One of the critical concerns of the financial sector is the risk factors associated with it. These risk factors are crucial in the virtual market, where everything is managed remotely. The distant handling of everything opened a door for all the imposters to execute malicious activities. KYC measures came to the rescue to combat these illicit operations.
Know Your Consumer is an advanced verification method for identity checks. The COVID outbreak made it difficult for consumers to make their presence for the verifications. However, it created a barrier between businesses and entities to join remotely.
Considering the circumstances, the business market incorporated digital technology with KYC, creating an easy gateway for digital verification. Read the article to understand why digital KYC is a better choice.
A Brief Understanding of Digital KYC
KYC verification is the process of examining the consumer’s identity before onboarding them. The process is carried out to know whether the consumer has been involved in any illicit activity previously or not. The typical KYC process requires the physical presence of the consumers along with the documents that digital KYC now takes over.
Digital KYC is a modernized way to perform the verification process. Digital KYC verification involves an online method of checking the client’s identity. It collects consumers’ photos or videos, including their official valid documents. The next step is performing the verification against authorized records.
How Does Digital KYC Verification Work?
The term refers to the digital identification of consumers. Digital KYC verification includes the basic verification steps: analyzing consumers’ details and creating risk profiles. The primary purpose of digital KYC verification is to provide a paperless verification carried out through the Internet. It works genuinely in validating a person’s identity. Digital KYC verification consists of 3 types. Below are the three digital verification categories:
- Online KYC form
- OTP-based KYC
- Video-based KYC
Digital Onboarding KYC Procedure
Onboarding new entities is a crucial step in any company; therefore, ensuring that the firm follows the KYC regulations properly is essential. The digital onboarding process involves the following:
- Obtaining data from the consumer using automated tools
- The collected data is verified by applying identity validations
- Developing risk scores from the data
- Generating a report according to the analysis
- Making a decision based on the report to onboard the client or not.
By following the digital onboarding measures, companies can authenticate clients quickly while ensuring security.
Digital KYC Checks Combating Frauds
The digital KYC checks work efficiently in preventing financial crimes. The following are the reasons for using digital KYC checks in fraud prevention:
- Identity Spoofing – Digital KYC enables financial institutes to investigate consumer data to ensure the legitimacy of the entity, which assists organizations in preventing hackers from using false IDs and damaging the company’s data.
- Financial Scams – One example of financial fraud is imposters creating fake accounts to perform fraudulent activities. Digital KYC combats such scams as well.
- Black Money Dealings – The black money transactions include all the illegal resources to earn those funds. Digital verification assists in identifying such scammers, providing a seamless onboarding while mitigating the risk factors.
Quick Insights on Digital KYC Verification Solutions
Here is a quick overview of digital KYC verification solutions.
- Face Verification
Face verification aims to provide digital identification by verifying the consumer’s face against the delivered image to ensure the details match. The AI-based verification can verify between an image and a live look using color textures and 3D depth perceptions.
- Document Verification
For document verification, the integrated software performs identification by scanning the documents through optical character recognition(OCR). Usually, the documents include original IDs, driver’s licenses, or government-issued passports. The AI software can identify between authentic and fake documents.
- Address Verification
Address verification includes verifying the address against the maps to check whether it exists as claimed. It is a part of document verification. First, they verify the documents and ensure the validation is executed correctly.
- Two Factor Verification
The two-factor verification includes identification through a one-time password(OTP) system. It requires a mobile device and an internet connection. Once the mobile number is entered into the software, a verification code is sent to the device to ensure two-factor authentication.
- AML screening
AML screening works by verifying the identity against AML tools to check whether the entity is involved in money laundering or black money dealings. The need to perform this screening test is to avoid penalties and fines that can be associated with these fraudulent transactions.
In a Nutshell
The idea of digital KYC is undoubtedly one of the valuable developments of recent times. Businesses have seen crucial times due to criminal fraud damaging organizational data and companies’ reputations. Another critical significance of digital verification is that it makes onboarding effortless, reduces manual errors, and prevents money laundering and identity theft issues. Moreover, the digital KYC offers robust encryption protocols and enhanced security features. Artificial intelligence integration has improved the user experience rate. However, the digital strategies complete the identification process in seconds, making it a time-efficient approach.
