KYC Banking – Digital Identity Verification Reducing Financial Fraud

The department that was greatly affected by the innovations of the technology was the financial institutes. Both for the good and the bad reasons. Good in a sense that progressed from manual means to automated workflows. Mobile banking was once a dream that has been realized due to the advancement in technology. However, digital means were also vulnerable. Perpetrators are consistently trying to obtain money from carrying out illegal activities. KYC banking is assisting banks and related financial institutes to verify the identity of their customers to prevent these crimes. 

Anti-money laundering (AML) and countering the financing of terrorist activities (CFT) are becoming support for banks and financial institutes. The Financial Action Task Force (FATF) is addressing strong directives like AML 4 and 5 and identity measures like KYC for client verification. 

What Is KYC In 2021 

KYC verifies the true identity of your customers. In other words, it can be said that KYC makes sure that your customers are who they say they are. Responsible banks may refuse to open an account or halt a business relationship if they feel that clients are not following proper KYC banking. 

KYC Solutions: Why Is It Important 

Know your customer can give an insight to businesses on what their customers are. KYC banking is helpful in combating money laundering and financing terrorist activities. KYC solutions include measuring the authenticity of the clients using various identity verification techniques. 

Failing to meet with KYC measures can cost businesses heavy fines and penalties. Their market reputation can be damaged which can result in customer loss. 

Client KYC Verification In Banks

KYC banking can be done through an independent and reliable means of information, data, and documents. Users are asked to show their official documents at the time of customer enrollment. Each client is needed to provide credentials in order to prove identity and address. 

The US Financial Crime Enforcement Network (FinCEN) in 2018, added a new section in KYC banking to verify the identity of natural persons or legal customers who own and profit from businesses when those organizations open accounts. 

Traditional Vs Digital KYC Checks 

Know your customer or verifying the identity of customers is not a new topic to talk about. It is as old as the concept of businesses is. KYC banking incorporated customer identity verification from the beginning. Typical methods of verification were very tedious and time-consuming. They also required customers to physically visit the workplaces to get themselves verified. 

But thankfully, automated KYC banking or eKYC has made the life of customers and bank officials easy. Digital KYC solutions mean now the customers do not have to visit places, rather they can get themselves verified from the comfort of their homes. Now the companies can onboard customers via mobile phones. It is considered more feasible and accurate because of the integration of Artificial Intelligence (AI). 

Client KYC Verification and Facial Recognition

Banking is an area where the use of digitized technology was least expected. But now it is the sector that is the number one user of these advanced technologies. KYC banking can be completed by employing facial recognition technology. In fact, KYC and facial recognition is the new hot topic. 

Covid-19 has pushed the traditional KYC banking methods into becoming modernized. The number of online account openings seen in the last year was very big and this is not going to change. Banks have tasted the convenience of digital services, now there is no going back. Moreover, increased mobile users have surged businesses to make their websites mobile-friendly so that they can become user-friendly. 

During the identification process, the verification of customers is done by requiring a selfie. KYC banking can be carried out by acquiring a selfie from the customer. Liveness detection will justify the fact that the selfie is of the genuine customer and not of someone else’s.

AML Directive For Financial Institutes 

The 4th AML directive included stricter KYC rules for banks to comply with. They are used to prevent the KYC banking institute from money laundering and terrorist financing. Customer due diligence for banks is completed in the following steps:

  • Customer identification
  • Risk assessment and management
  • Ongoing monitoring to keep records

Winding Up 

Identification of entities is something no business can survive without in this age. It is great that businesses are opting for digitized ways for their survival but we cannot neglect the fact that their chances of becoming a victim of online theft have also increased. Banks and financial institutes top the list in facing financial crimes. KYC banking helps in verifying customers which in turn assists in minimizing financial fraud.