When we talk about the financial sector, it is riddled with bad actors looking for attractive opportunities to bank on. Since consumers are turning towards the digital space, it has become essential for businesses to carry out verification measures to combat digital fraud and identity theft – which is a growing concern these days. Criminals use the same technology used to develop security systems, to hijack user identity. They usually reverse engineer the solution and use it for their own gains.
Banks and insurance firms are a potential target of these cyber actors and have to deal with them daily. That being said, these cyber criminals need to be stopped at the earliest to prevent information of legitimate users from being compromised. To come up with a solution, regulatory authorities impose Know Your Customer KYC compliance to make sure the legal financial system works smoothly, and that fraudsters are caught off guard, allowing businesses to streamline their operations.
Financial institutions, especially banks, employ Anti Money Laundering (AML) compliance paired with KYC verification to help them create convenience in user on boarding and monitoring suspicious transactions. KYC compliance helps prevent financial crime leading to tax evasion, money laundering, terrorist financing, and cross-border trafficking of drugs and humans, etc.
What is KYC for the Banking Industry?
KYC also called Know Your Customer, is a popular term in banking. KYC verification incorporates all those policies and procedures to verify a client each time they want to associate a relationship with a business organization, whether they are a customer or a business partner. Usually, KYC verification entails the submission of ID documents that act as identity proof for the prospect. This acts as a deterrent against monetary crime, allowing banks to deliver a much secure and purposeful experience to the user.
Banks need to practice regulatory compliance by ensuring KYC protocols are properly implemented during customer on boarding. This allows them to avoid hefty fines resulting in non-compliance, and develop a good reputation in the eyes of financial watchdogs and the market.
Benefits of KYC Compliance
Whether a financial institution is a bank, a cryptocurrency exchange, an insurance company, or a non-banking financial corporation operating in the financial sector, it has to abide by KYC compliance standards. KYC verification directly addresses financial crime carried out through fake and false identities, account takeovers, and illegitimate business partnerships, and proposes a feasible solution to all these concerns.
A Solid Brand Image: Any business or institution that considers KYC compliance in its regular user onboarding process is compliant with state-of-the-art regulations set by financial regulators. This adds credibility to the company and allows the business to develop a good image in front of their users, developing a loyal customer base.
Streamlined Customer Onboarding: If an enterprise practices KYC compliance in the first place, they have better chances of preventing cybercrime. Since KYC verification is performed before the customer actually starts using the services or products, it reduces the chances of carrying out identity theft through the business platform. That being said, bad actors are stopped in the initial phase of the process, thereby significantly reducing the chances of digital fraud and synthetic identity theft.
KYC verification allows businesses to record personally identifiable information (PII) of their clients for future authentication and to guarantee that the customer base is legitimate.
Mitigating Financial Crime: Know your customer (KYC) compliance establishes a secure and safe customer on boarding through which only genuine users can create profiles and open accounts with the business. Therefore, KYC verification is a viable solution to prevent money laundering and fake initial coin offerings (ICOs) sold by fraudsters. This is the reason most companies invest a good deal of time and resources in developing state-of-the-art KYC frameworks.
Digital KYC is The Way Forward: Old-school methods have become rather a ‘cold product’ these days since cybercriminals have grown sophisticated in the acts. That being said, financial organizations are faced with greater challenges to secure the financial ecosystem and to develop products in making the market and customers much safer.
Digital solutions to ensure KYC compliance are becoming increasingly popular. These systems are usually powered by biometric authentication tools such as facial recognition, fingerprint scanning, and real-time document verification checks through which customers can get themselves verified in seconds.
Digital KYC Takeaways
Digital KYC solutions come with several benefits that are stated below:
1. Digital KYC verification enables companies to not invest a lot of time and money in manual verification and managing teams
2. Automated and robust solutions guarantee KYC compliance and are cost-effective and less time inefficient
3. Possibility of human error and negligence is significantly reduced with digital KYC verification tools, thereby allowing more opportunities for revenue building and concentrating on complex tasks
