Proof of Address: Why, When & How?

According to the United Nations Office on Drugs and Crime the amount of money laundered each year is 2% to 5% of global GDP. In order to combat money laundering and terrorist financing, the Know Your Customer (KYC) procedure was introduced, which is a part of a broader Customer Due Diligence (CDD) process. Every bank or financial institution has to implement KYC into its onboarding process. KYC, however, often includes address verification. What is Proof of Address (PoA)? Why and when should you use it?

What is address verification?

Address verification is a process, during which you make sure that a person lives where they claim to live. It also ensures that address data is accurate and up to date. Address verification services can also check that the address is accurate and exists as well as whether it is a residential or a commercial building.

Why and when do you need the address verification?

Verifying your customer addresses saves costs and gives you certainty.

Shipping
In case there’s a delivery that needs to happen, you don’t want a customer’s typo to be the reason for the lost package. Moreover, it makes the flow seamless. Address verification services can provide live feedback to your customer when he or she is filling out the form on whether the address is correct or not. This is extremely useful for e-commerce websites and apps.

Tracking fraud
If there’s a suspicious activity related to transactions of the individual and you believe that your customer is involved in money laundering, verified address can help law enforcement to track this person. Even if the person has fled his or her home, investigators can still use this location to look for clues, to where the criminal has gone.

Compliance
According to many regulations you have to collect a PoA for high-risk individuals as a part of Enhanced Due Diligence (EDD). This measure helps you assess and assign risk scores to individuals with a criminal background or Politically Exposed Persons (PEPs). Besides, financial institutions have certain rules in regards to working with clients from high-risk countries. Therefore, you have to be able to verify one’s address to make sure that they are not from one of those countries.

How is it done?

A good address verification process benefits user experience.

There are several options to verify the address.

1. A visit by a financial institution representative

This is the most common way to verify the address. It is the most reliable method, however, it’s also the most expensive and the least customer-friendly.

2. A paper letter that is sent to the address with a One Time Password (OTP)

This method is not particularly customer-friendly and takes a long time for the letter to arrive. In addition, the letter can be delivered to a third person’s address, that the customer has made an arrangement with.

3. Proof of Address (PoA)

It is the most modern method, which is reliable but most importantly the cheapest method of address verification. It takes only minutes and happens online. Additionally, it allows for an opportunity to ask further questions and assign appropriate risk scores. This is the most user-friendly method with the smallest drop-off rate.

Let’s take a look at how PoA is done at BASIS ID.

1. A user enters their address. It is immediately checked for accuracy and existence. If there’s a mistake, user gets an immediate notification.
2. A user uploads a PoA. This is usually a utility bill, a bank statement or governmental correspondence.
3. Documents get checked for validity. BASIS ID uses machine learning algorithms and special filters to identify unofficial or falsified documents.
4. Data is matched to user’s input. Using OCR, the data from the PoA is read and compared to the user’s input. At this moment document is also checked to be issued less than 3 months old.
5. The address gets a final verification. Using multiple databases the address is checked for validity. Additionally, the algorithm determines if the building is residential.

If the address verification was completed successfully, a customer can enjoy the full functionality of your service.

Working with PoAs

The process of address verification is more difficult than it might look at first glance. Unlike government-issued passports and ID cards, it is relatively easy to alter documents that are usually used as PoA. Different jurisdictions allow different documents that can be used as a PoA but here’s a list of the more common ones:

1. Utility bill
2. Bank statement
3. Governmental correspondence

These documents have to be official and include the customer’s name, address and issue date. The golden standard is no more than 3 months old.

Some of the less common PoA documents might include lease agreements, employer’s certificates for residence proof, or house purchase deeds.

Some countries also have residence address stated on the document such as a passport, ID card, or a driving license. In this instance it is possible to use these to verify the address as well. However, you have to keep in mind that by the law in some countries you cannot use the same document to verify the identity and the address.

Complicated yet still important

The process of address verification is not simple yet it is still required to make sure that you are mitigating possible risks related to money laundering and terrorist financing. The biggest issue with the address verification is to identify whether the PoA is real or not. Luckily BASIS ID has a robust machine learning technology along with Compliance Officers with years of experience who make sure that there’s no possibility for criminals to get through the address verification while providing the smoothest possible experience for your customers.