Customer identity verification is the process of authenticating a customer’s identity. It can come in many forms, including email verification, address verification, and phone verification, but it always involves confirming that a person is who they say they are.
Whether online or offline, most business procedures and processes, including online/offline banking, booking flights or applying for a passport, require some level of identity verification to ensure an actual individual is behind a process and prevent fraud through authentication and authorization.
Why is Customer Identity Verification Important?
Technological advancements have transformed how we live and connect with ourselves. The internet has empowered individuals and institutions to break through into new frontiers. However, this heightened level of connectivity comes with associated threats that can’t be overlooked.
Hackers, fraudsters, and cybercriminals are also utilizing technology. They are constantly looking to exploit the weaknesses of businesses to gain access to sensitive and confidential information and use that data to carry out scams or other nefarious purposes.
Companies realize that customer is the robust line of defense to mitigate identity theft account takeovers, data breaches, and fraud.
Benefits of Customer Identity Verification
Some of the benefits of customer identity verification include:
- Mitigates Fraud, Money Laundering, and other financial crimes
Verifying all customers using a financial platform is one of the critical strategies to combat fraud, money laundering, and terrorist financing. Identity verification is necessary for financial institutions where individuals open bank accounts, apply for loans, or use other financial services.
Conducting ongoing identity verification and submitting suspicious activity reports to regulatory bodies can help provide the data needed to continuously fight financial crimes.
2. Create Trust Between the Customer and Businesses
Trust has become even more crucial as customers actively seek businesses they can rely on. In an era of continual data breaches and user impersonations, the lack of an identity verification process can result in distrust and negative brand associations, which are bad for business.
Also, when businesses like lending platforms perform identity verification, they can lend more money to customers without risk, helping them generate more revenue and grow their business.
Identity verification can create and encourage trust between the customer and businesses; without this trust, the digital economy will lose money and speed.
3. Avoid Costly Fines for Non-compliance
In 2021, businesses around the world were fined $5.4 billion for non-compliance with AML, KYC, and data privacy regulations.
Not only do non-compliant companies have to pay monetary fines, but they must also deal with the reputational damage that can arise from media coverage.
Types of Customer Identity Verification
Here are the primary forms of verification businesses incorporate today.
- Multi-factor authentication (MFA): It is a security technology that requires multiple authentication methods before users can access accounts containing sensitive data. MFA ensures only legitimate users can access their accounts and helps prevent phishing, social engineering, and password brute-force attacks.
- Knowledge-based authentication (KBA): is an old method of verification, and it requires users to answer secret questions like “where were you born?” before they can access secure data and services.
- Age verification: It helps online businesses verify a customer’s age before allowing them to purchase age-restricted products. Users’ age can be confirmed by analyzing their facial features using AI, computer vision, or a government-issued ID.
- ID document verification: It is the analysis, verification, and authentication of a user’s identity document to confirm if it is legitimate and issued by the government.
- One-time password: It is an automatically generated numeric or alphanumeric passcode transmitted through email or SMS. It verifies users during an application or for a single login session or transaction.
- Email Verification: It verifies whether an email address is active, inactive, or fake. Email verification ensures that a real person with a valid email address will receive and interact with the sent emails.
- Biometric Verification: It is the means of identifying a person through their unique biometric traits such as their iris, face, voice, fingerprints, and earlobe geometries,
- Phone Verification: It is the process of checking if a phone number is accurate, reachable, and accessible by its owner. It can also be an additional way to verify a user’s identity.
- Social Verification: Social verification/login enables users to use existing login credentials from social media platforms such as Facebook, Google, Twitter, etc., allowing simplified logins and registrations.
Who Needs to carry out Customer Identity Verification?
Financial institutions must carry out customer identity verification at the customer account opening stage and when carrying out transactions. Financial institutions that need to comply with identity protocols include:
- Credit unions
- Wealth management firms and broker-dealers
- Fintech companies
- Lending businesses
- Crypto businesses, depending on the nature of their activities
- Gambling platforms
KYC regulations have become an increasingly critical issue for institutions interacting with money. While banks must comply with KYC to limit fraud, they also pass down those requirements to businesses they do business with.
Besides financial institutions that are legally mandated to verify their customers’ identities, others such as ride-sharing companies, e-commerce marketplaces, real estate companies, etc., can benefit from verifying identities, as it can help prevent suspicious individuals and bad actors from accessing their platforms and services.
Customer Identity Verification Regulations in Nigeria
The Money Laundering (Prohibition) Act of 2011 and the Securities and Exchange Commission Regulations of 2013 have set out the following regulations to which businesses must adhere:
Financial institutions and designated non-financial institutions must:
- Verify their customers’ identity, whether permanent or occasional, using relevant documents obtained from a reliable source.
- Undertake customer due diligence (CDD) when:
– Entering business relationships.
– Carrying out transactions above the sum of $1000 or its equivalent.
– Carrying out transactions that are wire transfers.
– There is suspicion that the money involved in a transaction is proceeds of money laundering or terrorist financing.
– The institution doubts the veracity or adequacy of previously obtained identification data.
- Conduct ongoing due diligence on a business relationship.
- Ensure that documents, data, or information collected through the CDD process are kept up-to-date and relevant by undertaking reviews of existing records.
How to Carry Out Customer Identity Verification in Nigeria
To successfully verify the identities of Nigerian customers, the CBN requires that businesses collect specific information from their customers and verify the authenticity of the information against valid and official documents.
Requirements for Customer Identity Verification in Nigeria
The following are the information businesses operating in Nigeria must collect from their customers, where applicable:
- Date and place of birth
- Email address
- Phone number
- Occupation and name of employer
Documents for Customer Identity Verification in Nigeria
The following identity documents can be used to verify the captured customer details:
- National Identity Card
- International passport
- Driving license
- Voters Card
- Bank statement
- Current utility bill (water, electricity, gas, etc.)
- Tax assessment
- Birth certificate
- Bank Verification Number (BVN)
- National Identification Number (NIN)
Dojah — the end-to-end identity verification service
In her efforts to combat identity theft and fraud, the Nigerian government has set up initiatives such as NIMC and BVN. Still, none of these structures have resulted in a robust National ID database. Combined with the fact that Nigerian ID documents are some of the most forged documents in the world, the Nigerian identity terrain is a tough one to scale for businesses.
To successfully onboard and verify Nigerians, businesses must choose an identity provider that supports multiple ID documents and helps keep them compliant with local and global KYC and AML regulations.
With Dojah, businesses can access millions of Nigerian identities using a single integration. By using our suite of APIs, businesses can easily verify Nigerian identities with documents such as National IDs, international passports, driver’s license, and more. Businesses can also choose to integrate our ID Verification Widget into their application workflow.