KYC or Know Your Customer is a significant regulatory weapon used to fight the war against financial crime, money laundering, and their more controversial offspring – terrorism. KYC is a critical component of the global anti-money-laundering (AML) and Combating the Financing of Terrorism (CFT) initiatives financial institutions and many other organizations take. KYC is also useful for verifying the identity of customers availing of products and services.
KYC Defined; The Bare Essentials
A KYC check is a mandatory protocol for identifying and verifying a client when an account is opened or before a financial transaction is approved. KYC ensures that clients are whom they claim to be, and we are not dealing with fraudsters or impersonators.
Why KYC Is Essential To The Client Onboarding Process
The Passbase KYC identity verification solutions providers opine that KYC uses ID verification, face recognition software, biometric verification, and document verification of utility bills or social security IDs. KYC protects companies, clients, and contracts from third-party frauds and financial misconduct.
What Is eKYC Or Digital Verification?
Companies can directly verify the customer’s identity and address electronically through digital protocols. Identity verification solutions are also provided by companies that understand network security importance. Specialized software compares customer data with preexisting databases in the Government domain or private hands.
How Doe KYC Help Financial Institutions?
Banks and financial institutions that extend loans and specialized advisory services need to be vigilant about identifying their clients. It’s vital to maintain records of all transactions and protect transactional data through Customer Due Diligence measures. KYC performs three critical functions:
- KYC streamlines the customer registration funnel, making it possible for new clients to transition smoothly to the digital economy.
- KYC is useful in conducting due diligence checks and performing accurate risk assessments after profiling the client.
- KYC helps review Politically Exposed Persons or PEPs, people who pose a higher risk of involvement in money laundering or terrorist funding activities.
How KYC Solutions Onboard Innovative Approaches
The constant threat posed by hackers and the increasing sophistication of cybercrime has prompted the KYC solutions industry to experiment with artificial intelligence and new-age digital identity technologies.
- Facial biometrics can match a person and the image ID or video source presented for verification. Built-in security features can detect if images have been deliberately tampered with, morphed, or pixelated to hide underlying information.
- KYC protocols process and store customer information within enterprise data systems with more robust protection against malicious actors.
- KYC makes it possible to adopt a multichannel document verification process with built-in solid security features. For example, it should be possible for a customer to submit his digital ID and voice clip and scan his face for biometric verification. The customer’s response to an OTP received on his mobile should doubly confirm his identity.
- Artificial intelligence algorithms can store and analyze customer information and behavioral characteristics to accurately identify the person and prevent third-party impersonation attempts.
- KYC ensures that companies comply with the Financial Action Task Force (FATF), Anti-Money Laundering Act of 2020 (FinCEN June 2021), and the EU’s GDPR and PDP 2 protocols.
How KYC Streamlines The Online Identity Verification Process For Companies
- User registers through the site, app, or platform, providing essential personal information.
- The user permits his mobile to do a face scan and collect a speech sample by answering some questions, thus completing the facial and speech recognition protocol.
- The user shows the social security card, passport, or driver’s license and OCR algorithms detect and record the MRZ code, customer signature, official stamps, and authorizations.
- In every subsequent transaction, facial scans, voice samples, and personal information are cross-checked with the data stored in the company’s existing database to confirm the genuineness of the user.
- The Live detection algorithms ensure that the persona facing the camera is a real human being, not using masks or face-swapping techniques, and is not spoofing papers.
KYC digital protocols aim to prevent fake account creation and help genuine customers deal painlessly with merchants, retailers, and banks.
KYC techniques and solutions are easy to implement, save expenses, and allow companies to scale business volumes effortlessly by shedding manual labor and avoiding cumbersome physical verification methods.
KYC digital solutions effortlessly automate the client onboarding process that speeds up customer acquisition besides reducing the churn rate.