Know Your Customer, better known as KYC is a set of policies and procedures which are essential in fighting against money laundering and terror financing. KYC also helps in customer identification which plays a significant role in safeguarding against data breaches and illicit digital crimes. Anti Money Laundering (AML) obligations and Combating the Financing of Terror (CFT) measures help banking entities to counter online identity fraud work towards delivering a good user experience.
The Financial Actions Task Force FATF has also chartered regulations besides AML directives imposed by the European Union (EU) to empower KYC operations. According to a survey conducted by Thomas Reuters, online businesses and financial institutions invest almost $500 million a year on activities related to KYC Verification or Customer Due Diligence (CDD).
The Importance of KYC Process
Banking enterprises need to make sure that the customers they associate with are genuine and are not a potential threat to the organization. For this purpose, only performing customer identification at the time of onboarding is not enough, since in-between frauds still remain present. A simple Online KYC process involves verification of identity using facial features or government-issued documents which serve as a good source of identity verification.
In order to limit fraud and money laundering, banks must comply with KYC/AML compliance and regulations. Not following these obligations could result in heavy non-compliance penalties which could significantly hurt the company’s capital and market reputation. According to an annual financial report, a combined sum of almost $26 billion is recorded in KYC violation fines worldwide.
How Does KYC Work?
Similar to how a traditional bank collects user data for customer onboarding, a digital KYC process incorporates identical procedures but in a digital space. The Online KYC process consists of the three major steps listed below:
The online user is required to submit their personal information in order for the bank to verify them. During registration and profile creation, the users are directed to submit all information requested by the service provider to get them on board. The data submitted by the end-user is taken into account for further evaluation of identity.
Upload Identity Evidence
In the second step of the KYC process, the system prompts the user to upload proof of identity. Documents issued by the government including passports, national identity cards, and utility bills could serve as a primary source of collecting personally identifiable information. Submitting evidence of identity ensures that the person is not an impersonator and a potential threat to the organization.
KYC Document Verification
This collected information and identity evidence is run through a series of comparison checks to confirm the authenticity of the data provided in the first place. Once the user uploads the proof of verification, it is screened against format checks to confirm if it is a fake or illegitimate document. KYC Document checks remove the possibility of photoshopped, tampered or counterfeit documents with missing holograms and possible forgery.
Data extraction of these documents has become effortless with the introduction of OCR solutions. Reading data from lengthy documents and converting them into digital form significantly speeds up the data acquisition process to proceed with authenticity checks. Conventional KYCs, with manual data entry of identity information from documents, could be tedious and span over days. Today, with online identity solutions, KYC onboarding has been totally revamped and has better turnaround times.
Since an online KYC solution is a need of the hour, online businesses including banking entities need to adapt to the rapidly evolving digital space. The banking landscape, involving a huge influx of monetary operations should rely on online KYC/AML services to provide customers with a safe and secure channel for communication.
To sum it all up, Online KYC verification provides an effective solution for customer identification during onboarding which helps maintain KYC/AML standards to keep the banking sector safe from potential fraudsters.
Online KYC verification provides an effective solution for customer onboarding which helps maintain KYC/AML standards in safeguarding the banking sector.