Document Verification: Understanding the Process

The document verification process can strengthen your AML compliance efforts. Learn how this can ensure submitted documents are authentic and free from alteration.
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Anton Vedešin, Founder and CTO of Vespia

May 6, 2024

Today, there are many ways to keep your business secure and compliant with AML procedures. One that might be overlooked is document verification.

There is a rising need to raise awareness and employ stricter processes for document verification. For instance, in 2023, over 1 million identity theft incidents were reported via the FTC’s official portal, indicating the risk clients face when transacting. A secure process from both financial institutions and businesses can help reduce the risk of fraud, whether it's through banking software or thorough checkout schemes.

There are many ways you can maximize your document verification software. Understanding the process can empower you to take the right steps to strengthen your KYB, KYC, and overall AML processes.

What is document verification?

Document verification is the process of confirming the authenticity of identity documents submitted for official purposes to ensure compliance with regulatory requirements. It's an important part of the customer onboarding process that aims to certify any individual or organization opening an account or performing a transaction presents only genuine or unaltered documents, free from document forgery and fakes.

Validating the customer's identity is crucial when an organization takes them through the account opening process. This is where the business starts to verify documents, and several stages may be involved. For example, identity verification processes can review a government ID or passport. Other types of documents that often require verification include utility bills, bank statements, inheritance letters, tax returns, and articles of incorporation.

One of the first steps is to manually verify official documents by reviewing security features, watermarks, or even signs of tampering. An inspector can then compare the document information with other secure databases to ensure accuracy.

The business can then electronically verify digitized documents. It's also possible to verify the authenticity of electronic documents online through the organization's website or app to save time.

Manual vs. digital document verification

Businesses can conduct document verification manually or digitally, depending on their volume of clients and transactions.

Manual document verification is performed by human operators who determine the authenticity of the physical copies of submitted documents. Officers can compare the documents to official templates or verify information with relevant authorities.

Digital document verification uses document verification software for offline and online verification. The tool can automatically check the authenticity and validity of digital or digitized documents. Depending on the software's capabilities, it can use optical character recognition (OCR) to extract text and artificial intelligence or even blockchain technology to determine the integrity of the data presented for the verification process.

Documents used for verification

Many official documents are used to verify individuals and entities. Often, it depends on an application's purpose or intent to determine what type of document verification is necessary. Some intents can have similar requirements.

Here are some of the most commonly used verification methods and the different kinds of documents they may require.

Identity verification

Identity verification aims to verify an individual’s identity documents using their personal information. Documents that help determine the legitimacy of the information provided usually include the following.

  • National ID
  • Passport
  • Driver's license

Address verification

Address verification is a process that ensures the physical or mailing addresses provided by customers or clients are accurate, deliverable, and legitimate. Documents used for this type of validation include the following.

  • Utility bills
  • Bank statement
  • Property agreement or lease

Financial status verification

Financial status verification confirms the accuracy of an entity's financial claims to assess financial stability as a client or customer that can afford to support any transaction. Additionally, this process can certify any source of funds used for an account. Documents used to verify financial status include the following.

  • Bank statements
  • Credit reports
  • Asset ownership documents

The importance of document verification for financial institutions

For financial institutions, document authentication plays an integral part in anti-money laundering (AML) compliance, risk management, security, and overall customer trust.

Here's a breakdown of its significance in the industry.

Local and global compliance with regulations

Financial institutions operate in one of the most heavily regulated sectors. Complying with various international and local regulations can help prevent money laundering, terrorist financing, and fraud, among other illegal activities.

Document validation is a key component of the Know Your Business (KYB), Know Your Customer (KYC), and Customer Due Diligence (CDD) processes. Each plays a part in AML compliance and other regulatory laws to keep clients and businesses secure.

Additionally, countries across the globe have varying regulatory requirements. Financial institutions that operate across borders can benefit from online document verification to better navigate the complex web of international laws.

Fraud prevention

By verifying the authenticity of documents, financial institutions can significantly reduce the risk of document fraud. This includes identity theft, account takeovers, and application fraud.

Ensuring that documents are not forged or tampered with helps protect the institution and its customers from financial loss.

Risk management

Conducting an accurate document verification process is beneficial in assessing your customers' risk profiles. With the information gathered for document verification, financial institutions can make informed decisions about engaging in business with a particular individual or entity.

Some other factors that risk management can impact includes credit risk assessment, investment decisions, and setting terms for banking services.

Maintaining business reputation

The financial sector is built on trust. A single incident of fraud or regulatory non-compliance can significantly damage a business's reputation. It can also potentially lead to customer loss and reduced market value.

Implementing effective document verification processes will enable you to detect and prevent fraudulent documents from passing through. By carefully verifying ID or business documents to ensure individuals and entities are legitimate, you will cultivate trust and confidence among clients and regulators.

Operational efficiency

Advanced document verification technologies, such as optical character recognition and AI, streamline the verification process, making it faster and more efficient. This improves customer experience by reducing wait times for account openings, loan approvals, and other financial services. It also reduces the operational costs associated with manual verification processes.

Enhanced customer experience

A robust document verification process, especially one that utilizes online methods and modern technology, can enhance the customer experience. It \eliminates the extra step of physically going through other verification methods, meaning customers don’t need to put in extra effort into visiting in person.

A digitized and efficient verification process enhances the customer experience. It enables quicker onboarding, instant services, and a sense of security for customers, knowing that their financial service provider maintains high compliance and security standards.

The document verification process

The verification of documents is fundamental in the bank account verification process, employment, education, and many other fields where checking for the legitimacy of one's identity, qualifications, or other personal information is necessary.

While the specifics can vary depending on the context and the technology used, the general doument verification process often involves the following steps.

1. Document collection

The first step to verifying the legitimacy of customer information is to collect official documents from individuals or entities opening accounts or conducting transactions. There are several options for gathering the required documents, such as:

  • In-person file submission
  • Mailing documents in
  • Uploading digitized files for online document verification

2. Document analysis

When documents are ready for verification, the financial institution can conduct manual verification with an inspector or verify documents online.

With manual verification, a representative will perform a visual inspection to check for inconsistencies. This includes differences in font types, irregular signatures, or alterations in document layouts. There are also documents with built-in security features like watermarks, holograms, or microtext, which the inspector can check.

For digital documents, software can use cryptographic techniques, QR codes, or digital signatures. To check for authenticity, it can be compared and verified against issuing authority databases or taken through blockchain verification methods.

3. Cross-referencing and validation

The information on the document is cross-referenced with other sources for validation. This could involve checking details available in government databases, using third-party verification services, or confirming details directly with the document's issuing authority.

When it comes to identity verification, details like an individual's name, date of birth, and photo are matched with other identity documents or official databases.

4. Decision-making

Based on the analysis and cross-referencing, a decision is made on the authenticity and accuracy of the provided information. In the event that there are discrepancies or issues are identified, further investigation may be required, or the document may be rejected.

5. Record keeping

As soon as the process is complete, details of the verification process, including the outcome and any relevant notes or observations, are recorded. This is crucial for audit trails and regulatory compliance, and may be used for reference to resolve any future disputes.

6. Feedback and action

To complete the cycle, the individual or organization who submitted the documents for verification is informed of the outcome. If there are issues with verification, feedback is provided. Additional information and documents can be requested to help in the process.

Once an individual or organization is verified, the process moves forward to the next steps, which can be account opening or other transactions.

The use of technology and automation in the verification of documents

Technological advancements have significantly improved the document verification process. These strides have made verifying documents faster, more accurate, and less susceptible to human error.

Tools like OCR can easily extract and analyze information from images or scanned documents. Artificial intelligence and machine learning algorithms can even automate the detection of anomalies or inconsistencies that may indicate forgery or tampering.

And it goes even beyond the initial account opening processes. These technologies can also safeguard accounts with biometric verification, including facial recognition technology, which matches photos on identity documents with live images or other photo IDs.

Securing document verification

Today, financial institutions and businesses must face the evolving face of fraud, identity theft, and constantly updating regulatory requirements. An efficient and reliable document verification mechanism is crucial to securing operations and building customer trust.

Fortunately, there are many ways to implement stricter verification processes today. Aside from utilizing manual document verification, there are advanced technologies like OCR, AI, and machine learning to streamline the process. These can help ensure you conduct efficient AML, KYB, and KYC processes.

It becomes increasingly important to find the right document verification software to keep your organization and its clients protected. At Vespia, we take the necessary precautions in KYB verification to ensure businesses are screened thoroughly with the right processes in place. Schedule a demo today and discover how Vespia can smooth out your workflow.

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