Compliance with Know Your Customer (KYC) regulations is highly important in a financial institution. However, traditional KYC processes suffer from several disadvantages, such as inefficiencies, high costs, poor customer experience, and error-prone because of being manual and complex. Automated KYC comes into play, automating the KYC process using advanced technologies. This article will explain what automated KYC is and discuss how it can change behavior in KYC compliance.
Automated KYC – A Quick Introduction
KYC is a significant pillar during the client life-cycle with three important types:
- Initial KYC
- Periodic KYC
- Event-driven KYC
It is about KYC, a regulatory procedure for building integrity and security around financial institutions and developing trusting client relationships. KYC processes are important for financial institutions in ensuring due diligence in identity verification of clients, understanding the purpose and background of the client relationship, monitoring for illicit activity, fraud, and compliance. Its traditional aspect is manual in nature, and hence, many pain points are associated with it.
Pain points of traditional KYC
- Time-Consuming
Steps involved in traditional KYC are such that it will require the manual verification of documents and background checks, which could last for days or even weeks. This causes delays in the onboarding process and can frustrate clients.
- Manual and Costly
The traditional manual process of KYC relies on human resources and infrastructure, leading to high operational costs for financial institutions.
- Poor Customer Experience
The protracted, lengthened, and cumbersome process forms a part of bad customer experience since it might lead customers to patronize alternative channels that are faster and more efficient.
- Compliance with Regulations
There is a continuous strain on a financial institution with each day that new regulations surface in the business environment. A more traditional KYC process might not be readily adaptable and thus cause higher risks for the institution of non-compliance and fines.
Advantages Provided by Automated KYC Solutions
One way to remedy these challenges is by automating KYC processes using state-of-the-art technologies to streamline and automate KYC. Automated KYC would bring in external data and leverage that input combined with automated processes to proactively verify and update customer information throughout the entire relationship in compliance with regulations, risk management, and improved customer service. This is how automated KYC verification can help:
- Real-time Verification
Automated KYC is implemented with the help of digital tools for real-time validation of customer information. Thus, it has drastically reduced the verification time and led to customers’ fast onboarding.
- Cost-effective Solution
The processes get automated and thus lessen the intervention of humans, resulting in heavy operational costs that are otherwise incurred when implementing KYC processes in convenient ways
- More Accuracy
Advanced algorithms and machine learning efficiently fit into the bank model control framework would give much higher accuracy and consistency in data verification with fewer errors and inconsistencies.
- Better Customer Experience
Faster and more effective verification means a more streamlined and positive customer onboarding experience, increasing total satisfaction.
- Regulatory Compliance
Automated KYC solutions make it easy for adoption to adjust to new regulations, thus ensuring financial institutions are compliant with minimal effort.
- Real-Time Monitoring
KYC Automation can provide real-time/periodic monitoring of customer transactions; hence, such banks can register suspicious activities and report such to the concerned authorities.
With KYC automation tools, identity verification, and transaction monitoring are made easy for many users who open digital wallets to perform electronic payments and transactions.
Use Cases of Automated KYC
Some of the most essential use cases of automated KYC are mentioned below:
- AML Verification
Automate the verification of identification data provided by the clients and also monitor the transactions done by the clients regarding money laundering activities.
- Age Verification
Automated KYC will enable easy age verification for consumers when it comes to certain industries that are age-restricted.
- Sanction Screening
KYC automation shall involve sanction screening against relevant government lists of authorizes and other watch lists to avoid doing business with sanctioned persons or entities.
- Risk-based Reasoning
Risk-assessed compliance with KYC regulations by automating the risk evaluation and customizing compliance measures based on customer or transaction risk.
- Client Due Diligence (CDD)
Customer Due Diligence has to be included in every financial institution, and automating the collection, verification, and risk assessment of customer information would save that bank from breaching the standards within which they must function in binding regulations.
- Enhanced Due Diligence (EDD)
Enhanced due diligence comes with stepping up your response if you have a high-risk customer or entity on your hands and need to perform a detailed risk assessment on them and/or their transactions. Automated KYC checks bring speed and high accuracy into the equation.
Winding Up
Clients seeking to automate customer verification can use automated KYC software to help detect potentially suspicious persons. Such solutions help organizations complete their tasks in real-time. The ultimate outcome even turns out to be more accurate than the traditional-type KYC solutions.
