Industries dealing with digitally monetary transactions are increasing continuously, and financial Organizations are more helpless to unlawful criminal activities. Businesses Need to verify the identity of their customers through the KYC verification process.
The massive use of the internet and new technologies makes it imperative to define guidelines for the prevention of online fraud. This is the reason behind an essential role played by the KYC verification, which needs users to onboard as their customers.
However, it is effective in all industries, but it plays an important role in financial institutions and banking areas.
Significance of KYC Verification
KYC verification is one of the processes of a category known as “Customer Due Diligence.” It is a process that involves stopping money laundering and illicit funding nationally or internationally. Fraudsters have knowledge of the shortcomings of the systems and use these shortcomings to get benefits. Businesses need to confirm the identity of each and every individual before their onboarding. KYC verification helps to eliminate these kinds of threats for businesses.
Difference between KYC and AML
Know Your Customer (KYC)
- Customers’ information is collected to verify their identification.
- Filter out the individuals that might be risky for the organizations.
- Uses a thorough, efficient, and risk-based approach.
Anti-Money Laundering (AML)
- Checks on illicit transactions and activities.
- Anti-money laundering and counter-terrorist funding services aimed at preventing suspicious activities.
- Has regulations, policies, and control over suspicious activities.
KYC Verification Process can be Done in 3 Steps
As different organizational sectors use the traditional way of verification of customers’, online KYC verification can also be done in the same way. That includes;
Acquiring information from customers
In this step of the KYC verification process, acquires the personal information from the client digitally for the purpose of verification. The client is assumed to fill out all the details correctly while registering an account to the platform.
Upload the Identity Documents
After the acquisition of the personal information in the next step, clients are asked by the platform to upload such documents that might be helpful as identity proof. This can be supporting for the system to verify the information, that client has entered during his registration process.
Information Verification
Now the process of documents with KYC verification is being started which includes, document style being identified and analyzed against multiple checks. Documents must not be tempered or photoshopped. If there are no concerns with the documents – information is being extracted from the documents.
Information can be extracted in both ways, using OCR and manually;
- Data can be extracted through OCR, the system extracts the required information from the identity documents automatically and verify the authenticity.
- User-entered data is checked against the information present on the identity documents in a data extraction without an OCR solution.
Customer Identification Program (CIP)
It is essential for the organization to know its customer, but how can you identify who they say they are? An identity theft crime is widespread, in 2017 over 16.7 million Americans are affected by this and lost a total of 16.8 billion USD.
CIP introduced a policy in America, that any individual who is involved in financial transactions has to verify their identity. Customer identification provides guidance to organizations to measure risk factors.
To onboard any person, the minimum requirements are set by the Customer Identification Program (CIP):
- Name
- Date of Birth
- Residential Address
- Identification Number
After acquiring this information from the customers, data is verified against the supporting proof, which might be in the form of identity documents. CIP assesses the risk for both customers and businesses.
Customer Due Diligence (CDD)
For any business, their first and foremost priority is to analyze whether the customer is trustworthy or not. CDD is efficient and plays an effective role to prevent organizations from fraudsters and other resources who might be the reason for any risk.
There are three levels of due diligence:
Basic Customer Due Diligence: Information is acquired for all the end-users that are attached to the Business, just to assess the identity and risk associated with them. This level does not need in-depth screening.
Standard Due Diligence (SDD): SDD is the scenarios where illicit activities are with low or medium risks such as money laundering, and terrorist funding. At this level, customers are categorized as low or medium risk.
Enhanced Due Diligence (EDD): Unlike Basic Customer Due Diligence and Standard Due Diligence, customers found with high risk processed with strict investigation and verification round.
Final Thoughts
An efficient KYC verification solution is the need of every business sector nowadays. An organization with a KYC solution must closely follow all steps of KYC compliance in order to comply with requirements.
To maintain consistency with their customers and to eliminate the risk of financial extortion, financial institutions and banks are now highly motivated to implement a KYC verification compliance program.