Executive summary
In today’s mobile-first financial sector, it is imperative that banks offer a fully digital onboarding and KYC flow to their customers. Although the standard in Europe has moved towards unattended, AI-based KYC processes, Germany is the exception with Video-Ident long being the dominant means of KYC.
In 2024, three developments forced a shift in the German approach. First, the German Ministry of Finance publicly stated that it considers Video-Ident a bridge technology (Source). Secondly, Europe’s regulatory framework changed thanks to the introduction of the AML Regulation and eIDAS2, which will come into force in the coming years. Finally, alternatives to Video-Ident saw mass adoption in the German market, with millions of customers using them in 2024 alone.
These developments have led to claims that Video-Ident is a thing of the past. While this may not yet be true, it cannot be doubted that the sector is moving quickly. It’s time for German financial institutions to assess if their current processes are future proof.
KYC in Germany 2015–2023
Before 2015 it wasn’t possible to remotely complete a KYC process in Germany. But beginning that year the German financial regulator (BaFin) allowed it under strict conditions. This led to the emergence of Video-Ident, a live video interview conducted by an operator in which the customer answers questions and performs a series of movements with their ID document so its authenticity can be assessed.
The use of Video-Ident continued to spread, peaking in 2021 (Source). Although it was the dominant method of identity verification during this period, it wasn’t without its drawbacks – namely cost, scalability and convenience. A Video-Ident process typically costs three to four times that of a (semi-)automated, AI-driven solution. In terms of convenience, only 11% of customers view Video-Ident as user-friendly (Source). Reviews highlight customer concerns around technical failures, unresponsive customer service, and long verification times (Source).
It is also important to note that Germany still sees relatively high reliance on in-person identification, with customers either visiting a post office to verify their identity (Post-Ident), or a bank’s branch. Germany has approximately one bank branch per 4,000 residents compared to approximately one branch per 21,000 residents in the Netherlands, for example.
KYC in Germany in 2024
Three developments have led to a recent shift in the German approach to KYC. The first is that, in addition to consumers’ opinions on Video-Ident, the German Ministry of Finance and BaFin have acknowledged its evolution in the digital identity landscape. In a 2024 draft resolution, they refer to Video-Ident as a 'bridge technology', highlighting its role in connecting traditional verification methods with the emerging ecosystem of fully or semi-automated identification solutions that may be implemented if the resolution is adopted into law.
The second development is in the European regulatory framework – namely that the AML Regulation has been adopted and will come into effect in 2026. This will create a uniform regulatory framework across the EU that will replace the current patchwork of country-specific implementations of the AML Directive, which includes the German Geldwäschegesetz (GwG).
We will also see the introduction of EU digital identity (EU DI) wallets as part of the Electronic Identification, Authentication and Trust Services (eIDAS2) regulation. EU DI wallets will provide every EU citizen, resident, and business with a secure and interoperable digital identity wallet, allowing them to store and share various digital identity attributes including their eID, driving licenses, and bank information. eIDAS2 also aims to encourage greater adoption of eID and trust services, for instance by letting people open bank accounts or apply for loans using only a digital identity.
EU member states will be required to offer at least one EU DI Wallet to all citizens and residents by 2026, with the first wallets expected to be made available in 2025. It is expected that select institutions will need to accept this form of identity verification by 2027.
There are potential upsides of this scheme for financial institutions. Integrating the EU ID Wallet into onboarding processes could streamline verification efficiency and reduce fraud, though the impact will likely be felt initially in less regulated sectors.
Finally, we’ve seen a steep increase in the adoption of alternatives to Video-Ident. Although many market participants believe that Video-Ident is the only way to remotely identify new customers, BaFin explicitly allows for different methods of remote identification in its guidance. These include the use of the German eID, as well as KYC processes involving a qualified electronic signature (QES) and bank account verification (BAV).
This last method became a mainstream alternative to Video-Ident in 2024, with Fourthline’s German flow as one example that was successfully used by millions of German customers in 2024. It's a versatile and scalable solution that is tailored to the German market and makes it possible to:
Adhere to all BaFin requirements
Improve user experience and increase conversion rates
Significantly reduce costs compared to Video-Ident
Scale and adapt to large volumes and peak performances
In this flow, customers are verified in a fully digital KYC process that includes identification and verification (ID&V), biometrics, and proof of address. After completing this process, customers provide a QES. Finally, BAV is performed to confirm the customer already holds a bank account in their name by executing a transaction usually involving a small amount ('penny drop'). This step can either be offered by Fourthline or internally if a financial institution already has a process with a reference account (e.g. brokers).
The advantage for the customer is evident as it allows them to complete the full process in one seamless flow in a matter of minutes, and it’s available 24/7 so they can complete it any time, from anywhere, and on any device.
Future-proofing KYC process in Germany
Ask tough questions. We have seen a positive trend in the sophistication of RfPs, with the best procurement teams assessing a range of GwG-compliant solutions on different performance metrics that go beyond simplicity of implementation. Looking at metrics such as handling time, cost per case, scalability, and others is important when choosing a future-proof KYC process.
Buy European. The culture of data protection in Germany is very strong, and Germans will rigorously review how their data is handled and stored. A vendor that offers proprietary technology that has been built and trained in Europe, and that truly embraces European regulations including GDPR and the AI Act will massively catalyze adoption.
Offer a choice. Rather than assuming customer preferences, offer them a choice. We have seen several German banks successfully implement KYC flows that allow their customers to choose between Video-Ident and an AI-driven solution, with the vast majority opting for the latter.
Demand modularity. The European regulatory framework will continue to change. The only way to ensure your KYC process remains future proof is by choosing a modular solution that imposes the right amount of friction depending on the regulatory requirements and your institution’s risk appetite. We have seen future-proof, pan-European financial institutions build different flows for each regulatory branch to meet national requirements and customer preferences.
Secure the future of your KYC process now. Reach out to one of our experts to learn how Fourthline can offer cost-efficient, customer-friendly, and future-proof identity verification that’s already being used by millions of Germans.
