How to improve KYC and identity verification for your clients in Germany

Germany is a market renowned for its cultural emphasis on privacy, data protection, and security. Throughout the years, regulators have introduced a series of measures to counteract identity fraud and money laundering. In April 2017, for example, Germany became the first country in Europe to introduce video identification procedures for remote customer identification. The initiative, led by the German Federal Financial Supervisory Authority (BaFin), introduced comprehensive standards for video identification.

This method, which happens through a live conversation with an agent has become the standard for digital onboarding in Germany. With comprehensive guidance from the BaFin and widespread adoption this Identification and Verification Process has been successful, however as criminals become more technologically savvy companies need to create more technical controls to counter these risks, something not always easy when a human is involved.

This begs the question: what damage can ill-motivated cybercriminals equipped with the latest generative AI technology do?

Financial industry companies relying solely on video identification during digital onboarding are finding out the hard way. In 2023, deepfake fraudulent identity verification attempts surged by 3,000%, leading to a spike in financial losses, regulatory fines, and increased reputational risk for companies.

The financial and security implications of relying on video identification, paired with the latest technological innovations, have kick-started a shift toward more secure, user-friendly, and cost-efficient digital onboarding solutions.

How does Fourthline create a robust KYC process and future proof it

Fourthline has been working with business partners operating in Germany since 2018. Over the years, we have been closely monitoring the internal regulatory and market shifts to help our partners, including N26, TradeRepublic, and FlatexDeGiro, build compliant KYC solutions.

“Many companies are considering video identification or post identification (another popular method where you verify your identity at the post office) to be legacy methods,” explained Gabriele Rosati, Fourthline’s Country Manager for the German market. “Their deficiencies have prompted an accelerated momentum for transitioning to more secure, UX-friendly, and cost-efficient solutions.”

For example, Fourthline’s solution first verifies users through a fully digital KYC flow (following EBA guidelines for remote onboarding), including identification and verification (ID&V), biometrics, and proof of address. Next, the user provides a Qualified Electronic Signature (a quick document signing process with the same validity as a handwritten signature). Finally, a bank account check is done to verify the user is the account holder. All this makes it superior to traditional video identification in the following ways:

Standard video identification vs. Fourthline’s KYC solution: Which is the better choice for onboarding clients in Germany?

Get a modern KYC solution, blending automation and human expertise

According to PwC’s “Global eID Country Report 2024,” Germans value data privacy and security as the two most important drivers of digital identification. At the same time, the lack of trust is identified as one of the main barriers to the widespread use of eIDs in the country.

Building trust and enhancing data privacy and security requires reducing dependence on legacy identity verification methods and adopting more sophisticated technologies. Leading data authorities and national regulators have long warned about the security threats associated with using video identification during client onboarding. While users are used to the procedure, and most regulated entities still apply it, its documented failings have accelerated a shift toward alternative solutions.

“We are witnessing an increasing number of requests from companies operating in the German market who are feeling the need to switch away from video identification due to cost, regulatory, and business reasons,” Gabriele said.

Fourthline’s platform combines seven product groups that work together to create the ultimate digital onboarding solution with ISO27001 security controls at the heart of the product.

Our platform runs over 210 checks on every uploaded identity document, selfie, or video, ensuring a high rate of fraud detection accuracy. It also uses machine-learning algorithms that assess various biometric or videographic cues to timely capture cases of video tempering and detect pre-recorded or counterfeit content.

While 90% of the decision-making process can be automated, we also employ an experienced team of data scientists that can act to strengthen the automation process.This team uses predictive analytics based on collected metadata to quantify the likelihood of AI fraud. Based in Amsterdam and Barcelona, our expert anti-financial crime and KYC analysis team gets ongoing in-house training to ensure they are ahead of the game. We are also actively collaborating with a diverse group of law enforcement authorities like Europol to remain on top of evolving threats.

“Earlier, we were able to screen out less than 30% of fraudulent accounts, but with Fourthline, we have been able to improve that by at least 50%,” notes one head of compliance and AML at a fintech interviewed by Forrester Consulting for “The Total Economic Impact™ Of Fourthline,” a commissioned study on behalf of Fourthline.

Improve first-try conversion rates with onboarding that takes minutes instead of hours

Video identification can keep new clients waiting for hours or even days if a foreign language-speaking agent is needed.

“This entire procedure can make you lose momentum and result in significant drop-off where clients you have almost converted get frustrated with the waiting times and choose a competitor instead,” explained Gabriele.

Similarly, authenticating your identity by going to the nearby post office can be hugely inconvenient.

Our KYC solutions rely on a fully remote and equally compliant process (according to EBA guidelines) where the client digitally submits the necessary documentation, such as an ID document, a selfie, a reference bank payment, and a qualified electronic signature.

Over 90% of the checks can be performed automatically in real-time, while there is also the possibility of manual intervention by one of our trained KYC analysts. The onboarding client receives live feedback, typically within 60 seconds. All this helps to improve first-try conversion rates since the entire procedure, from identity verification to account opening, can be concluded in minutes.

Save money through automation instead of full reliance on an army of agents

Video identification is costly since it involves booking a call with a live agent. Companies that employ video identification usually pay between €7 and €10 per session. And, Gabriele says, there is a chance that these figures will increase in the future, making video identification prohibitively expensive.

In comparison, Fourthline’s solution is a fraction of that cost since it uses AI and automation as much as possible, only requiring human input for edge cases.

Stay ahead of the regulations by reducing reliance on video ID

There appears to be a shift in regulatory opinion in relation to Video Identification, shortcomings have been identified and without sufficient remediation will continue to open risks up to firms.

While many companies have been proactive in adopting more technologically advanced solutions, these regulatory signals should serve as a wake-up call for those still relying on video identification.

At Fourthline, we are proactive in implementing feedback from German regulators and evolving our product stack accordingly. Our solutions comply with Section 12 of the reference regulation for onboarding clients remotely of the Geldwäschegesetz (GwG). As a result, companies partnering with us can build compliant flows and be confident that they will always remain on top of the latest regulatory requirements.

Ensures a flexible modular setup tailored to your needs and growth stage

“Many companies think that moving away from video identification is a cumbersome process and are afraid to embrace it. However, with the right partner by their side, there are no potential downsides - just opportunities,” notes Gabriele.

A combination of modular building blocks, Fourthline’s platform allows you to pick from standalone product modules or pre-built solutions. Whether you need a lightweight identity verification solution to complement your existing tech stack or an end-to-end bank-grade KYC and AML platform for lifelong compliance, we’ve got you covered.

This highly adaptable and integrative approach to identity verification allows you to combine different products at different times and design solutions tailored to your organizational structure, risk tolerance, use case, and growth stage.

Furthermore, our platform eases your expansion across Europe and beyond by supporting over 3,500 document types from 185 countries and allowing you to design market-specific onboarding flows.

“One of our partners, which operates in Germany, Italy, France, and Spain, has long been committed to video identification for its German onboarding flows. However, it is now considering moving toward the solutions they are using in the rest of the markets, and such a shift will be very easy to do,” explains Gabriele.

Ready to enhance your KYC and identity verification processes for clients in Germany?

The latest signs from German regulators, data protection authorities, and the business sector indicate that the main question is no longer whether to switch from video identification to alternatives but merely when.

If your organization wants to enter the German market or transition to a more cost-efficient, conversion-optimized, and secure KYC solution, Gabriele and the rest of the Fourthline team are here to ease your journey. Get in touch to get started.