• Victor Fredung , CEO at Shufti Pro


• 07.04.2021 03:30 pm
Verification

The application of NFC Verification has taken the world by storm, making day-to-day business operations more cost-efficient, secure, and convenient.

From airlines and the hospitality industry to retail stores and financial institutions, an increasing number of enterprises today are shifting towards innovative digital models. In an attempt to combat increasing fraud rates within such business sectors, verifying an individual’s legitimate identity is the key to managing risk. 

Identity verification is the process of authenticating whether the end-user is actually who they claim to be. This typically involves the use of ML (Machine Learning) and AI (Artificial Intelligence) models, based on which most verification methods were created. 

This blog will be tracking down the transformation of identity verification methods through the years, from the basic concept of Knowledge-based Authentication (KBA) to Near-field Communication (NFC) verification solutions.

Traditional Method of Identity Verification 

Previously, verifying an individual or business entity was considered a  tedious process. It required companies to meet customers face-to-face at a physical outlet, manual validation of ID documents or hiring a third-party service provider to verify numerous types of documents provided. The conventional method of identity verification is recognized as Knowledge-Based Authentication (KBA), which revolves around asking personal questions from the customers prior to letting them access an online platform. 

Although this method of verifying individuals is still used as an alternative, it leaves the business organization with much space for error and data privacy concerns. Consequently, as the process was costly, inefficient, and time-consuming, the need for advanced verification solutions became apparent.

Diving into the Evolution Phase

Back in 2010, numerous social network websites such as Facebook began providing their users the ability to access their online profiles using identities of their choice. Unfortunately, these profiles were solely secured through generic passwords that are highly susceptible and vulnerable to external threats. 

Thus, companies realized the need for adopting robust identity management solutions and a more customer-centric process. Consequently, 2FA, short for two-factor authentication, was launched in 2013 to enhance security mechanisms. This method of identity verification enabled legitimate account users to become aware in case of an unauthorized breach by another person to log in to their account. 

Here, it is essential to note that in 1970, the Bank Secrecy Act (BSA) was introduced in the United States, under which financial institutions became liable to assist governmental agencies in combating crimes such as money laundering. To make things easier, most businesses began adopting Know Your Customer (KYC) procedures to verify customer identities during the process of onboarding.

Later, after the 9/11 attack of 2001, a further amendment was made to the BSA, and Anti-money Laundering regulations were also made mandatory. A combination of KYC and AML processes enabled financial institutions to detect and prevent fraudulent activities, including identity frauds, terrorist funding, and laundering of dirty money. 

This is when AI-based identity verification solutions gained prominence. These solutions facilitate companies to stay compliant with regulatory obligations by posing as an identity fraud protection method. To weed out illegal entities, ID verification is performed in the following methods:

1. Verifying government-based ID documents, such as ID cards, passports, current utility bills, bank statements, etc.
2. Residential address
3. Biometric verification through:
   1. Fingerprints or thumb impressions
   2. Facial characteristics
   3. Iris and retina patterns
   4. DNA sampling and other biological attributes unique to the person
4. Verification of individuals through real-time video-based KYC
5. Optical character recognition (OCR) for automated data extraction
6. Ongoing AML monitoring and screening against global watch lists

Behold the Future of Identity Verification

Due to an increasing institutional interest in digitization, most interactions that take place between businesses and their customers are now shifting online. For financial institutions, it requires identity authentication to be done remotely. 

In today's and tomorrow’s digital-first era, e-commerce merchants, mobile operators, educational organizations, financial service providers, and other business players have to onboard and verify their customers without physically meeting them. On top of this, it has to be done in a manner that is convenient, invulnerable, and compliant with global regulations.

• The Emergence of NFC Technology

Near-field Communication, abbreviated as NFC, is a wireless communication technology. It allows users to transmit data between two compatible electronic devices when brought in close proximity and tapped with each other.

The technology that enables NFC verification is deceptively simple. On one hand, It is more of an evolutionary technology as it built on the principles of radio frequency identification (RFID) technology that was introduced in 1982 by Charles Walton. On the other, it is more of a revolutionary innovation as it is much advanced than other identity verification methods. 

Here’s how it works. An NFC-enabled device has the ability to scan electronic microchips that are present in ID cards, credit and debit cards, and passports. These microchips are embedded with the holder’s PII (Personally Identifiable Information) such as their full name, date of birth, residential address, etc. In NFC verification, a touch-based NFC reader simply draws out this information from the ID documents through a simple tap between the document and the reader. 

• NFC Biometric Verification

If you were to choose between two banks, one that offered basic KBA and one that offered modern NFC verification, which one would you prefer? Probably the bank that offered more convenient, quicker, and safer services. Therefore, to add an extra layer of protection, financial firms can provide NFC biometric verification to weed out criminals before they carry out fraudulent activities. 

NFC verification using biometric technology is regarded as a highly credible technique of verifying and authenticating customer identity. It includes a mathematical analysis of the customer’s physical and behavioral attributes to ensure that the person is actually who they have claimed to be.

NFC biometric verification provides an all-in-one solution for identity verification. This procedure is particularly important for the financial services industry, as retail banks, insurance firms, brokerage companies, life assurance and pension organizations, stock markets, and fintechs face numerous threats every day. 

Final Thoughts

Management of customer’s sensitive information will become even more critical for organizations with the expected evolution of identity verification systems in the future. Technological advancements using ML and AI models have assisted in the transition from conventional methods of identity verification like KBR, to advanced methods such as biometric-based NFC verification.