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Virtual Identity

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Reporter 13 minute read

The verification of identity and knowing your customer is a critical point of the mortgage broking process. In recent months, the industry has seen a new wave of technological advancements entering the financial sector, with some aiming to improve the way identity checks are done. But how will this work in practice? Annie Kane investigates.

Five-foot-seven. Medium build. Brown hair. Brown eyes. That’s how I’d describe how I look. But if I wore sky-scraper heels, lost weight, dyed my hair bright red, and put in blue contact lenses, would you still be able to recognise me? 

While it may make the average person a bit longer to confirm that it was me, new technology coming onto the scene could make such decisions a breeze – with biometric facial recognition, biometric voice recognition and fingerprint technology all coming into the financial industry in the last few years and months, the odd bad dye job won’t be fooling anyone, it seems. And just as well, given the rising rate of identity and mortgage fraud in this country. 

According to the 2016 Veda Cybercrime and Fraud Report, the use of stolen identities in fraud events rose by 80 per cent in the year to June 2016 – while mortgage fraud increased by 13 per cent, the third fastest increase after personal loan (16 per cent) and consumer credit card (47 per cent) fraud. 


Imelda Newton, general manager, said at the time of release: “[A] continuing trend is the growth of identity takeover – the fastest growing type of fraud – where a genuine identity is stolen from an individual and misused for financial gain.” 

So, what can banks and mortgage brokers do to verify a client’s identity? 

The legal stuff

Under the Verification of Identity (VOI) rules, mortgage brokers must take ‘reasonable steps’ to verify the identity of their clients. 

According to Sam Makhoul, managing director of a legal firm specialising in mortgage processing, MSA National, these steps are dependent on the circumstances of each individual case, but ­– under Schedule 8 of its Model Participation Rule, the Australian Registrars' National Electronic Conveyancing Council (ARNECC) has set out a Verification of Identity (VOI) Standard which, if followed, is deemed to constitute reasonable steps. 


The VOI Standard requires:

  • VOI to be conducted during a face-to-face in-person interview;
  • That the verifier be satisfied that the person being identified is a reasonable likeness to the person depicted in photos on the identity documents; and
  • That the identity documents provided meet one of the set out categories.

The standard does seem to be working; according to Mr Makhoul, there has not been a case of fraud when a broker has obtained all of the client’s ID documents and conducted VOI. 

So, how do you go about conducting VOI? There are three common ways of getting that client’s identity verified: you can send them to a post office or Justice of the Peace; send a courier to go to their house and verify their identity on your behalf (in some circumstances); or you can do it electronically.

Asking a client to go to a post office or Justice of the Peace to have their identity confirmed is a common practice, but the drawback of this is that it places the responsibility of getting this done with the customer, which could lead to delays if they don’t do it straight away. Further, it means that the customer is out of pocket (usually around $44), as they have to pay to have this done. 

As such, many brokers turn to a courier service to take the onus of VOI checks off the customer. ZipID’s agency service is perhaps the best known of these, with around 800 businesses using this service, from banks and broker groups to law and conveyancing firms. 

David Fleming, founder and partnership manager at ZipID explains that the service uses Toll Group employees for this service, who are trained and screened to do a doorstep interview. 

Through the use on an iPad, the agent runs the ZipID workflow app which returns their ID check to ZipID’s back office where a certification of the results is conducted. The VOI report is then returned to the funder and broker. 

AFG and Connective were early advocates of the ZipID agency service, and Vow Financial, Yellow Brick Road, eChoice and Loan Market are also all at early stages of rollout.

Mr Fleming adds that the agency service is particularly popular with mortgage platforms that don’t have a physical presence on the high street. He explains: “Not all brokers run the same models and there's a growing patch of brokers that are using non-face-to-face methods, and these are broker groups that are moving more services online or to phone-based services, such as Uno. 

“These are growing broker business with no face-to-face touch and these are businesses who have all looked to the ZipID agency model to go out and perform the face-to-face check for them, and that's been a growing that service.” 

Mr Fleming says that lenders have told him that the agency service, which costs $39 per individual verification, is “outperforming the historical alternative, which is Australia Post” on three metrics: loan approval speed; conversion rate of application to approved file; and customer satisfaction. 

Indeed, Macquarie Bank was so impressed with ZipID’s agency service app, that it asked the company to roll it out to be available to brokers too, to improve workflow and reduce re-work (which can reportedly affect up between 20 and 60 per cent of broker applications). As such, brokers can download the app to capture and encrypt identity records when at face-to-face meetings with their clients and generate a VOI report. 

Undertaking remote VOI

But – in this continent of a country – getting to the client to prove their identity can be a challenge, especially in more remote areas where distance can prove a barrier to face-to-face interviews. While the ZipID agency service is a national service that covers all of Australia’s towns and cities, it doesn’t cover rural regions. 

In these cases, MSA National’s Mr Makhoul notes that brokers should be aware that the VOI standard is not mandatory in situations where it is not possible to follow.

He highlights that ARNECC “conclusively states that when the verification is unable to be conducted face-to-face due to remoteness, conducting the verification by electronic means will satisfy itself of the person's identity.” 

In recent months, there have been an increasing number of apps coming to market to enable brokers to conduct VOI remotely, which has been a boon for those in regional areas. 

MSA National was one of the first to develop such an app, as Mr Makhoul tells me: “As a law firm involved in mortgage processing, we are required to conduct VOI on borrowers picking up Certificates of Title from our office. The VOI requirements were different in each state and they were changing over time, so to simplify the process for all of our staff nationally, we developed the IDme App. 

“As soon as we started telling people about it, brokers or lenders, they'd say, that's pretty cool, can you show us? So, we showed them and they said that their brokers would love it. That's when we decided to put the app on the Apple App and Google Play stores. So, brokers were downloading it and started using it.” 

The app works by allowing brokers to complete the verification by electronic means on their smartphone or tablet. The client can securely send photos of the identity documents so the broker can assess whether they appear genuine. Once the broker has received sufficient identity documents, they then arrange a video call with the client during which they take a photo of them and can compare it to the documents to confirm likeness. Finally, the broker and client sign their respective declarations and create a VOI report that can be forwarded to lenders. 

When the VOI steps are completed, that data is transmitted to servers where it continues to be encrypted and held for the statutory seven years. As such, no data is stored on the phone’s camera roll, which helps reduce the risk of security exposure (for example, if the phone is lost or stolen). 

Mr Makhoul says that the team aims to evolve the app to other sectors (such as real estate agents and financial planners) and evolve it to include facial recognition and enable ID to be checked against government databases. 

But, while the IDme app has been accepted by brokers quickly (around 3,000 brokers have downloaded the app so far), lenders have been a bit slower to accept it. So far, just seven lenders are accepting the IDme VOI report, however, this does include one major bank; NAB. 

Mr Makhoul comments: “We had to go to lenders and start selling the app so they can approve it. Which is, I think, a ridiculous situation because the lenders want to do their due diligence on an app, which is producing a report, virtually an identical one to what is submitted by brokers normally, except it's capturing it electronically. 

“It's not really hugely different, other than it's safer. But they still had to do a lot more checks into it, even though it was not that different from what people were already doing, a part from being encrypted and faster.” 

Indeed, Sean Simmons, co-founder and general manager at ZipID, says that the problem is the face-to-face legal requirement, adding that no banks have yet asked his company to “break down the face-to-face touch point”. 

He says: “The tension point is between established regulation and digital technology.

“The key atomic elements of the current regulations involve original or certified documents being used. It goes further to say that they are presented at a face-to-face meeting. The question that I guess technologists are grappling with is how to digitise solutions that can respond to the requirements of using original documents in face-to-face meetings.” 

Mr Simmons adds: “If you were to sort of walk into this topic thinking that there's this disruption occurring and that digital is breaking the house down on established regulation, that's not what we see.” 

The future of VOI? 

Despite this, developers are already working on cutting-edge digital VOI apps, such as e4’s Virtual VOI app. While the app has yet to reach commercial launch, the biometric VOI app is expected to be rolled out in the next few months. 

The app works by enabling lenders or brokers to make secure video and audio calls to customers and run biometric facial recognition software to match the live customer image to the ID documentation (driver’s license, passport) supplied and uploaded as part of the call.  

In addition to the facial recognition, all Australian issued identification documents can be authenticated to the Australian Attorney General’s Department Documentation Verification Service (DVS), with the verified results being passed back to the verifier (i.e. a lender or broker) for review in a matter of seconds.  

On completion of the call, the platform compresses all video and audio records, and produces a VOI report. These records are then stored for future use and as a record of due diligence should any dispute arise.  

According to e4, the Virtual VOI is a way for a lender, broker or institution to “identify their new customer to regulatory standards from anywhere with an internet connection in 10 minutes or less”.  

Consumer mortgage website HashChing has been trialling the Virtual VOI platform, and e4 is also in talks with aggregators AFG, Connective and mortgage giant Aussie, as well as banks such as ING DIRECT, Bendigo and Adelaide Bank, HSBC, CUA and Liberty.  

e4 managing director Stuart Hosford commented in March: “The traditional process has been really hampering the drive to digital mortgages. There is a lot of digital innovation but it is very frustrating for those digital lenders and consumers where there are points in the process where the digital process simply fails. So, we are driving towards the aspiration of a fully digital mortgage. 

“Until we have something like this [Virtual VOI] in place, that will never be a reality. So, we are initially focused on lenders and brokers because they are the main distribution streams in terms of getting mortgages out to market.”  

It does seem that lenders are increasingly coming round to the idea of using biometrics to verify identity; earlier this year ANZ announced that it will be offering customers voice biometrics to improve security on mobile devices when authorising payments of more than $1,000. According to ANZ’s managing director, customer experience and digital channels, Peter Dalton, a person’s voice has five to 10 times as many security points than fingerprints, so can strengthen security. 

Although ANZ said there are no plans as of yet to roll this out for mortgage applications, it shows that lenders are sitting up and taking notice of how digital enhancements can improve identity security. It’s just up to the regulations to catch up.


Virtual Identity
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