The process of KYC (Know Your Customer) is increasingly becoming an obligation of banking, financial technology firms and numerous other online platforms because it allows companies to authenticate the identity of their clients and decrease the levels of fraud occurring. KYC was previously performed manually and took longer and was more costly than it is today, with the advent and subsequent use by companies of automated solutions for KYC that permit them to expedite the verification process and enhance the accuracy of the data collected.
This article outlines what is meant by automated KYC solutions, how KYC operates in practice and why so many companies are turning towards automating their KYC processes.
What Are Automated KYC Solutions?
The Automated KYC Solutions are essentially transaction verification systems that verify Customer identity by relying on technology rather than only manual verification processes. This verification of Customer identity may include using technologies such as Biometric identification, Machine Learning platforms, Document Scanning devices, and many others.
These Automated Systems can perform this identity verification at incredible speeds vs manually reviewing all documentation, so customers will no longer have to submit hard-copy documents for verification, then wait a long period of time before receiving an answer. Automated KYC systems reduce the onboarding process time significantly and ultimately lead to a much faster, more streamlined process for Customers and businesses alike.
Why KYC Is Important
KYC helps businesses:
- To prevent fraud and identity theft
- To follow government and financial regulations
- To stop money laundering and illegal activities
- To build trust with customers
Without proper KYC, companies can face heavy fines, legal issues, and reputational damage. This is why automated KYC solution is becoming essential for regulated industries.
How Automated KYC Solutions Work
Automated KYC (Know Your Customer) solutions follow a short set of steps to quickly and accurately verify a customer’s identity. The first step of the automated KYC process is to collect the customer’s data.
1. Customer Data Collection
When a customer creates an account on an app or website, they are prompted to submit basic details such as: Name, Date of Birth, Address, Government-Issued ID. The customer’s data is securely collected and stored so it can be verified.
2. Document Verification
In the second step, the automated KYC system verifies the submitted documents. Automated KYC systems utilize AI (Artificial Intelligence) and image recognition technology to: Ensure the document is legitimate; Verify that there are no alterations made to the ID; Confirm the identification details of the ID match the user’s personal information. As a result, there is no need for someone to manually review the customer’s identification document.
3. Biometric Verification
Many automated KYC systems also utilize biometric technology such as: Facial recognition, (including face matching), and liveness detection. The automated KYC system confirms that the individual attempting to verify their identity is the same person displayed in the customer’s ID photo.
4. Database & Watchlist Checks
Following successful identity verification, automated KYC systems perform background checks to identify any potential risks associated with a customer’s account. Automated KYC systems compare the customer’s information against: Government Databases; Sanction Lists; Politically Exposed Persons (PEPs) lists; and Anti-Money Laundering databases. By performing these background checks, automated KYC systems help businesses to identify high-risk customers.
- The final Analysis of the collected information results in a risk score based on the following:
- Low Risk = Approve Instantly
- High Risk = Flagged For Further Review
The automated nature of this decision-making saves businesses both time and decreases the potential for human error.
What Are The Benefits Of Automated KYC Solutions?
Businesses are turning to Automated KYC Solutions due to the numerous benefits they offer:
Quicker and Easier Onboarding
Using manual KYC, completing the KYC process can take many days; however, with an Automated KYC Solution, verification can occur within a matter of minutes. As a result, the customer experience greatly improves.
Reduced Operational Costs
Using Automated KYC Solutions will require significantly fewer Compliance staff members than traditional KYC methods; therefore, the automated process has much lower operational costs and consistently delivers accurate results.
Increased Security and Accurate Results
AI (Artificial Intelligence) based systems can quickly identify fraudulent activities that humans may not have seen or may have missed. Therefore, AI increases the businesses’ overall Security and improves their level of regulatory Compliance within the industry.
Easier to Comply With Changing Regulations
With Automated KYC Solutions, the system will continually be updated for any newly established regulations; therefore, businesses are able to continue their business in a compliant manner without interruption.
Industries Where Automated KYC Solutions Is Using Today
Many industries use automated KYC processes, including the following:
- Banking/Financial Services (Banking/Financial Institutions)
- Fintech/PAYMENT PLATFORMS
- Cryptocurrency Exchanges
- Insurance Companies
- Online Marketplaces
Automated KYC is a ‘Must-Have’ For Each and Every Industry Listed Above.
Automated KYC Challenges
There are many benefits to automating KYC processes; however, there are a few challenges that will come along with the use of automated KYC technology:
- Data Privacy
- Reliance on Technology for Accuracy
- Integrating Automated KYC Systems with Existing Systems
The above challenges can be overcome through implementing effective security measures and working with trusted service providers.
The Future of Automated KYC
KYC (Know Your Customer) will be completely digitized with the advancement of AI (Artificial Intelligence) and biometrics. Automated KYC solution with enhanced capabilities allow for imaproved and quicker processing times, overall reliability/speed, and the introduction of new features such as continuous monitoring and digital identification wallets, to help businesses meet regulatory compliance requirements more effectively.
Businesses adopting automation ahead of the competition will have a significant competitive advantage and maintain security and compliance throughout the entire process.
Conclusion
While KYC remains an essential component of modern-day businesses, automation will eliminate need for time-consuming manual processes that are prone to human error, and also automate the verification process of identity. By replacing manual verification processes with automated solutions, businesses can improve profitability and meet compliance requirements with confidence.