ID Verification:
A deep dive into various use cases.

Today’s global regulatory environment is in constant flux. As digitalization continues to spread through more and more industries, regulations—especially in areas like data privacy and Know-Your-Customer (KYC) policies—will have to evolve to keep up.

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ID Verification: A deep dive into various use cases
Article Published on January 21st, 2020. View Article on Medici.

Today’s global regulatory environment is in constant flux. As digitalization continues to spread through more and more industries, regulations—especially in areas like data privacy and Know-Your-Customer (KYC) policies—will have to evolve to keep up. Yet, regulations always play a catch-up game, constantly half a step behind industry innovations. The implication: what is okay for a company to do today may become verboten tomorrow.

Thus, beyond merely adhering to current regulations, companies must also try to anticipate the future regulatory environment and take steps to ensure they are protected above what is presently mandated. One way to do this, especially for companies who are operating on the edge of innovation, is through robust KYC and identity verification standards that not only meet the present regulatory environment but is prepared for the future as well. Such policies are the frontline of defense against things like fraud and money laundering—the dark side of our increasingly interconnected world.

Digital Identity Verification Has Become a Prerequisite for a Diverse Range of Industries

In the past, only select industries—such as banks—needed to worry about KYC and identity verification. That is no longer the case. Today, these are prerequisites that need to be implemented across a wide range of industries.

Consider a company like 4Stop, which provides KYB, KYC, compliance, and identity verification solutions to industries such as digital currency platforms, investment platforms, payment companies, and challenger banks. In addition to enabling its clients to remain protected in the modern regulatory environment, it has also allowed them to realize tangible bottom line benefits—4Stop’s clients have experienced a 66.6% reduction in chargebacks in the first two months alone, together with their proprietary real-time cascading verification logic to bring an additional 11% increase in cost savings.

Digital Identity Verification Solutions – The First Step in the Larger Compliance Process

Why is there such a focus and demand for effective digital identity verification solutions? The answer is because it is the first step within the larger compliance process and a failure at the point of identity verification compromises that entire process. It is thus imperative that—regardless of which industry a KYC solution is being applied to—the digital identity verification solution must prove itself reliable. This is true irrespective of which specific digital identity verification method is being employed, which can include:

  • Knowledge-based: Using specific security questions to verify identities
  • Documentary-based: Using technology like machine learning and AI to assess the authenticity of various government-issued IDs
  • Biometrics-based: Uses a person’s biometrics such as fingerprints, voice, and facial characteristics to verify a user’s identity
  • Database reference-based: References multiple databases like credit bureaus and even less formal sources such as social media for verification purposes

Let us now take a deep dive into the use cases of such digital identity verification solutions for each of the industries outlined above.

Digital Currency Platforms – A New and Evolving Regulatory Frontier

Digital currency platforms or cryptocurrency exchanges represent a very interesting use case for digital identity verification solutions. Regulation is highly inconsistent geographically, with some jurisdictions mandating strict KYC requirements and others barely having any at all. This incentivizes many crypto exchanges to domicile themselves in countries with less stringent KYC requirements, although the drawback to this is that it prevents the citizens of some countries (e.g. the USA) from signing up with them. Fraud is also still rampant in cryptocurrency because of their hard-to-trace nature. Finally, because crypto is so new, regulators all around the world are scrambling to catch up, resulting in a regulatory space that is changing at a pace that is quick even by technological standards.

This presents a challenge for digital currency platforms and crypto exchanges, especially those who are targeting a global clientele. If KYC regulations and requirements vary so widely, then the most logical solution for them may be to follow the strictest possible standards, which leaves them ‘breathing room’ as regulations from the laxer jurisdictions become tighter. However, this must be balanced with user-friendliness and convenience—otherwise the platforms risk losing clients who are used to the looser KYC requirements.

4Stop has done exactly that with two of its blockchain clients—Gatehub and Skalex (formerly Draglet). Gatehub is a global Ripple (the third largest cryptocurrency) wallet and gateway provider, while Skalex is a blockchain software company that provides businesses with white label exchange solutions. Both companies have elected to use 4Stop’s KYC and anti-fraud technology to ensure that their companies are prepared for the future of crypto regulations while also maintaining a high level of user-friendliness.

Although not every jurisdiction requires crypto exchanges to carry out identity verification and KYC, that seems likely to change in the near future. Savvy companies like Gatehub and Skalex realize this, which is why they are implementing the KYC and identity verifications of the future today.

Investment Platforms – Increasing Access Creates Identity Verification Challenges

Thanks to Fintech, investments and wealth management tools are becoming increasingly democratic and global. Previously, many kinds of investments were off-limits to the masses, whether because of high investment minimums, excessive fees, or geographical limitations (e.g. it was almost impossible for a resident of say, Malaysia, to invest in an S&P 500 ETF). In addition, the traditional wealth management business model also leaned heavily toward face-to-face interaction—which entails high human resources costs—as high net-worth clients expect such level of personalized service.

All that has changed now; Fintech has irreversibly disrupted the traditional model. Investment platforms, from robo-advisors to specialized wealth management platforms, are proliferating. The new business model is one of access—trying to reach those left out in the traditional model. Low investment minimums and minimal fees are the new norms, with users also usually able to access investments outside their geographical area. All this is achieved by using technology to save on costs.

In a nutshell, the new investment platforms are more democratic. But this presents its own challenges, namely in the area of KYC and identity verification. With a mass of users but minimal personnel, the only way the business model is sustainable is if there is an e-KYC and digital identity verification system in place—staying manual simply will not work. But since investments are typically highly regulated, the companies in this space must also ensure that such systems meet the highest standards. As such, partnering with a proven e-KYC and digital identity verification partner, such as 4Stop, with complete global KYC coverage is crucial for the success of such platforms.

Payment Companies – Going Global Mandates Robust Identity Authentication

Payments have been the backbone of the Fintech wave, providing the core that Fintech’s myriad other uses build upon. The old model of expensive bank remittances is dying, and in its place are the new Fintech payment providers with names like MiFinity, PaySend, Paymentz, and FlashFX. Their advantage over the banks is clear and simple—cheaper, faster, and more convenient.

But to compete with the banks and other incumbent payment and money transfer companies, the new payment providers must implement an equally robust KYC and identity verification process. This is particularly important as identity theft and fraud are still prevalent in today’s digital age. A research report shows that in the US alone, there were 14.4 million victims of identity fraud in 2018. Out of this 14.4 million, 3.3 million had to bear out-of-pocket financial costs totaling US$1.7 billion—a huge sum. The report also notes that criminals are becoming better at bypassing authentication processes through attack vectors such as mobile phone account takeovers.

Further, payments, especially global payments, is a highly regulated space, with both regulators and central banks concerned about things like money laundering, fraud, and the avoidance of capital controls. Running afoul of the regulators is a quick way to get relevant licenses revoked. But again, such KYC procedures must be in line with Fintech’s appeal factors of convenience and user-friendliness.

All four payment providers listed above—MiFinity, PaySend, Paymentz, and FlashFX—realize this, which is why they have all partnered with 4Stop in order to utilize its integrated KYC and anti-fraud solutions. By aggregating hundreds of premium global KYB and KYC data sources, 4Stop ensures that its clients are secure from their first line of defense and underwriting merchants through to their KYC and identity verification processes of their customers and associated transactions, regardless of where they onboard worldwide.

Challenger Banks – Taking on the Big Banks Requires Modern Identity Verification Solutions

Challenger banks are an interesting phenomenon. The term refers to UK-based retail banks that look to fill in the ‘gaps’ the big four UK banks—Barclays, HSBC, Lloyds, and RBS—have ignored. To distinguish themselves from the incumbents, challenger banks have openly embraced Fintech, using it to reduce costs (e.g. no physical branches) and thus offer more attractive options. In non-UK contexts, the term digital banks are usually used, although they are functionally similar.

But a challenger bank is still a bank, and the stringent KYC and identity verification requirements of the banking industry still apply. One question comes to mind: absent physical bank branches, how are customers supposed to open an account with these banks and trust them with their hard-earned savings? And on the banks’ end, they must remain compliant with banking sector regulations without alienating their customer base. While various solutions including post office verification have been mooted as onboarding solutions, digital identity verification has thus far proven to be the most viable model . As such, partnering with a company like 4Stop, which can provide them with a total solutions package that covers everything from digital identity verification to anti-fraud with real-time intelligence is exactly what challenger banks need to stay both competitive and compliant.

Stock Trading Applications – A Democratic Global Space Needs Global KYC Solutions

Much like the investment and wealth management space, the stock trading space is going digital. No longer do people telephone their brokers (who then charge them a hefty fee). Today, the proliferation of various stock trading applications means that trading is more accessible than ever. Their commissions are lower, their execution is faster, and they require minimal upfront deposits.

The downside of this accessibility is that there are now so many stock trading apps that consumers are unsure who to trust. Many stock trading apps are registered in jurisdictions with laxer regulations and use things like CFDs—Contract-For-Differences, a form of derivative—to enable (indirect) trading on the prices of various financial assets (the underlying assets are never actually purchased or sold). Simply put, the industry has a bit of a reputation problem.

To stand out from the crowd, some stock trading apps are deliberately subjecting themselves to more stringent regulation to improve their brand trust levels. One example is WeBull, which is regulated by the US’ Securities Exchange Commission and its Financial Industry Regulatory Authority. The app—with over 9 million users—allows for trading in US stocks and ETFs while also providing up to USD500,000 in protection under the Securities Investor Protection Scheme.

This kind of additional regulation lends comfort to clients. But it also means that stricter KYC and identity verification procedures must be put in place. To achieve that, WeBull has chosen a global e-KYC identity verification partner. Just six months into using the e-KYC solution, it was able to onboard 100,000 users instantly while also meeting every regulatory requirement. With such a solution in place, WeBull is now poised for even further growth. Its case highlights the impact that implementing an effective identity verification solution can make.

A Trusted Digital Identity Verification Partner is a Must in the Modern Digital Age

As our use case deep dives show, the need for a trusted digital identity verification partner such as 4Stop exceeds the boundaries of any one industry. Fintech may be a disruptor today, but it will be the norm tomorrow. Similarly, digital identity verification may be something new today, but it will be the standard operating procedure of the future. Forward-looking companies are already implementing such solutions—the rest will have to play catch up.


4Stop, a leading fraud prevention provider solves businesses risk-based approach through a modern, all-in-one KYC, compliance and anti-fraud solution. Based in Germany and founded in 2016, 4Stop’s global compliance and risk management platform brings together their proprietary real-time anti-fraud technology with over 1800 active global premium data sources, in a single integration. 4Stop’s technology creates an unrivaled combination that allows businesses to confidently anticipate risk and are empowered to make well-informed decisions, backed by quantifiable data to manage regulatory obligations that will accelerate their business performance. 4Stop has been developed with a full understanding of compliance needs — locally and globally, today and in the future. Learn more about 4Stop or contact Us.

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