As customers increasingly prefer to do their banking via smart devices, it’s time for banks to modernize their approach to customer due diligence. Financial crimes compliance expert Sujata Dasgupta provides a deep dive on smart ID&V solutions for KYC compliance.
Know your customer (KYC) forms one of the strongest pillars of financial crimes compliance, from customer identification and acceptance to monitoring customers’ transactions against their recorded profile, expected behavior and peer group behavior.
So, understandably, detailed due diligence of a prospect for onboarding him as customer becomes the starting point of banking compliance. By preventing bad actors from entering the financial system, the first step of preventing-detecting-reporting a financial crime is accomplished!
KYC is now an integral function of compliance in all financial institutions, with customer data and profiles forming extremely important components in this function. Banks have been aggressively driving sophistication in KYC to strengthen their means of eliciting, storing, maintaining and enriching customer data for effective compliance.
Current KYC Landscape and Industry Challenges
Over the last couple of decades, KYC has undergone quite a metamorphosis in terms of regulations, processes, systems and technologies, as well as its overall significance in the financial crimes compliance landscape. From being perceived as an entry point for onboarding a new customer in a bank, KYC has evolved into a primary and indispensable function in the fight against financial crimes. While banks have recognized the importance of KYC, some challenges continue to plague the industry that impede fast and seamless KYC:
- KYC in several banks remains a contact-based function, as customers need to contact a bank branch, either directly or through banks’ DSAs (direct selling agents), along with required documents to initiate their onboarding and KYC.
- Multiple legacy onboarding systems are used by most banks for different countries and lines of businesses. This results in inconsistent KYC processes across the organization.
- KYC involves a huge amount of manual effort, from customer data capture in the system to document verification, screening, due diligence checks from external databases, photograph and signature scanning and so on.
- Identification of customer involves verifying multiple documents submitted by the prospect, which also includes checking the authenticity of such documents and photos. Banks are held responsible for wrongful KYC if the documents are found to be forged, stolen or fraudulent in any other ways.
Smart ID&V Solutions: Revolutionizing KYC
The millennial generation, who form the bulk of customer population in retail banks today, rarely visit bank branches, instead preferring to do banking through the click of a button on their smartphones, tablets or computers. The digital channel, therefore, assumes immense importance in a bank’s operational strategy when it comes to designing new products or services. KYC also looks set to witness a digital transformation around the customer identification and verification function, as niche solutions are emerging that enable the smartphone-savvy generation to initiate KYC by tapping an app on their gadget!
How does a smart identification & verification (ID&V) solution work?
These solutions are generally smartphone (or any other camera-enabled smart device) -based applications prospects can use to submit their identity documents by simply scanning them through the app. They can also click their own photos and selfie videos for liveliness check and capture any other biometric as required by their bank. Once all these are uploaded, the app validates whether all mandatory information and documents have been provided, and the next steps of KYC are initiated.
Mobile image processing with deep-convolution biometric face-matching technology is used to verify that the photos/videos of the prospect match with those in the identification documents. Documents are run through forensic screening built into the app to weed out forged or counterfeit documents. The identification documents (e.g., passport, driver’s license, any other national ID), are classified and authenticated against the relevant digital records databases. The details from the documents are extracted using OCR (optical character recognition) technology and populated in the bank’s KYC system for onboarding the prospect as a customer. This entire process is completed in just a few minutes – something that takes days in a manual world!
This digital customer identification and verification process is enabling automation of KYC function in several banks, making it seamless and frictionless for both the prospect/customer and the bank.
What business value does it generate?
Digital solutions are empowering banks to transition customer identification and verification processes from manual to automated, thereby expediting and streamlining an extremely important component of the KYC compliance obligation. Automation also makes the KYC process uniform, as the same rules are applied across the enterprise.
Advanced technology and artificial intelligence embedded in the solutions ensure authenticity of documents through auto detection of forged and counterfeit documents. Hence, criminals cannot use stolen or forged documents to enter the financial network.
ID-based fraud can be prevented by deep-learning-enabled sophisticated ID matching, as liveliness checks prevent impersonators from using other persons’ static images to fraudulently onboard in a bank.
Conversion rate and customer growth has shown improvement for banks using automated ID&V, as prospects can initiate their own onboarding from anywhere, anytime and at the tap of an app.
Leveraging Mobile Networks’ Customer Data for Enhanced KYC ID&V: A Game Changer
Banks and financial institutions have long been exploring ideas for automating the heavily manual customer identification and verification piece of KYC. Then emerged the digital ID&V solutions for seamless customer and document verification. Now this is being taken further by innovations, which are leveraging mobile network operators’ (MNOs’) customer data for identification and verification of not just the prospects, but also their devices and geographic locations.
Almost everyone today has a registered, internet-enabled mobile phone connection obtained from their MNO after proper identification and document submission. This network is now being explored as an additional layer of ID&V, as prospects are moving toward mobile-based apps for onboarding in banks. The additional details of device and geographic locations captured using MNO data can ensure enhanced fraud prevention. MNO data is understood to be more comprehensive in coverage compared to credit bureaus and other third-party databases, as several parts of the world that are not served by financial institutions are still covered by MNOs.
Digital innovations have been disrupting every aspect of our lives and the functioning of every industry. The innumerable ways in which advanced technology is being used seems mind boggling, as there is a new idea, a new innovation almost every day that seems to challenge the as-is!
For KYC, a thrilling journey has started already – what is coming next?
Sujata Dasgupta is the Global Head of the Financial Crimes Compliance Advisory Services at Tata Consultancy Services Ltd. and is based out of Stockholm, Sweden. She is an experienced industry consultant in banking risk and compliance (R&C), with a demonstrated history of working in banking, IT services and consulting, having worked for global banking clients in all major financial hubs, viz. New York, London, Singapore, Hong Kong, Frankfurt and now Stockholm. She also authors articles on risk and compliance in international banking R&C journals. Sujata can be reached on LinkedIn at 
