What Is a Thin File and How Do You Verify It?

According to a 2017 World Bank survey, roughly 1.7 billion adults worldwide do not have an account with a financial institution or mobile money provider. The vast majority of these people live in developing economies where volatile currencies and weak banking systems make the idea of opening an account seem riskier than it’s worth. However, the phenomenon is not limited to developing nations. There is a significant population of unbanked and underbanked households here in the United States.

Households or individuals that use no bank, or are underbanked, often have little to no credit history, and it can be difficult to verify the identity of individuals who have thin files.

Millions of Americans are Unbanked

The biannual FDIC Survey of Household Use of Banking and Financial Services collects information on bank account ownership, use of prepaid cards and nonbank financial transaction services, and use of bank and nonbank credit by U.S. households. In 2019, the survey found an estimated 5.4 percent of U.S. households (approximately 7.1 million) were “unbanked,” meaning that no one in the household had a checking or savings account at a bank or credit union. Lower-income households, less-educated households, Black households, Hispanic households, American Indian or Alaska Native households, and working-age disabled households were less likely to use banking services.

What is a Thin File?

The basic functions of a bank include holding assets safely, offering risk-managed ways to grow wealth, and helping customers transfer the value of those savings. But for millions of individuals in the U.S., and even more across the globe, distrust, skepticism, and lack of ready access hinder the use of the financial industry to protect and build wealth. When it comes time for these unbanked or underbanked individuals to seek credit for a large purchase or to pass a background check for a rental agreement, they often fail because too little information is available on their identity and creditworthiness. This is called having a thin file.

A “thin file” refers to the identity profile of someone with little or no credit history. Consumers who are just starting out and may never have taken out a loan or had a credit card and only used debit card instruments are said to have thin files. Having a thin file can make it difficult to obtain credit or be approved for a loan, or pass Know-Your-Customer (KYC) verifications because it gives lenders very little information with which to judge the person’s creditworthiness or even identity. To get around that problem, some lenders will consider other information in making their decisions.

According to Experian, in 2018, about 62 million Americans had thin credit files. People with thin credit files may include:

  • Young people who are new to credit
  • Immigrants who don’t yet have a U.S. credit history
  • Those who’ve got a few credit accounts that aren’t active
  • People who’ve gone a while without using their credit
  • Consumers who pay for things mostly with cash, not credit

Multi-source KYC and Knowledge-Based Authentication (KBA)

Un- and Under- banked individuals are legitimate customers with legitimate needs, and they deserve an opportunity to access businesses and services that will help meet those needs. Dynamic identity proofing, using Multi-sourced KYC verification also known as Knowledge Based Authentication (KBA), can be used as an alternative verification pathway in situations where background information is more difficult to come by.

Multi-Source KYC

Multiple sources or Multi-Source verification, known as 2+2 or two verifications using two different sources is the most efficient method to enable these under banked or un-banked users to create financial, gambling and other account.  Presented at onboarding, companies using Aristotle Integrity check these multiples sources and if the person’s identity is verified, an account can be created.

Traditional KBA, also known as Static KBA, is a commonly used method that allows users to select security questions and provide answers that are stored by a company to be used in the future, typically when a password needs to be retrieved or reset. Static KBA provides little actual assurance that the individual providing answers to the pre-selected security questions is the individual who has legitimate right to access an account or serve, and only works when the company has a pre-existing relationship with the customer.

The latest iteration of KBA, known as Dynamic KBA, goes a step further by generating questions that apply only to the intended end user and do not require a previous relationship with the customer. Sometimes referred to as “out-of-wallet,” dynamic KBA content is generated from information within a person’s credit history or public records, making it difficult for anyone other than the actual person to know the answer. By layering information gathered from multiple databases, dynamic KBA can create a more complete picture of applicants with thin files, providing businesses with increased confidence in the validity of an applicant’s identity and financial claims.

Work With Integrity

As the number of un- and under- banked individuals grows, it becomes more important than ever to find new and innovative ways to verify new customer identity while also reducing fraud, increasing revenue, improving customer satisfaction, and improving compliance. Integrity offers innovative solutions for identity verification that can help businesses enhance their ID proofing measures. Contact us to learn how we can help you safely and effectively welcome new customers to your business today.


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