These days, businesses have access to easier, faster, and more cost-effective channels for growing their customer base. But the existing regulatory landscape makes it challenging for them to access ideal customers.
Customers, after all, want the process of opening accounts, making purchases and conducting transactions with businesses to be quick and seamless. The trouble is, organizations today have security concerns that compel them to send potential customers away from their preferred channels for identity authentication.
These requirements have created a strong need for advanced Know Your Customer (KYC) technologies to turn customer onboarding into a streamlined, digital approach.
Here is a comprehensive guide to KYC and how you can simplify the verification process for your customers and business alike.
Everything You Need to Know About "Know Your Customer"
Know Your Customer is an extensive process used to validate clients' or customers' identities and to ascertain if they pose any fraud risks.
The KYC verification process ensures a safer relationship between businesses and customers. It confirms customer identities through KYC documents and a set of compliance rules that apply to the global banking industry and finance-related firms operating online.
A significant part of KYC procedures centers on regulatory compliance via risk mitigation, which includes customer due diligence processes. Know Your Customer guarantees that all financial businesses, including banks, manage their customers and reputational risk, specifically for criminal fraud and money laundering.
To prevent fraud and money laundering, you must know your customers. For that, you need to perform KYC identification and verification, review financial activities, and assess risk factors to track and minimize illicit activities.
Here is what KYC looks at.
- Negative Media – Negative or adverse media is any unfavorable information found across news sources – in either unstructured or traditional news outlets.
Know Your Customer searches for businesses and individuals from thousands of media sources across the globe every 24 hours to monitor corruption, terrorism, crime, money laundering, and more.
Know Your Customer authentication assesses the risk level associated with each business or individual. Those with high-level risk go through additional checks for identification, such as verifying against negative media and carrying out a detailed corporate investigation for risk profiling.
- Politically Exposed Person (PEPs) – A politically exposed person is an individual who has a high-profile political position or who has a prominent role in public. The person poses a greater risk of involvement in terrorist financing or money laundering.
Know Your Customer processes leverage machine learning and artificial intelligence to consistently identify, improve, and enhance PEP profile levels. Following are four quadrants of risk that present a varying degree of risk.
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- Level 1 - High-risk PEPs
- Level 2 - Medium risk PEPs
- Level 3 - Medium risk PEPs
- Level 4 - Low-risk PEPs
- Watch Lists – Watch lists are databases that check against money launderers, suspected terrorists, PEPs and fraudsters. A comprehensive risk solution platform like IDmission provides the most compliant KYC solution. With its IDM-WLS, it leverages more than 4,500 government-published watch lists from across the globe. It helps you with current as well as historical data to determine if a business entity or an individual is in any way involved in illicit financial activities.
Who Is KYC Important to, and Why?
Financial crimes and terrorism are increasing, posing a threat to all parties involved in the process. More criminals than ever before are testing the limits of novel technologies as they indulge in a diverse range of fraudulent activities, both virtually and physically.
With this growing risk concern, KYC is critical to mitigating such threats in many organizations. Governments identify financial fraud as a primary concern of contemporary society. Therefore, don't overlook the need for an effective KYC process, and implement it as soon as possible.
Here is a rundown on who KYC is most important to, and why.
- Financial Institutions – Know Your Customer has become the first line of defense for credit unions, lenders, banks, and financial institutions. It helps them ensure that their customers are not involved in the financing or money laundering of criminal organizations, allowing all stakeholders to avoid severe financial and reputational consequences.
The banking industry has an inherent risk of money laundering and financial scams. This makes it tremendously important to deploy background screening measures for your customers to mitigate the risks of criminal activities.
Along the same lines, financial institutions face hefty penalties if they don't comply with KYC regulations. In 2021, regulatory fines are projected to rise from 4% to 10%, which heightens the need for stringent identification procedures in all financial institutions.
- Customers – From a customer standpoint, KYC is mandatory for their protection and safety, making it a regulator's priority. While financial institutions have implemented security measures to prevent and combat scams, impostors exploit the technology to commit crimes.
Even though these rigorous checks can sometimes be burdensome for customers, they also help forge a credible environment that allows investment and financial activities within an organization.
Furthermore, technological advancements have produced for much more accurate, streamlined and smoother onboarding experiences, turning a multi-step and time-consuming process into a seamless and intuitive experience that customers transact on any device.
The lightning-fast evolution of technology mandates the protection of sensitive data using advanced encryption and authentication solutions. Organizations adopt these security strategies in hopes of inspiring confidence among their customers about KYC regulation procedures.
- Reducing Fraud and Mitigating High-Risk Transactions – Stringent security procedures and their correct implementation minimizes clients' and financial institutions' safety and security concerns. After all, leveraging biometric systems for KYC management can stop fraudulent activities before they ever occur, and helps you mitigate the risks related to high-risk transactions.
Ultimately, seamless KYC workflows make customers feel like they are doing business with a legitimate organization.
KYC Verification and Liveness Detection
Know Your Customer verification with passive liveness detection enables users to authenticate their identities within seconds.
On the other hand, active liveness detection takes relatively longer. It also requires users to perform a set of prescribed actions, which can get tedious.
Passive liveness detection makes for a smooth, frictionless experience. This, in turn, helps lower user abandonment rates when onboarding customers remotely.
And the fact that organizations are progressively prioritizing customer experience to entice and retain customers has driven their shift to modern solutions like passive liveness detection.
Why Invest in Passive Liveness Detection with KYC?
Passive liveness detection is preferable for KYC authentication over active liveness detection. Both approaches detect spoofs, but only passive liveness detection keeps the process seamless, fast, and effortless. Here are some of the reasons that passive liveness detection is the better choice.
- Helps Reduce Fraud – One advantage of passive liveness detection is its speed and effectiveness. It makes the verification process much faster than other solutions, and considerably reduces fraudulent and criminal activity. It's a powerful and all-inclusive solution for KYC management, verification, and procedures.
Potential fraudsters and users are often not even aware that they are going through an identity verification check, so passive liveness detection makes the entire process more accurate.
- Better Customer Experience – Passive liveness detection simplifies background checks. This speeds up the process for users, which significantly reduces your user abandonment rates.
Since passive liveness detection requires no customer interaction, it streamlines the identity verification process to its core. It's a frictionless solution that decreases dropout rates while maximizing customer enrollments. As a result, it enhances the overall customer experience.
Choosing a Verification Software with ISO Compliance
International Organization for Standardization (or ISO), is an international, independent, and non-governmental association that sets internationally agreed-upon compliance standards with the help of experts in the field. When an organization complies with the regulations and rules published by the ISO, it is said to be ISO-compliant. Here are a few important factors to look for when selecting a verification software partner with ISO passive liveness compliance:
- Spoof proof selfie liveness detection
- AI-based analysis
- Realtime client & server-based
- Ease of use: no blink, no zoom, no head turn
- Multi-factor fraud defence
- Rapid integration
- Third party integrations
Working with an ISO-compliant biometric ID technology eliminates spoofing in the passive liveness detection process, and guarantees that customer data is authentic. It also ensures interoperability, compatibility, and security—all imperative for robust KYC verification and biometric systems. IDmission meets the standard requirements for ISO/IEC 30107-3 qualification, and was found to be 100% compliant with an error rate in iBeta testing of 0%.
Do You Really Know Your Customer?
Criminals and fraudsters have come up with innovative techniques to carry out their illicit activities. They misuse data and systems of credit unions, ecommerce stores, banks and other organizations to steal and commit fraud.
This means that authentication processes for financial institutions are essential for identifying threats and uncovering malicious profiles early on. This makes it easier to prevent and combat fraud, and protects businesses against penalties from regulators.
Deep fakes, cut-out photographs and masks are just some of the many ways scammers spoof verification and customer onboarding procedures. Anti-spoofing solutions like passive liveness detection, coupled with an advanced biometric validation system, prevent this criminal activity.
An all-inclusive biometric system like IDmission helps you fraud-proof your business and significantly mitigate risks. If you'd like to learn more about how IDmission's AML/KYC compliant solutions combat fraudulent activity, download the AML/ KYC global watch list solutions guide.