January 23, 2023

Identity, Fraud & AML Guide

Carla McMorris

Defining Identity Verification, Fraud, AML, and How Behavioral Analytics Can Help

This Guide will define identity verification, fraud, anti-money laundering (AML), and how behavioral analytics can help mitigate fraud and money laundering. If you’re a fintech innovator wanting to better understand these key financial industry terms that bear heavily on your strategy for risk mitigation and regulatory compliance, this Guide is for you.

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What is identity verification?

Identity verification ensures a real person is behind an online process and they are who they claim to be. 

Establishing a person’s identity requires collecting information about them that confirms that they are who they say they are. Driver’s license, passport, date of birth, social security number, and other identifying information lead to a long list of data points that help platforms verify users. 

But requiring the user to share their personal information can act like a wall between the platform and a prospective customer. When faced with a list of data points, many users just abandon the process and move on to an alternative offering that imposes less friction. However, identity verification is the critical first step in a protected consumer journey and a necessary compliance step that cannot be ignored. 

What is fraud?

According to the Association of Certified Fraud Specialists, fraud is any activity that relies on deception for the benefit of gain.1 Fraud happens in every industry and at every level of society. The acceleration of digitization spurred on by the pandemic has fueled an upsweep in fraud, as significant numbers of new digital users are now targets for fraudsters. 

What is Anti Money Laundering (AML)?

According to the Financial Crimes Enforcement Network (FinCEN), money laundering makes illegally-gained proceeds appear legal. Money laundering supports crimes like drug trafficking and terrorism and can impact the global economy. It typically involves three steps: 

  1. Placement -the illegitimate funds are introduced into the financial system
  2. Layering -the money is moved around to create confusion
  3. Integration - the formerly illegitimate funds are integrated into the financial system

FinCEN’s mission is to “safeguard the financial system from the abuses of financial crime, including terrorist financing, money laundering, and other illicit activity.” They are the designated administrator of the Bank Secrecy Act of 1970 (BSA), which is often referred to as the Anti Money Laundering Act (BSA/AML), one of the most important pieces of legislation in the fight against money laundering.

To enforce its mission, FinCEN and its partner agencies manage a series of watchlists that companies use to check the names of their applicants as a part of their AML process.

What is behavioral analytics?

Behavioral analytics supports security, fraud detection, and AML models by detecting anomalies in user behavior on their devices, networks, applications, and data. Behavioral analytics empowers companies to establish a baseline for their user’s actions so they can detect a deviation from typical user behavior, which could be warning signs of a bad actor.4

Artificial intelligence (AI) and machine learning (ML), and data analytics often bolster behavioral analytics. For example, used together to analyze activity logs, companies could derive a trust score for each user based on the user’s normal behavior, compared to their past behavior, and how they compare to their peers.  

If you’re interested in learning more about identity, fraud, AML, and behavioral analytics, listen to the Under the Hood podcast, season 2.


1. Association of Certified Fraud Examiners, Fraud 101
2. LexisNexus, Risk Solutions Fraud and Identity Trends Infographic 2022
3. LexisNexus, Risk Solutions Fraud and Identity Trends Infographic 2022
4. PYMNTS, PYMNTS Intelligence: Behavioral Analytics’ Role in Multilayered Fraud Defense Systems, February 11, 2022

Identity, Fraud & AML Guide

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Carla McMorris
January 23, 2023

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