Since the inception of Know Your Customer (KYC) regulations, automated KYC solutions and identity verification are vital to meet customer and institution expectations. Anti-Money Laundering solutions needed to be able to verify identities on any device from around the world. And transaction monitoring needed to be able to detect suspicious activity before it took place.
With the rise of digital identity security and the explosion of alternative ways to validate ID, automated KYC finally became a reality. Automating customer identity verification, risk screening, transactions, and background checks have been a long-time coming. For many customers and business entities, automated KYC solutions have been a welcome addition to frictionless customer onboarding. However, as businesses continue to be fined for not meeting AML compliance regulatory obligations, many have discovered that all digital KYC solutions are not even meeting basic customer due diligence.
Why You Need Automated KYC Solutions?
The first thing you need to know about automated KYC is that it’s not new. In fact, it’s been around for a while. The difference now is that it’s easier than ever to use and adapt these solutions to your specific needs. Most automated KYC solutions are designed to help you verify your customers, which involves collecting and verifying their personal details, documents, and background information.
A key component of KYC verification is Customer Due Diligence (CDD) or Enhanced Due Diligence (EDD) for high-risk customers and business entities. Customer due diligence is performed as part of a Customer Identification Program (CIP), which can use biometric technology to verify identity. Biometric technological solutions can use a variety of methods to verify the identity of customers, including facial recognition, fingerprint scanning, iris scan, voice recognition, and in some cases, behavioral biometrics.
Customer due diligence, and in some cases enhanced due diligence, needs to be performed before providing a product or service to ensure that the person using the product is who they say they are. With the help of biometric authentication, real-time identity verification of an individual or business entity is possible without requiring them to provide additional information. This removes the need for customer due diligence investigators to manually verify the identity of a business entity’s Ultimate Beneficial Owner (UBO), which in turn reduces the cost and burden of performing enhanced due diligence.
With automated KYC solutions that include biometric authentication and other Artificial Intelligence (AI) directed methods for smoother customer onboarding, the cost and burden of customer due diligence can be significantly reduced. Automated KYC solutions can not only reduce the amount of time it takes to complete a transaction but also reduces the amount of human interaction that is needed. In turn, this reduces the amount of customer dissatisfaction and refunds.
How does AI Affect Automated KYC and AML Compliance?
Artificial Intelligence is an important part of our future. Through more manageable Application Programming Interface (API) protocols, artificial intelligent programs can improve communication, security, growth, or monetization of your systems. APIs can be applied to log-ins, bookings, and third-party payment processors, and work on larger platforms such as Twitter and Google maps. As a result of different API protocols, AI can have almost limitless creative capabilities and implementations that allow institutions and citizens greater online protections and freedoms.
According to Nanonets, manual reviewers cannot guarantee 100% accuracy on whether a photograph or a signature is fake or in their data entry processes. Once KYC data is compromised due to improper adherence to security policies, the AML compliance penalties given by your local Financial Intelligence Unit (FIU) will be very stiff — up to 2% of global annual revenue, in some cases. And with new regulations arising in Japan and the last update to the Bank Secrecy Act, you can’t trust that your manual reviewers will be on par with all the needed changes in a timely manner.
You may know automation is required for a productive KYC verification process, but do you know how you automate can make a difference in customer experience and actual AML compliance. Document verification is a basic requirement for standard customer due diligence and should be part of your automated KYC solutions. For business enterprises, like large corporations, global identity verification of the owner cannot suffice. Especially, if ownership isn’t as clearly defined as with sole proprietorships. Seeking out the ultimate beneficial owners can be complicated by proxy-sold shares and unknown beneficiaries. UBOs can own, control, or profit from a business and they must be identified when conducting financial transactions.
AI reduces and streamlines all the bureaucratic procedures involved in your CIP by making global identity verification, document verification, and the entire KYC verification process painless and transparent. Instead of requiring customers to provide personal information, perform a background check, and provide documents, digital KYC solutions give you the ability to identify and verify customers without the need for human interaction. This not only saves you time and money but also helps you build a better customer database, which in turn helps with enhanced targeting and personalization for marketing and sales.
Challenges with Automated KYC
Not all digital KYC solutions are created equal. And this is why how you automate is so crucial to meeting your AML compliance regulatory obligations. According to the Financial Action Task Force (FATF), your automated KYC solutions need to perform these main tasks to meet AML compliance standards.
- Real-time Identity Verification
- Document Verification
- Transaction Monitoring
- Risk Screening and Assessment
- Watchlist and Sanction List Screening
- Inhouse CIP Supervision and Independent Auditing
- Global Identity Verification of UBOs
- Data Protection
- Digital Identity Management for Regulatory Reporting and Suspicious Activity Reports (SAR)
And that is the beginning of the challenges customers and business owners face when trying to fulfill their AML compliance regulatory obligations. KYC verification and AI individually come with their own challenges. In the case of KYC, the issue of creating a comprehensive CIP that checks all the boxes for AML compliance and customer experience while avoiding high AML compliance costs.
Then on the side of the technology that powers your digital KYC solutions, it may not fully validate ID, verify documents or even manage your customer database effectively. That’s because many available automated KYC solutions, don’t perform all that is required to meet even basic customer due diligence. Few even consider the importance of protecting your customer database, risk screening, and UBO identification. And next to none cares about SAR, independent auditing, and regulatory reporting.
This happens because several companies that provide KYC as a service, only do so with either Robotic Process Automation (RPA), Intelligent Document Processing (IDP), or extremely limited task-based AI. This means their digital KYC solutions can only perform one or a few robotic tasks. So when it comes to creating a cohesive customer onboarding process and electronic KYC (e-KYC), it will be near impossible for the processes to be smooth or even remotely meet AML compliance.
Benefits of Automated KYC Solutions
With an extensive automated KYC or e-KYC solution, you are not only guaranteed AML compliance, but you can reduce AML compliance costs as well as protect your business from fraud, money laundering, and terror financing. One primary benefit of using an automated solution for KYC verification is that it allows you to verify a customer without requiring them to provide additional information. This shaves up to 80% off of customer onboarding time and has allowed financial institutions to increase their total number of onboarded clients per annum according to Nexus Frontier.
Enhancing customer experience with automated KYC solutions can reduce onboarding costs by 70%. According to Reuters, 85% of corporations that did not have a good KYC customer experience, resulted in 12% of their customers changing banks. This means that to retain your current customer base and build new ones, you need to be able to process payments as quickly and smoothly as possible.
According to a 2019 study conducted by Forbes of 302 senior executives surveyed, 92% said that employee satisfaction had risen as a result of intelligent automation initiatives. Easing AML compliance costs and the burden of KYC verification by removing 80% of manual KYC could save firms £8 billion per year according to Encompass Corporation. And that’s not even including what is possible with biometric authentication of UBOs or other environmental benefits.
The average customer turnover rate for online businesses is around 76% annually. This means that over the course of a year, your customers will spend a total of 76% less with you than they did the previous year. This is a lot of money that is slipping through the cracks. But with an e-KYC solution, you can save yourself a lot of time and money by retaining as many of your current customers as possible without spending additional human effort to do so.
The above benefits may not apply to all types of KYC. After all, it comes down to having an extensive CIP and digital KYC verification solution. You won’t get all the benefits of an e-KYC solution if you still retain a heavily paper-based operation. With automated KYC solutions, to receive all the benefits it is best to invest fully in KYC as a service with a world-class automated KYC solutions provider.
What to Look For In a World-Class Automated KYC Solutions Provider?
Customers have come to expect to be able to move through the checkout process quickly. They expect to be able to buy your product or service without having to provide any additional information. This is especially true when it comes to investing their hard-earned money. But this also means that you need to be able to process payments as quickly as possible.
And while there are many ways to achieve this, in today’s world, the most effective way is by using a world-class automated KYC service provider like IDMERIT to not only provide digital KYC verification but handle digital identity management as well. We use industry-leading technology based on machine learning APIs to provide frictionless global identity verification. And we’ll help your company fulfill its AML compliance regulatory obligations through real-time identity verification, document verification, behavior, and transaction monitoring during risk screening and assessment, watchlist, and sanction screening while reducing your overall AML compliance costs.
Instead of trying to piece together your customer journey using various robotic tasks online thinking it’s an e-KYC solution, get a truly extensive automated e-KYC solution through our IDMkyc API. When paired with IDMaml, you get a complete AML compliance solution that provides risk assessments and protects your business from fraud while providing a frictionless customer experience. Global identity verification of UBOs is guaranteed with our access to over 500 business and governmental databases around the world.
We monitor over 2000 watchlists and sanction lists for real-time identity verification of potentially high-risk customers like Specially Designated Nationals (SDNs) and Politically Exposed Persons (PEPs). Take the guesswork out of enhanced due diligence with IDMtrust and ensure your business is fully covered for Know Your Business (KYB) with IDMkyb. And don’t forget, all document verification is being done by IDMscan.
Companies like Amazon, which is one of the leaders in the field of biometric customer due diligence, understand why you need to utilize the best AI possible when you need trustworthy biometric authentication. And as industry leaders ourselves in the field of AML compliance solutions, we are trusted when it comes to digital identity management and security which is sorely lacking in the industry. We understand that the customer experience and business processes must come first. Therefore, we cater to microservices that can be smoothly assimilated into your existing business processes.
Or you can save time by speaking to one of our Customer Service Reps about getting the complete IDMkyX platform. Verify anyone through their devices, anywhere across the globe, through the social media platforms and live video anytime they choose to interact with your business. Biometric identity verification of UBOs is only the start. We can even monitor your team and assist in employee onboarding of CIP monitors. Don’t waste time and money on KYC providers that only get a quarter of the job done. Get complete AML compliance certification with IDMERIT.