The inconvenient truth

As bad actors become more sophisticated, financial services are finding it increasingly time-consuming weeding them out. Anatoly Kvitnitsky, Vice President of Growth at identity verification company Trulioo, and General Manager Zac Cohen, explain how they can save organisations the bother

To find neighbourhoods of rich people head for the US, Japan, Germany and China. Between them, they shared 61.2 percent of the world’s high net worth individuals, according to the Capgemini World Wealth Report 2018.

But look more closely at the statistics and you’ll find that the rich increasingly reside everywhere, and areas of rapid growth continually shift as emerging nations modernise and upskill. India, Indonesia and African countries are undergoing massive change and have a fast-growing middle class, meaning there’s huge opportunity for industries keen to follow the new money.

However, a barrier remains – just who are these newly wealthy people? Legislation around know-your-customer (KYC) and anti-money laundering (AML) is a huge headache when attempting to verify individuals outside of the established, advanced economies.

“In the G5 markets, it’s relatively easy to verify an individual,” says Anatoly Kvitnitsky, vice-president of growth at identity verification company Trulioo. Outside the G5 markets, where 70 percent of the population resides, verification becomes difficult. The data sources are just not as developed, they’re not as mature as they are in G5 markets and, given the huge fines that can be imposed for holding dirty money, it’s one of the things that keeps bankers awake at night.”

Trulioo was formed in Vancouver, Canada, in 2011. It now works extensively with hundreds of companies, particularly with financial institutions and financial services, to provide online identity verification in developing markets, as well as emerging markets, where identity verification is more challenging.

Much of the initial motivation was around helping the world’s unbanked – people, who often lack an identity footprint and are, therefore, difficult to verify. But those same verification processes are also put to work to verify and authenticate people with millions of dollars to invest, and helping established banks with brand prestige to build the requisite confidence and trust to take on their business. Kvitnitsky’s colleague and Trulioo general manager Zac Cohen explains that the point where new customers apply for a financial services account online is the point where due diligence is most vital.

He says: “The account creation process is the first interaction with the user – it’s that first handshake. At that point, a company is most susceptible to fraud because if you allow a nefarious individual into your system, it’s going to be more likely that you have fraud problems later on. Identity verification is key to that initial onboarding. You must ensure the individual accessing your service is real. It’s very rare that a legitimate user – a real individual – will engage in fraudulent activity or provide problems in your system afterward. So, the best technique is using a comprehensive identity verification solution that can work for your user base, demographics, and regulatory requirements.

“You need to stay one step ahead of the bad actors. We see quite often that where new technology is launched, the first individuals to experiment are the ones you don’t want.”

Trulioo’s solutions are typically provided through application programming interfaces (APIs) that ultimately allow clients to verify the identity of five billion people in more than 195 countries. The firm’s staff have pinpointed the most effective sources of data for each nation covered – which could be government records, or, for example, mobile phone contract information in countries with weak governance.

Knowing where to go for what information is Trulioo’s strength, and means clients don’t need to devote time to carry out their own due diligence and then have to monitor and manage those ID systems. Importantly, Trulioo uses multiple sources and cross-references data to reduce the risk of onboarding fraudsters who hold a fake passport. Offering the service through an API means established banks can simply bolt it on to their legacy systems. And for challenger banks and other smaller clients, the API gives them the potential to grow their customer base fast. Cohen says: “Banks face such a high level of scrutiny. The standards and brand value of banks are so high that they definitely take a different approach to deploying regulatory technology and to satisfying their internal compliance requirements.

“Established banks have legacy systems that have been in place and active for decades, and so changing how they do things can be difficult. At the same time, they have the most pressure to deploy digital transformation to satisfy the customer base that they want to attract and to make that service more accessible to online users. So, we provide them with a platform they can access and leverage the tools that they need, as opposed to replacing their entire infrastructure. At the same time, we need to satisfy those high levels of security and data privacy. So,
as an organisation, we work very closely to ensure brand values are maintained.”

Another factor that Trulioo focusses on is reducing friction – Cohen warns that wealthy clients will often abort applications with firms that take too long to process their applications.

“Customers now have easier access to register for the types of accounts that were either prohibited before or just not easily attainable for individuals online. Wealthtech services are absolutely online-first, mobile-first. So we deploy our tools alongside these providers to ensure that they don’t sacrifice any of the due diligence, security, and privacy of the information, but still have the great access tools they provide to their client base,” says Cohen.

“Also, a mobile-first approach satisfies the needs of the younger generation. From the consumer perspective, availability is key, as is a variety of tools and services.”

Brokerage companies and securities dealers are among the organisations that have adopted Trulioo’s solutions to onboard customers. When offering services to international investors, a broker must overcome the real-time trading risks posed by numerous markets while ensuring the customer is bone fide. Trulioo says before such organisations started using its ID verification services, they typically demanded a customer submit paper documents, such as photocopies of passport, driver’s licence or national ID card, which were then manually processed. With the recent growth in online nominee stockbroking accounts, brokers were struggling to meet demand, and processing times grew.

Each country poses its own challenges. China, for example, has high ID verification rates but each region has different data sources and requirements. Hong Kong has no official postal codes or street names. That becomes a nightmare for an account provider with onboarding processes that demand address validation and has address data fields to complete.

Trulioo says many brokers have adopted GlobalGateway (its marketplace of identity data and services). One such client is Wall Street-based Webull Financial, a zero-commission, online broker-dealer that demands no minimum deposit to open an account. Such an offer attracts novice investors and so Webull Financial uses GlobalGateway to flag applicants who have previously been involved in any fraud, conspiracy, and/or trafficking. It was able to onboard 100,000 bona fide new investors in six months.

Contracts-for-difference and spread-betting broker IG uses Trulioo’s solutions to avoid reliance on paper-based manual onboarding processes. The UK firm already had an automated ID verification system for British and Australian clients and needed a method to extend this to other territories.

Catherine Jeetoo, from client onboarding operations at IG, said her firm was keen to attract active retail investors who may be prompted to apply for a dealing account by a specific short-term opportunity. She says: “With fast-moving markets, people want to take advantage of the now, whether it’s a global issue such as Greece or China, or whether it’s a particular stock that they’re interested in. Having to wait for an account to be opened is a missed opportunity.”

As well as instant ID verification, Trulioo reduces onboarding field types by a quarter due to its built-in intelligence and mapping of common fields. Trulioo’s normalized API supports a long list of country-specific fields, including name, address and IT attributes, and reducing fields means clients can add customers more efficiently. Beyond brokers, Trulioo has worked with cyber currency providers – an area where know-your-customer and anti-money laundering protocols have been weak. One client was a Canadian company that used GlobalGateway to scrutinise applicants during its initial coin offering. Some cybercurrency providers have enshrined customer anonymity as a point of principle, but the Canadian operator worked to ensure compliance with the country’s province-specific securities laws. Another major challenge was meeting US regulations so US citizens could take part. Investors, there must be verified against watchlists to weed out criminals and terrorists. Using GlobalGateway, the initial coin offering accessed data from around 60 countries to verify the ID of 2,500 investors in real-time so they could buy tokens at the launch.

Faster onboarding

Kvitnitsky says that while Trulioo is happy with its ‘several hundred clients’, as head of growth, he is always looking at ways to increase that to several thousand. His plan is to productise the expertise and services Trulioo provides to existing clients and roll that out to others.

“One way we’re doing that is with a snippet of JavaScript code, called EmbedID, to then populate an entire sign-up form for more than 70 countries,” he says.

“The form helps support KYC compliance requirements and verifies customers (end users) instantaneously. So, whether it’s a startup that wants to launch internationally, or it’s an established company that is doing business in 100-plus countries, this capability offers an easy way for clients to access GlobalGateway during the customer onboarding process to perform due diligence.

“Everyone is strapped for technical resources, no one has enough developers. So EmbedID lowers the amount of technical resources needed to create compliant identity verification.”

Another innovation is verification of organisations – an area Trulioo entered last year, following the introduction of the 4th AML directive in Europe. Trulioo sells this API-based solution in around 80 countries for clients to verify a business entity without having to manually research them.

Kvitnitsky says: “If you look at a bank today, specifically a European bank, it takes them roughly four to six weeks to onboard a commercial customer. The bank’s compliance department will have screens for up to 50 different registrars of countries where they look up entities. With our business verification solution, one portal (or one API if they want to directly integrate), can verify more than 250 million businesses, across 80 countries, and do it all instantly. So the onboarding process can be done in minutes.”

Meanwhile, Kvitnitsky also reveals there is another reason to offer Trulioo services through a simple JavaScript code – it attracts today’s key decision-makers at tech-driven companies: the developers.

“I’ve been at Trulioo for nearly five years now and, even just a few years ago, an executive or a product manager would make a decision on which product or solution they’re going to go with and then tell the developer what to do. That is no longer the case. The developer will decide which API is best,” says Kvitnitsky.

“Developers don’t say ‘show me the money’ they say, ‘show me the API’ and that’s what influences their decision.

“So, we want to make sure that, whether it’s a two-person startup or a large bank, that they have the best developer tools possible to perform verification services around the world. Whether that’s EmbedID, with its snippet of code to verify the globe, to the best API docs for identity and business verification, we’re building new tools to help developers automate and digitalise customer onboarding around the globe to increase trust and safety and reduce fraud and financial crime online.”

This article was published in The Fintech Finance Magazine: Issue #12, Page 52. 53 & 54.