Why is the KYC process important?
KYC procedures defined by banks involve all the necessary actions to ensure their customers are real and assess and monitor risks.
These client-onboarding processes help prevent and identify money laundering, terrorism financing, and other illegal corruption schemes.
KYC process includes ID card verification, face verification, document verification such as utility bills as proof of address, and biometric verification.
Banks must comply with KYC regulations and anti-money laundering regulations to limit fraud. KYC compliance responsibility rests with the banks.
In case of failure to comply, heavy penalties can be applied.
In the U.S., Europe, the Middle East, and the Asia Pacific, a cumulated USD26 billion in fines have been levied for non-compliance with AML, KYC, and sanctions fines the past ten years (2008-2018) - let alone the reputational damage done and not measured.
According to the United Nations, criminals are laundering between $1.6 to $4 trillion annually (2 to 5% of global GDP). Stricter KYC/CDD processes are helping to stop that.
KYC checks are done through an independent and reliable source of documents, data, or information. Each client is required to provide credentials to prove identity and address.
In May 2018, the U.S. Financial Crimes Enforcement Network (FinCEN) - added a new requirement for banks to verify the identity of natural persons of legal entity customers who own, control and profit from companies when those organizations open accounts.
Bottom line: when a corporate company opens a new account, it must provide Social Security numbers and copies of a photo ID and passports for its employees, board members, and shareholders.
What is eKYC?
- In India, Electronic Know Your Customer or Electronic Know Your Client, or eKYC, is a process wherein the customer's identity and address are verified electronically through Aadhaar authentication. Aadhaar is India's national biometric eID scheme.
Why is eKYC so popular in India?
It's because 99.9% of the adult population has a digital identity in the country. In January 2023, 1,3 billion residents got their Aadhaar number.
- eKYC also refers to capturing information from IDs (OCR mode), extracting digital data from government-issued smart IDs (with a chip) with a physical presence, or using certified digital identities and facial recognition for online identity verification.
Customer onboarding can then be done via mobile.
eKYC (aka online KYC) is considered more and more feasible as its accuracy is improving by utilizing Artificial Intelligence (AI).
eKYC, facial recognition, and digital account opening
Banking is undoubtedly the area where facial recognition was least expected.
And yet, it promises a lot.
KYC onboarding with facial recognition online is a hot topic in 2021.
Covid-19 pushed customers and banks to rely more heavily on digital channels and apps.
In the United States alone, 64% of primary checking account openings were done online in Q2 2020 ( and 36% in branches).
And this is not going to change.
A recent study from Visa and BAI showed that the trend would continue after the pandemic.
Beyond that, increased mobile usage urges businesses to focus on mobile-first and develop fully mobile user-friendly onboarding experiences.
During identification (a selfie), the software usually provides a liveness detection feature to avoid spoofing attacks using a static image. Liveness detection proves that the selfie taken comes from a live person.
This type of KYC check is also used for cryptocurrency trading apps.
Financial institutions can invest in digital onboarding, including video KYC (video identification), and leverage biometrics through online and mobile channels to adapt to customer preferences.