Unlocking The Power Of KYC For Smart Banking Service Providers

While your social media feed and industry publications often seem flooded by plenty of trends, it’s time-consuming to comb through each of these resources and identify trends. This blog shall enlighten KYC market, its data and new tech of eKYC and the digital solutions thereby. KYC has been harnessing technology to disrupt and democratize the banking space. Let’s see how?

Introduction

Know Your Customer (KYC) can also refer to Know Your Client. While opening an account and on a regular basis after that, the client’s identity must be identified and verified through a process called KYC, or KYC check. In other words, banks need to confirm that their customers are actually who they say they are. The Know Your Client (KYC) rule is an ethical standard for people working in the securities business who interact with clients when opening and maintaining accounts. Before any financial advice is provided, it is implemented at the beginning of the customer-broker interaction to develop the crucial personal profile of each client. The requirement to adhere to all laws, regulations, and norms governing the securities business is also made clear to the customer.

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Summary

• What Does KYC and eKYCIn Banks Mean?

• What are the procedures for KYC?

• What does the bank’s KYC process entail?

• Procedure for digital KYC

• How large is the market for KYC?

• Why Must KYC Be Completed for Banking?

• List of KYC documents

• Various forms of KYC verification

• What sorts of KYC are there in banking?

• These 6 digital solutions will assist with KYC.

• Is identity verification necessary?

• How are documents scanned by the digital document authentication system?

What Does KYC In Banks Mean?

The Reserve Bank of India has mandated the “Know Your Customer” (KYC) process as a way for institutions to confirm and subsequently confirm the legitimacy of consumers. Before investing in a range of financial instruments, they must submit their KYC papers to prove their identity and address. It is crucial to go through the KYC verification procedure since it ensures that financial institutions are not being used for any unlawful operations. Financial regulators like banks and trading platforms can stop any potentially illicit actions by implementing KYC offline authentication and online verification.

A lot of non-individual consumers also utilize financial services including trading and investing in mutual funds. Banks and other financial institutions, among others, have the right to use KYC to confirm an entity’s legal standing, which may entail comparing the working address with the real address and confirming the identity of the beneficial owners. You’ll probably hear the word “KYC” when using banking or lending services. Knowing about this acronym, which stands for “Know Your Client,” is crucial. Simply put, KYC in banking refers to a procedure for quickly confirming your identity.

The Reserve Bank of India (RBI), the country’s top bank, made KYC verification for all of a bank’s customers a requirement in 2004. It assists in ensuring that all applicants using the services provided are legitimate and engaging in moral conduct. Hence, KYC in banking is targeted on assessing and tracking the risks to stop money laundering and other illicit schemes.

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What Does eKYC Mean for Banking?  

The Electronic Know Your Customer/Client, or eKYC, technique was established to speed up the KYC process in banks. You may finish your bank KYC online thanks to eKYC. As with paper-based KYC verification, you are not needed to produce hard copies of your documentation. Your identity is electronically validated using the identification information you supply and the OTP that was sent to you.

Here is more information on eKYC. Some well-known banks, such the State Bank of India (SBI), Axis Bank, HDFC Bank, RBL Bank, etc., have implemented modern, digital methods to make the KYC verification procedure simple.  

Simply review the necessary KYC documents, select the ones you want to provide, and select your chosen KYC verification method. Once your application has been submitted, you can use the PAN card information on the bank’s website to verify the KYC status as well.  

What sorts of KYC are there in banking?  

Three different forms of KYC procedures are used in banks: Aadhaar OTP-based KYC, Aadhaar Biometric KYC, and In-Person Verification. Depending on your preference, you can either complete your bank’s KYC online or offline. Banks also provide solutions for Digital KYC and Video KYC to simplify the verification procedure.

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KYC’s importance in banks  

Banks must follow these measures in order to confirm your identification and stop financial crimes. Here are a few justifications for why the KYC procedure at banks is crucial:  

• Identity Theft Prevention: Banks can stop identity theft by confirming your identification. As part of the KYC process, you must present identification proof, such as a passport or other document issued by the government. As part of the KYC process, you must present identification proof, such as a passport or other document issued by the government.  

• Financial Crime Mitigation: KYC procedures assist banks in detecting and preventing financial crime. Money laundering, financing of terrorism, and other illegal actions are examples of these crimes. Banks can spot any suspicious or unusual behavior and alert the proper authorities by carefully examining your financial activities.  

• Protects the Bank’s Reputation: Financial institutions must protect their reputations since any connection to dishonest behavior can damage their standing. KYC assists banks in preventing fraud.  

• Compliance with Regulations: In order to comply with the rules established by the regulatory bodies, KYC checks are required of banks and other financial institutions. Banks use KYC procedures to comply with anti-money laundering (AML) and counter-terrorist financing (CTF) regulations.  

• Builds Long-Term Connections: With KYC processes, banks are better able to understand your financial needs and objectives. Banks can offer personalized financial services and foster long-lasting partnerships with you by learning about your needs.  

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What does the bank’s KYC process entail?  

The goal of the KYC procedure in banks is to lower financial risk. This is accomplished by confirming your identity, knowing your genuine source of income, and being aware of all associated financial activity. Banks demand that you present specific documents, including your proof of identification and proof of address, for this. You can verify your identity using one of the Officially Valid Documents (OVDs) on the list. With the several KYC processes that are offered, you can select your chosen method of KYC verification. You can choose between online and offline bank KYC, depending on your preferences. In order to reduce the possibility of financial fraud utilizing your account, the bank may occasionally require you to update your KYC.

What do the KYC 4 elements mean?

The following four essential elements constitute the KYC Policy.

• Policy for Customer Acceptance.

• Methods for customer identification.

• Transaction monitoring.

• Risk Control.

What are the procedures for KYC?

• With your personal information, create an account.

• Provide both your registered mobile number and Aadhaar number.

• To confirm, enter the secure OTP.

• Create a duplicate of your e-Aadhaar that is self-attested, then upload it.

• Accept the terms of the declaration.

The following is the procedure for digital KYC:

1. Information Gathering: The KYC process begins with the gathering of the customer’s personal data. On their selected portal, where they desire to conduct financial transactions, they must fill out an online KYC registration form. Whether the information provided is accurate and up-to-date will depend on the applicant’s diligence.

2. Evidence Upload: After the data is gathered, the applicant must verify the information they provided on the form with pertinent documents. These documents serve as proof that the information previously submitted by the user was accurate and not made up.

3. Verification: After the papers have been submitted, the document template is located and checked against a number of criteria. This guarantees that the document has not undergone any modification.

The data is then pulled from the document after it has been confirmed.

There are two ways to do this:

1. The applicant’s information can be immediately pulled from their documents, such as their identification and address proofs, by using an OCR, which allows the system to do so. The information is then examined by the system for anomalies in order to confirm its authenticity.

2. The applicant will need to manually submit their information into the application portal if data extraction without OCR is required. The information entered will be compared with the information on the uploaded documents using the system’s IDV solution.

How large is the market for KYC?

The anticipated value of the E-KYC market was US$ 1571.12 billion in 2021 and is expected to reach US$ 2792 billion by 2030. The market is expected to grow significantly over the coming years as a result of a number of driving factors.

According to the estimate, between 2022 and 2030, the E-KYC market share is likely to increase above a CAGR of over 21.55%.

Why Must KYC Be Completed for Banking?

Banks bear the risk of being involved in shady financial dealings. Banks must complete all KYC procedures to avoid potential financial and reputational harm from such situations. This implies that you are unable to do anything other than open a bank account. Also, you need it to secure a bank locker, apply for a loan or credit card, etc. Keep in mind that banks are responsible for KYC in the banking industry. If the bank does not make this guarantee, it risk receiving severe penalties.

List of KYC documents

Depending on the kind of KYC, the needed papers must be submitted as hard copies or scanned copies. KYC requires two general categories of documents: identification and address proofs, which can overlap but typically differ. The following documents are necessary:

• To prove your identity- Aadhar cards include a UID, or unique identifying number. You may also use your passport, driver’s license, or voter identification.

• Your PAN card, complete with a photo.

• A crucial document with the applicant’s picture on it. The State or Central Governments must issue this.

• A kind of identification issued by public financial institutions, public sector organizations, or scheduled commercial banks.

• Last but not least, you can use identification cards that your college issues if it is linked with universities or any document issued by a professional organization like the ICWAI, ICAI, Bar Council, ICSI, etc.

• Any credit or debit card that a bank issues to a person and has the person’s name and address on it.

• Address Verification- Voter’s card, passport, driver’s license, registered sale agreement, lease on a residence, or maintenance bill for the apartment are other acceptable forms of identification.

• Your phone bill, water consumption bill, and power or gas bill are all acceptable as well. These invoices can’t be older than three months.

• The applicant receives a new address in a self-declaration from the judges of the supreme or high court, which may be necessary for the event that the applicant is found guilty for whatever reason.

• The bank managers of Scheduled Co-operative Banks, Scheduled Commercial Banks, Gazetted Officers, Multinational Foreign Banks, Notaries Public, documents issued by any Statutory Authority or Government, and any representatives elected to the Legislative Assembly or Parliament can also provide address proof for KYC.

• An identification card issued by any of the following organizations: scheduled commercial banks, public financial institutions, statutory/regulatory authorities, and public sector undertakings.

• Finally, if your college is linked with universities, you may be issued identity cards with your address printed on them, or you may be given an identification card by a professional organization such as the ICWAI, ICAI, Bar Council, ICSI, etc.

• The Power of Attorney granted to the Custodians by the FII/sub-account with the registered address is required for any sub-account or FII.

• Address verification for KYC in your spouse’s name is also acceptable.

Various forms of KYC verification

Processes for KYC verification fall into two categories. It is a matter of convenience as to whether one picks one type over the other because they are both equally authentic.

• Based on Aadhaar KYC

Online verification is the first sort of KYC verification, which is very practical for people with broadband or an internet connection. For this kind of KYC, you must upload a scanned copy of the genuine Aadhar card. The maximum annual investment you can make in a mutual fund using Aadhar-based KYC is $50,000.

• Person-to-person KYC

On the other hand, offline processes are used for in-person KYC verification. You can choose to do this by going to a KYC kiosk or mutual fund institution and using your Aadhar biometrics to verify your identity. To have this verification done at your home or place of business, you can also make a call to the KYC registration agency.

What is Banking Is Consumer Due Diligence?

Customer Due Diligence, or CDD, is the term used to describe the steps the bank takes to make sure the transactions are real. This involves classifying you according to the level of risk by confirming your identity and checking the necessary documents. It also entails gathering information from reliable sources in order to comprehend the nature and intent of transactions. verifying that all such transactions are in accordance with the records you have provided.

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These 6 digital solutions will assist with KYC.

• Facial Recognition

Simply put, the user uses their smartphone or webcam to shoot a selfie. The program (provider of a digital KYC solution) confirms the person’s physical presence. Using 3D depth perception and color texture, AI-based techniques may distinguish between a photograph and a real-life face. Hence, spoofing attacks are avoided. Microexpressions are also used for verification by modern solution suppliers.

• Verification of Documents

The software examines documents using a computer or smartphone’s camera to verify them. Often, this entails confirming IDs such as passports, driver’s licenses, and other documents from official sources. Intelligent solutions check the validity of papers and make sure they haven’t been tampered with. To ensure that the document is authentic, they also examine the format. For instance, in addition to verifying the passport’s apparent format, it also examines the machine-readable zone (MRZ), which is often found at the bottom of the identity page.

• Verification of Address

An essential aspect of confirming the customer’s identity is the actual address. It serves as a powerful deterrent to identity theft. Digital KYC solutions confirm that a document is legitimate and that the address listed on it is not a forgery or tampering by “reading” government-issued documents like ID cards. The finest services provide hybrid solutions; first, a computer verifies the document, and then a qualified individual makes sure the verification was done correctly.

• Authentication using two factors

The two-factor authentication uses both the phone and the internet. A code is given to the user’s phone when they merely enter their phone number into the app or software. The user is then asked to authenticate by entering that code into the web interface.

• Screening for anti-money laundering (AML)

Before engaging in any type of commerce with a consumer, banks are required to do more than just “get to know their customers.” To make sure they are not on the anti-money laundering watch list, they must screen them. As a digital option, this service is also accessible to banks. The best available solutions regularly update their databases so that when they screen, the most recent information is cross-checked.

• Understanding Clients with Custom Documents

Handwritten notes and unique papers can be interpreted by intelligent digital systems. Optical character recognition, which is supported by AI and machine learning, is used to do this. Digital KYC verification serves as a catalyst for thorough due diligence. Despite the many advantages, technology-based solutions alone are insufficient. For banks, the integration must be commercially viable. Whether it is digital or manual, KYC must adhere to the rules. Most banks spend a lot of money on compliance, but they still fall short on a number of fronts. Third-party services are a viable and cost-effective choice; they meet compliance requirements and give customers quick access to banks.

Is identity verification necessary?

Fake personation is when someone pretends to be someone else in order to get something from them or hurt them. There are numerous ways to mimic someone. It can be as simple as creating a screen name that is similar to the victim’s name and posting offensive or hurtful comments while posing as the victim, editing another person’s online profile to include offensive or inappropriate content, such as sexual or racist remarks, or assuming the victim’s identity in chat rooms or on social media. According to municipal or federal law, it is forbidden to impersonate someone or exploit their identity for another person. The Identity Theft and Assumption Deterrence Act was passed by Congress in 1998. According to the United States Department of Justice, this new offense of impersonation or identity theft, in the majority of cases, involves “knowingly transferring or using, without lawful authority, a means of identification of another person with the intent to commit or to aid or abet, any unlawful activity that constitutes a violation of Federal law, or that constitutes a felony under any applicable State or local law.” Identity theft occurs more frequently every day. According to the Federal Trade Commission’s (FTC) estimates, there were approximately 1.4 million cases of fraud in 2018, and in 25% of those cases, victims suffered financial losses. According to reports, the loss was around $1.48 billion.

Verification of Documents’ Importance in Preventing Fraud

Financial regulatory organizations including FATF, FinMA, FINTRAC, and others have established KYC and AML compliances that businesses are urged to follow in order to reduce the likelihood of crimes occurring. These rules direct firms on how to vet their clients thoroughly. This is mostly accomplished by thoroughly examining clients’ supporting documentation to confirm their identity and reduce the likelihood of fraud and scams. Banks, financial institutions, governments, and embassies primarily conducted this KYC (Know Your Customer) procedure in person.

But, with the help of identity verification systems powered by artificial intelligence, the process is now easily completed thanks to technological innovation. The bank or business representative may now verify that you are who you say you are and that your identity has not been stolen as you conduct business using your computer and mobile device.

How are documents scanned by the digital document authentication system?

The websites or applications of tech startups incorporate AI-based software. The software requires clients to take and upload a real-time photo of their identity documents when they attempt to sign up for the site on their own.

Using OCR technology, the logical decision the document and extracts the pertinent data from it. The consumer is given the results of the verification once the software has briefly processed the data. The customer is given access to the platform if the information they provided was accurate, and the opposite is also true. Only government-issued documents, such as passports, driver’s licenses, identity cards with biometrics, and bank-issued debit and credit cards, are subject to verification. Documents that are fraudulent or phoney are instantly rejected by the software. Fraudsters and other bad actors frequently employ the following phoney document types:

• Documents that are not legitimate: These documents are 100 percent bogus. These include traits that are crucial components of a genuine version of that document, such as missing holograms or other predetermined criteria.

• Fake documents: The fraudster is looking to demonstrate his identity by using a document that actually belongs to someone else.

• Changed documents: These are documents that have been cleverly changed. The typeface and writing style are changed at this point by scammers in order to influence the system.

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Do digital document verification methods possibly work?

The software is capable of accurately discriminating between many types of phoney, fraudulent, and counterfeit papers. 98.67% accuracy is substantially higher than the previous manual document verification method thanks to digital document verification. Customers may quickly verify themselves in the convenience of their homes and workplaces, saving time and resources.

The software has the ability to validate 3000 different document kinds from around the globe. This makes it possible for it to verify consumers who have foreign documents from any location in the world. AI-powered identity verification systems are widely used by modern banks, financial institutions, e-commerce sites, airports, and other organizations to stop fraud and scams. This technology not only enables companies to comply with the financial regulatory authorities but also assists them in authenticating customers.

Conclusion

The above-presented slice is indeed a detailed form of discussion and impeccable analysis of KYC in the banking domain. Often, new technologies are lauded as the death of existing ones. This has been undoubtedly true in some areas. In the same way banking has been hanged to death and digital banking has been given birth as a boon for the banking domain with the help of technology which is no less than a virtual god to this domain.