Nowadays, banks and businesses can identify their customers at a distance thus eliminating the necessity for face-to-face physical interaction. This initial KYC step can be performed in different ways, either through the usage of highly secure country-specific digital identities (eIDs) or other electronic identification means. The latter typically includes Optical Character Recognition (OCR) technology and video identification with a human operator. These verification methods are thought by consumers to be highly secure, but the reality is that they are far from perfect.
1. Optical Character Recognition (OCR)
While initially popular for invoice scanning, OCR has gained traction across a wide variety of applications including the scanning of identity documents such as a passports, identity cards or driving licenses. In this context, OCR allows consumers to take a picture of their ID document with a smartphone or webcam to automatically extract its information.
Good OCR engines are trained to detect the type of document used and even overcome some of the challenges posed by the reading of blurred images and text.
Pain point: OCR in 2021 is still far from perfect and can be both corrected and benchmarked against human operator review. Conversion rates are typically low and OCR isn't the answer to a digital first approach, given its lack of data quality and reliability.
New generation OCR solutions combine deeper AI and machine learning to cross-check the validity and authenticity of a document.
Pain point: The validity checks chain can be invasive accessing consumer data from the mobile device used and/or other sources, ultimately going beyond a standard KYC identity verification stage in order to increase its security and minimize the need for a human-assisted flow.
These comprehensive solutions can be ingenious. However, such a heavily dependent chain of trust can be invasive accessing consumer data from the device used multiple other sources, ultimately going beyond a standard KYC identity verification module in order to increase its security and minimize the need for a human-assisted flow.
2. Video identification with an operator
This method is similar to an onsite identity verification and document check with a human operator – so similar that the only actual difference is the fact that the process is conducted over the internet (telecommunication) instead of at a local branch. Though different degrees of automation or AI assisted flow may be in place, it is ultimately the human operator who oversees the whole decision-making process.
Pain points: Very similar to the problems associated to onsite identity verification. It's time consuming, costly, dependent on manual verification and therefore prone to human error. All these weaknesses are even further challenged in case of poor connection and other issues affecting the image quality of the video call.
'Your Honour, I object!'
Pending on local geographies, the above-mentioned statements may come as a surprise or even a 'harsh' attack against technologies, which are the country 'de facto' standard for remote identity verification. After all, OCR is widely accepted internationally and video identification is regulated by several Country Supervising Authorities in Europe, including for example BaFin in Germany and FMA in Austria.
In the light of this, why and how could regional banks and businesses take advantage of more innovative and secure mobile-first AI-based solutions, should they even exist?
A mixed approach based on a combination of OCR with video identification or similar biometrics can be regarded as highly secure, but this is not due to a technology assessment per se. Their dependence and reliance to human-based validation is the deal-breaker in terms of security assessment. These technologies cannot be regarded as fully digital modules.
It is important to understand how cross-border acceptance is harmonized by legal framework for trusted digital identities. The European electronic identification and trust services initiative (eIDAS regulation) benefits are highlighted in our recently published whitepaper Rethinking KYC, where we explore the current legal and regulatory landscape in Europe when it comes to fully digital identity verification solutions.