Many tasks and services are becoming digital these days. Across industries, more and more happens online, and automation continues to replace manual processes. This has special relevance in financial services. Automation of KYC through eKYC is not only making processes faster and safer, it is also improving the customer experience. As regulators trust more eKYC methods and permit further use, its potential continues to grow.
What is KYC?
A quick recap on KYC is helpful before we look at eKYC. “Know your Customer,“ or KYC, is the process of verifying the identity of customers. It is about knowing and trusting the identity of a customer and their financial transactions. KYC protects the financial institution, its customers and wider markets from fraud, money laundering or other financial crime.
KYC takes place whilst onboarding a new customer, but it also has an important ongoing element throughout the customer relationship.
What is eKYC?
There has been a rapid increase in digitalization in most industries over recent years. Banking and financial services have been at the forefront of this, with more customer interaction and other processes moving online.
In general, eKYC refers to the digitalization and automated conception of KYC processes. It is the digital and remote transposition of traditional KYC processes – automated, online and paperless.
Transitioning to a digital KYC process
Many areas of banking and finance have become digitalized in recent years. More customers open accounts online, and more services are offered digitally. There is less need than ever before for customers to visit physical bank branches. The COVID pandemic has accelerated a transformation that was already well underway. A study by McKinsey suggests that companies are now seven years ahead in digital transformation post-pandemic.
This digitization of services applies to many different areas. Many of these seemed difficult to digitize not that long ago. Improvements in technology, artificial intelligence and connections have made so much more possible.
KYC is a leading one of these areas. Previously, to onboard a new customer and open an account, the customer would need to present physical identity documents and other evidence at a branch location. The first stages of eKYC saw this process move online.
Digitalization has gone even further since then. eKYC now refers to the full digitization of the KYC process. This includes not just paperless customer onboarding and checking of identity, but ongoing KYC and AML monitoring, and more advanced techniques such as digital signatures.
Regulation has been key to the expansion of eKYC. KYC is a highly regulated area, and financial institutions are limited by law and regulations in what process they can use. Techniques such as video and biometric verification, and the use of electronic signatures, are increasingly being accepted by regulators. Moreover, the acceptance shows the increased trust placed in eKYC and its ability to deliver more secure KYC.
The benefits of eKYC
Faster processes. Anything that becomes automated and digital usually becomes faster. This is a key benefit of KYC – onboarding and verification of customers with eKYC can take place in minutes rather than days or even weeks when handled manually.
Improved customer experience. Verifying customers in real-time is great for the customer experience. Financial institutions want customers to be able to access products and services as quickly as possible, and the customer wants an easy and friction-free experience, but still robust and secure. A Thomas Reuters survey found that 89% of corporate customers had a bad experience with KYC processes – to the point that 13% changed banks.
Improved conversion rates. Ultimately, faster and improved experiences lead to an increase in the conversion rate of customers – a vital measure for any financial institution.
More secure KYC. As well as fast, eKYC is also secure. It meets or exceeds the security of traditional manual processes and follows all relevant regulations, including AMLD and eIDAS. The increasing acceptance of eKYC by regulators is evidence of this.
Flexible and adaptable processes. As regulations change or technology improves, eKYC processes and workflows can be easily adapted. Many eKYC platforms are modular, allowing the simple integration of additional functionality.
What does an eKYC process look like?
The eKYC process is the digital transposition of the traditional manual KYC process. It is fast – with verification taking minutes rather than days or weeks. It is also seamless for the customer, with verification taking place in real-time. This keeps customers engaged and leads to a much-improved conversion rate.
Processes make use of several different technologies and verification methods. These will appear seamless to the customer, but be automated and well-built into the process. Techniques used include video-based identification, biometrics, and the reading of NFC cards.
What are the use cases of eKYC?
eKYC replaces standard KYC and can be used throughout the KYC process and the customer relationship. It is used to onboard customers, conduct due diligence, and carry out continued monitoring. This includes the following main use cases or eKYC methods:
Video KYC. This was one of the first eKYC methods to be developed and remains key. Customers can be verified by comparing live video with identity documents, with automatic verification now possible. Where likeness is unclear or regulators require it, manual video-based verification can be used.
Document verification. Capturing and verifying images of identity documents is another use case of eKYC. AI techniques are used to verify the authenticity of several different types of documents.
Digital due diligence. KYC procedures require a risk assessment to be carried out to determine the likelihood of a customer (both individual and corporate) being involved in financial crime or money laundering. While such checks would require lengthy manual searches and document checking in the past, much of this can now be automated through eKYC.
Fraud detection and ongoing monitoring. A final consideration for eKYC is its ongoing involvement in customer monitoring. The “three pillars of KYC” remind us that effective KYC requires not just an initial assessment of a customer, but ongoing monitoring throughout the relationship. With eKYC much of this can be automated. Accounts can be checked, and customers can be regularly monitored against watchlists, PEP and sanction lists.
IDnow and eKYC
IDnow offers a leading eKYC solution that fully meets KYC and AML requirements in the UK, Europe and elsewhere. It has developed AutoIdent with comprehensive KYC and AML features.
AutoIdent has evolved as technology has advanced, and regulation has expanded. Video-based identity verification has been supplemented by fully automated biometric identity verification. Furthermore, AutoIdent offers automated or hybrid verification as required by regulations in different jurisdictions.
Further solutions have been added to offer increased functionality – all within the single platform. This includes KYC and AML screening required under AML regulations, the use of NFC technology, and electronic signatures.
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