How Fintech Companies Benefit from Prioritizing Identity Verification
Fintech has grown rapidly over the last decade. Mobile banking, peer-to-peer lending, cryptocurrency platforms, and digital wallets are just a few examples of fintech innovations. Industry reports predict that global fintech revenue will surpass $300 billion by 2030.
This expansion, fueled by digital adoption, has generated enormous opportunities—but also significant risks. According to PYMNTS, the average US FinTech loses $51 million per year due to fraud. The lack of physical interaction in fintech platforms allows for digital fraud, which makes verifying that an individual is who they claim to be even more crucial.
Let’s take a look at why identity verification is vital for the success of fintech companies.
Forms of Identity Fraud in the Fintech Industry
Before we get into the specifics, let’s first explain the types of fraud that fintech companies commonly face.
Synthetic Identity Fraud
Fraudsters generally follow these steps: The fraudster begins by gathering personal information, such as names, dates of birth, social security numbers, addresses, and other details, from data breaches, social media, and public records. Once the fraudster has gathered enough information, they combine real and fake data to form a synthetic identity. Once the identity has been created, the culprit could spend months or years building a credit profile before taking action.
After establishing a credit history, they carry out their plan. They may obtain a loan and then use the genuine and verifiable components of their synthetic identity to claim identity fraud. Alternatively, they may take out a small credit line, pay it off, then take out a larger loan and disappear without repaying the debt. There are numerous other types of fraudulent activities that can impact fintech companies.
Several factors have contributed to the growth of synthetic identities and synthetic identity fraud. One factor is the increased availability of personally identifiable information (PII) data on the dark web or even social media.
Impostor Identity Fraud
Impostor identity fraud takes place when a criminal uses stolen or forged credentials to impersonate a legitimate person and gain unauthorized access to financial services. This type of fraud is especially dangerous in the fintech space because transactions are digital and there are fewer physical interactions. Impostors can use stolen personal information, such as names, Social Security numbers, and banking information, to open fraudulent accounts, apply for loans, or make unauthorized payments.
Five Reasons Why Fintech Companies Should Prioritize Identity Verification
1. Regulatory Compliance
Fintech companies run in a highly regulated industry, where compliance with laws and standards is not only required, but also necessary in order to continue operations, avoid penalties, and protect their reputation. Two of the most important regulations influencing fintech practices are Know Your Customer (KYC) and Anti-Money Laundering (AML).
KYC regulations require fintech companies to verify their customers’ identities in order to prevent financial crimes like fraud, identity theft, and money laundering. This entails gathering and verifying personal information. KYC allows businesses to accurately identify who they are dealing with, reducing the risk of onboarding fraudulent users. Noncompliance with KYC rules can result in significant fines, a loss of trust, and even the suspension of operations.
AML regulations are involved with detecting, monitoring, and reporting suspicious financial transactions that may be linked to illegal activity, such as terrorism financing or drug trafficking. For fintech businesses, this includes:
- Monitoring transactions in real time to detect red flags such as unusually large transfers or frequent transactions across borders.
- Implementing automated tools to identify suspicious patterns that require further investigation.
- Filing Suspicious Activity Reports (SARs) with regulatory authorities as needed.
2. Preventing fraud
Identity verification (IDV) helps fintech companies prevent fraud by ensuring that users are who they claim to be at critical points such as account creation and high-risk transactions. By asking users to submit government-issued identification and matching it with personal data such as their names, dates of birth, and addresses, IDV prevents fraudulent actors from using stolen or synthetic identities early on.
Furthermore, methods such as facial recognition or document scanning ensure that fake documents or impersonators are identified before they gain access. Unlike traditional security methods, IDV establishes a strong barrier by confirming users’ identities from the start, preventing common fraud schemes such as account takeovers, payment fraud, and loan fraud. Fintech platforms use secure verification processes to significantly reduce the risk of fraudulent activity while creating a safer financial environment for legitimate users.
3. Instilling Trust
Identity verification (IDV) is critical for instilling trust in fintech platforms because it demonstrates a dedication to security and transparency. Customers trust fintech companies with sensitive personal and financial data, and strong IDV processes reassure them that their information is safe from identity theft, fraud, and unauthorized access. Fintech companies demonstrate their commitment to security against fraudsters by requiring verification through official documents or biometric data. Therefore, making customers feel safe knowing that only verified individuals can access the platform.
IDV also builds trust by lowering the likelihood of fraudulent interactions, such as fake accounts or scams, resulting in a safer and more reliable ecosystem. Furthermore, fintech companies that implement strong IDV measures follow regulatory best practices, which boosts their credibility in the eyes of both customers and partners. In a competitive market where trust is a critical differentiator, IDV plays an important role in fostering long-term user loyalty and platform integrity.
4. Enhancing Customer Experience / Streamlining Onboarding
Identity verification (IDV) improves the customer experience by streamlining the onboarding process, changing what was once a time-consuming task into a quick, and user-friendly journey. Traditional onboarding often involved manual document submissions and lengthy verification periods, causing customer frustration. Modern IDV solutions can simplify this process, allowing users to confirm their identities in real time by simply uploading an ID document or using biometric verification methods such as facial recognition. In addition, IDV ensures data capture accuracy, reducing errors that might postpone account approval or require additional steps. By combining security and convenience, fintech companies can quickly onboard users while maintaining fraud prevention, providing a frictionless entry point that improves customer satisfaction and drives faster adoption of their services.
5. Innovation & Supporting Global Operations
Identity verification (IDV) drives innovation in fintech companies and is a critical enabler for global operations. As fintech firms expand into new markets, IDV enables them to verify users across multiple geographies, document types, and local regulatory requirements. Furthermore, IDV promotes innovation by allowing for the secure launch of new services such as digital wallets, cryptocurrency platforms, and decentralized finance (DeFi) applications. By ensuring that only verified users have access to these services, fintech companies can confidently explore cutting-edge financial products without compromising security.
Furthermore, IDV solutions frequently integrate with APIs and scalable cloud technologies, enabling fintech platforms to quickly adapt to new trends, expand their offerings, and scale operations globally while avoiding the risks associated with fraud or regulatory breaches. This combination enables fintech companies to remain competitive, drive growth, and provide innovative solutions.
Keesing AuthentiScan
With Keesing AuthentiScan’s advanced document authentication and biometric verification, fintechs can meet KYC (Know Your Customer) and AML (Anti-Money Laundering) requirements. Its automated process improves the customer onboarding experience by performing quick, accurate, and streamlined checks. This allows fintechs to confidently increase their user base while maintaining trust, security, and compliance.
To learn and get a free demo, click the button below. If you have any other enquiries, feel free to contact sales@keesingtechnologies.com or call +31 (0)20 7157 825 and we will be happy to help you.
