or capital gains
- Proof of income letter from an employer - especially if there are gaps in an individual’s employment documents due to sabbaticals or leaves of absence, a proof of income letter from their employer can act as proof of salary and employment
- Benefits statement - if someone is unemployed but receives social security payments or other benefits, that can use any statement that details the amount they receive as proof of income
Why is ID Verification in payments important?
Identity verification is vital to the successful functioning of the global payments industry for a number of reasons, including:
- Establishes trust - by implementing robust verification processes, merchants can build trust with both consumers and their other partners by demonstrating their commitment to safety and security. This helps to create productive and long lasting business relationships
- Reduces fraud - ID verification helps to prevent the use of physical and digital counterfeit copies of official documents to gain access to services and systems with stolen identities. That means only legitimate customers can participate in legitimate transactions, reducing the risk of fraudulent activities like theft and money laundering
- Helps merchants comply - in many industries, regulatory bodies impose strict requirements for customer identification and due diligence, such as PSD2 in the EU, which helps protect consumer data during electronic payments. ID verification helps merchants comply with these regulations and prevent money laundering, terrorist financing, and other financial crimes
- Improves security - ID verification plays a vital role in maintaining overall security by controlling access to secure platforms and sensitive information, preventing unauthorized entry form fraudsters and protecting against potential cyber threats
- Protects customer data - customers sensitive information can be vulnerable during transactions. ID verification helps to limit the chance that bad actors will gain access to secure systems, which could lead to data breaches
Identity verification with Checkout.com
Identity verification with Checkout.com can help you stop unauthorized individuals, prevent fraud, and build trust with your customers.
Our product can help you to reduce the risk you face from the following common scenarios:
- We can help you spot inauthentic documents, such as photocopies, expired documents or counterfeits, through contextual checks
- We can identify when a user is not live and when a user is not the rightful owner of a document
- We can detect when a video has been injected with false frames in an attempt to fool your verification procedures
- We can tell when a user’s declared identity is not the same the one that has been verified
In addition, we can help you conduct KYC verification during transactions through accurate ID verification. We use advanced verification technologies like 3D Secure and biometrics to authenticate the identity of all customers without impacting their user experience. Our fraud detection solution also helps to block suspicious activity while improving acceptance rates through a combination of machine learning and rules-based analytics.
Find out more about identity verification with Checkout.com.
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