Document Verification

How Does Document Verification Work?

Check out this article to learn all about document verification process, technology, and the techniques used to make application processing easier.

Processing documents remotely is a double-edged sword in the finance industry: It empowers you to accept applications faster, which is excellent for improved customer service. But the ease of submitting documents also means your pile of work grows astronomically. 

Throw on top the need to verify documents before pushing them through for processing, and you have an ongoing headache. 

Thankfully, there are AI tools available to help with document verification. 

In this article, we'll discuss the document verification process and the techniques used to make application processing easier. 

What is document verification?

A document and its details are verified digitally on a computer.

Document verification is a process for document authentication and proving document ownership. For example: verifying that financial statements, passports, licenses, utility bills, and certifications are real and actually belong to the applicant who submitted them. 

The goal is to determine if the document presented (e.g., an identification card) is authentic or not by comparing it to official records.

Why is it important to conduct document verification?

If a financial institution doesn't verify documents, they are putting themselves at risk of being defrauded. Scammers consistently attempt to fool credit card companies, banks, and loan agencies to extort money. They often do this using a mix of stolen and counterfeit documents. 

When a con artist gets approved for a loan or credit card, they'll spend the money and disappear. Enough of these defaults, and a financial institution will fall into bankruptcy. 

Unfortunately, this is an issue that persists in the financial sector. Studies show identity fraud in 2020 led to an astonishing $43 billion in losses (this typically sits around $13 billion). The pandemic has also increased fraud incidents for government agencies (e.g., false unemployment claims).

Types of financial information lenders verify

The most common types of financial information verified by lenders include:

  • Account number to ensure the bank account exists and belongs to the individual
  • Account holder name to match the applicant with the account owner
  • Balance information to determine if the borrower has money for a deposit and/or good saving habits
  • Account closed date and balance to see if a loan was paid off and how long ago it was 
  • Length of term to determine how consistent the borrower makes payments on time over an extended period 
  • Account type to determine if it's a personal or business checking account or savings account (depending on your criteria, this could be very important)
  • Open/closed status to see if a borrower has too many (or not enough) open accounts 

Identity verification in the financial services industry

Having a way to determine an applicant's identity is critical to preventing identity theft. If someone does make it into your system with a stolen identity and defrauds you, then the burden is on you to find the culprit. 

Verifying identities was easier to do in the past with things like building cameras and fingerprinting. But now that online submission is available for many types of applications, those tools no longer work. 

With digital identity verification, financial institutions can safeguard against money laundering, identity theft, and cybercrime. This requires real-time ID verification, since many lenders offer fast approval times. 

How the financial services industry can benefit from identity verification

Approving more applications is your primary goal, but you want to do it without putting your company at risk of fraud and financial loss. Adopting identity verification software makes it possible. 

Here's a look at some ways financial services companies benefit from it:

  • Fraud prevention: Verifying identities enables you to detect different types of document fraud. This includes loans being used for criminal purposes or people who steal identity documents to submit false information. 
  • Age verification: Ensuring applicants are 18 or older can prevent legal ramifications.
  • Criminal activity protection: Avoid falling victim to money laundering, identity theft, and other schemes that can land you in legal hot water (or bankruptcy).
  • Cybersecurity: Identity verification protects your organization from hackers and scammers, since it prevents unauthorized access to sensitive data.
  • Reduce operational costs: Limit human errors and time spent verifying documents by employing AI technology that does it for you (within seconds). 
  • Customer satisfaction: Provide faster service to keep customers happy. 

Why verification of bank statements is necessary

During the application approval process, lenders must determine the client's ability to repay the loan. The best way to know is to look at their financial records. Not only does this verify their income—it also showcases their ability to save. 

With AI tools like Inscribe, you can authenticate bank statements and analyze spending habits. This allows you to make better and faster lending decisions. 

Common issues in the financial services industry

Insurance agencies, credit unions, credit card companies all face similar problems amid the digitization of application processing. While this helped increase business for these entities, it also invited a sleuth of bad actors, including thieves, fraudsters, and criminals. 

Here's an overview of the issues we see in the finance industry:

  • Cybercrime is on the rise. According to the IBM Security Cost of a Data Breach Report, the average cost per breach in the financial services industry was $5.86 million in 2019.
  • Money laundering is also on the rise. Thanks to the ease of online banking and crypto exchange, criminals are finding new ways to launder money. 
  • Regulatory compliance issues increase. Because of the rise in cybercrime and money laundering schemes, new directives like KYC (Know Your Customers) and AML (Anti-Money Laundering) have been implemented, but many businesses don't have the technology to comply. 
  • Identity theft is harder to detect. Stealing identification documents and using them in online fraud is easier today. Without facial recognition technology, it's challenging to know if an applicant is who they say they are. 

Who's responsible for document verification?

In the finance industry, the loan originator verifies documents before sending the application into processing. This includes asking for necessary documents, identifying if the records are accurate, and whether anything's missing or skewed.

Document verification is critical to ensure no one gets approved using the wrong identity or falsified financial documents. 

Modern vs. traditional document verification

A worker verifies documents to determine their authenticity.

Traditional forms of document verification were time-consuming and tedious. They slowed down processes and frustrated customers. 

Before digitization, customers visited local businesses or branches to submit applications and documents. They were verified in person with the individual present, making matching ID photos with the face easier. However, verifying documents wasn't as fast, taking weeks to process. 

Identifying fraudulent documents was challenging, since fraudsters had printers and skills to create counterfeit documents (e.g., bank statements, W2 forms, and other financial paperwork). So ensuring the documents used were 100% valid was next to impossible. 

Modern document verification technology to makes this possible. These tools use artificial intelligence and machine learning to identify documents, authenticate them using a database of original documents, and parse personal details (name, address, etc.). 

Using AI tools to verify documents speeds up processes and ensures regulatory compliance (not to mention enhances fraud detection, which can save institutions millions in losses). Inscribe’s AI-powered solutions, which include document verification, help customers in the finance sector save $80 million per month. 

What are the fraud detection techniques used by software?

There are several methods software used to detect fraud:

  1. Data integrity: AI checks documents for all data features (seals, data fields, etc.) to determine their validity. 
  2. Document authenticity: AI searches for anomalies in documents unseen by the human eye (changes in font, text box overlays, pixel quality, holograms, etc.). 
  3. Facial biometrics: AI scans the person's face and matches it with photos in its database to determine if it's the same individual. 
  4. Knowledge-based authentication (KBA): The customer answers a series of questions based on information pulled from their personal records. 
  5. One-time passcode (OTP): AI sends customers a verification code to their mobile phone number (to ensure the number is accurate). Most of the time, VoIP phone numbers aren't allowed. 

Using software that checks for these issues minimizes identity theft and fraud. But how does it work? It uses optical character recognition (OCR) technology to read text and handwriting in images (and even turn photos into editable PDFs). 

Let's say a customer sends a document to prove their address: They upload a photo of an electric bill and a bank statemen, then the AI software extracts the address from both documents within seconds. If the addresses match, then the verification check is complete. 

When determining the validity of documents, the software matches the format, logos, colors, fonts, and other data with original documents. If anything's amiss or photo editing is detected, the verification fails and is flagged for human review. 

Benefits of using AI for document verification

Filling out an application for insurance, loans, and credit cards is time-consuming. Some potential customers may drop out of the application process because of the numerous steps required. So making it faster and easier for customers is critical. 

With AI-powered tools like Inscribe, the account opening and underwriting process is simple. Your applicants can use their mobile devices to submit photos of documents and upload them to your system. Inscribe verifies the information instantly, allowing you to process the application must faster. 

This improves the customer experience and alleviates the headache of manually wading through mounds of applications. In addition, Inscribe analyzes the documents submitted for fraud — saving your team time that would have been spent on manual reviews and money that could have been lost to fraudsters. 

The machine learning aspect of this type of software gives it the ability to evolve. Over time, tools like Inscribe learn from mistakes and continuously improves fraud detection. The benefits of using machine learning and AI for this include:

  • Higher scalability (process more applications faster)
  • No latency issues when volumes spike
  • Increased accuracy, since human error is eliminated
  • Data-driven decision-making (e.g., scoring applicants based on their spending habits pulled from data in their bank statements)
  • Faster onboarding of customers
  • Best-in-class forgery and spoofing detection 
  • Improved user experience and customer satisfaction

Make faster decisions with document verification software

Are you dealing with too many applications to process and clients who are getting frustrated with sending in documents and waiting weeks for approval?

Adopting AI technology for document verification can help eliminate these issues while preventing fraud. Inscribe does this for its clients throughout the financial services industry, using AI and machine learning to accept and verify documents. Plus, the software parses data and helps you determine an applicant's creditworthiness. 

If you need to enhance your document verification workflow and approve customers with confidence, speak to one of our experts today.

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