Online KYC Verification – Restricting Fraud In Financial Firms

Online KYC Verification

Know Your Customer (KYC) refers to the legally set standards that are put into force for safeguarding banks against fraud risks. With corruption, payment scams, money laundering, identity theft, and terrorist funding increasing, financial institutions find it more challenging to place necessary prevention. Moreover, KYC banking regulations are a legal requirement, and banks can not leave it unattended. 

The long-existing KYC methods are outdated and unreliable in accuracy, crime prevention, and customer monitoring. Therefore, financial institutions require automated IDV solutions to enhance their identification systems. Integrating online KYC verification services empowers banks to validate clients’ identities, perform risk assessments, and authenticate sources of funds. This blog entails how automated know-your-customer procedures enhance banking operations. 

Importance of Online KYC Verification for Banks 

Financial institutions must perform know-your-customer laws to ensure they are not facilitating risk-possessed entities. Fraudsters use various techniques to conceal their proceeds of crimes, such as involving third-party payment processors, hiding sources of funds, camouflaging identities, and much more.

To counter malicious attempts, banking systems require online KYC verification solutions. Manual financial methods are prone to human errors and are incapable of identifying advanced criminal attacks. Moreover, they pose a high chance of exposing banks to sanctions, non-compliance penalties, and reputational loss. Digital KYC standards safeguard financial institutions from external breaches. On top of this, banks can prevent cyber security threats and enhance customer safety.

Considering the increase in criminal efforts, banks must bring efficient, cost-effective, and time-saving IDV solutions. Automated online KYC verification services are such reliable methods. They verify customers in real-time and keep track of their activities to detect suspiciousness.  

Online KYC Compliance – Course of Action and Necessary Measures

Authenticating customers, sources of funds, and risk factors are the main requisites of KYC/AML legal requirements. This further involves monitoring clients’ activities and tracking their transactions for suspiciousness detection. This way, banks can stay aware of any criminal activity that is or will be taking place within their systems. Hence, integrating online KYC verification solutions enables financial institutions to stay ahead of fraudsters. As per the legal requirements, know your customer procedures should be in accordance with the following steps:

  • Customer Identification Program (CIP)

Banks should obtain information from customers before account opening to determine their risk factors as mandated by aml/KYC compliance. Their accurate identification is a liability before clients can start using financial services and onboard digital platforms. If not most, banks should ask customers for full names, dates of birth, real-time addresses, and social security numbers. 

Depending on their jurisdictional requirements, financial institutions need to obtain other Personally Identifiable Information (PII) that varies as per legal AML standards. After submitting the details, banking systems should ask customers for original and government-issued documents. This is the most crucial step in online KYC verification, as these papers serve as supporting evidence for identity claims. 

  • Facial Recognition 

Online KYC verification systems can access global databases, making identification more accurate. Hence, banks can cross-authenticate clients across various jurisdictions. The online KYC verification system asks customers to upload real-time selfies for facial recognition to ensure more security. This way, banks can further ensure the presence of users at the time of account opening. 

Types of Review Processes

The next crucial measure in the online KYC verification process is CDD which refers to the risk assessment of clients. It has three levels depending on the legal requirements and existing fraud risks:

  • Simplified Due Diligence (SDD)

SDD is the level of due diligence applicable to customers that pose less risk of money laundering or other criminal intentions. 

  • Enhanced Due Diligence (EDD)

Customers with a high risk of money laundering or other financial crimes are detained under EDD. This level aids in enhancing digital KYC verification processes by providing cross-client checks across sanctions, adverse media, Politically Exposed Persons (PEPs), and global watchlists. 

  • Customer Due Diligence (CDD)

CDD is the general online KYC verification process that banks use for every customer opting to open an account and avail banking services. It further involves all procedures financial institutions use to verify clients, whether risk assessment, background checks, or ongoing monitoring. 

In a Nutshell

Online KYC verification solutions streamline banking operations by providing advanced financial technologies to prevent criminal activities. Institutions can authenticate customers by asking for their information, documents, and real-time selfie that are later kept in databases. In return, banks can stay put with KYC verification standards. Furthermore, they can perform ongoing monitoring for future risk mitigation.