KYC or Know Your Customer is one of the common terms you would come across in the domain of financial services. It is an effective instrument for verifying the identity of customers before they onboard a specific financial institution. The impact of technology has transformed the lives of people worldwide in different ways. The concept of digital KYC verification is one of the examples of using technology to transform paper-based KYC processes into quick and seamless verification tasks. You can complete your KYC verification within a few minutes through different types of digital KYC verification mechanisms. Why should you think about using digital KYC? Who should use digital KYC? What are the important steps involved in digital KYC verification? Let us find the answers to these questions in the following discussion.
Definition of Digital KYC
Before finding the steps involved in digital KYC, you must know about the process itself. KYC or Know Your Customer points to a set of protocols for verifying identity of individuals before onboarding them as customers. Digital KYC verification relies on online channels for verifying the identity of people.
What happens during a digital KYC verification process? Users would have to share their live videos or images alongside having their documents verified by company representatives. KYC verification also requires collection of customer information such as name, AADHAAR number, date of birth and address through electronic media.
Why Is KYC Important Now?
The primary objective of digital KYC revolves around ensuring safeguards against money laundering and terrorism financing. In addition, digital KYC could offer an effective solution for onboarding customers in the continuously thriving era of digital transformation.
Digital KYC verification is a core component in counter-terrorism financing and anti-money laundering initiatives. The effective detection and verification of customer identity could help in preventing such concerns.
From the perspective of business value, digital KYC can contribute to the bottom line of businesses in many ways. For example, 90% of business executives believe that manual KYC affects their ability to make better risk decisions. The average cost for completing a single KYC review is more than $2,200.
On top of it, around 52% of financial institutions worldwide take 60 to 150 days to complete one KYC review. Furthermore, over 50% of financial institutions have 1500 to 2500 full-time employees dedicated to KYC verification. Imagine how digital KYC verification could help in addressing the inefficiencies of manual verification.
Apart from improving efficiency of decision-making and offering more value, digital KYC could also promote financial inclusion. For example, customers can create a bank account or avail of loans with digital KYC within a few minutes. Customers do not have to visit a bank in person or submit physical documents to avail of financial services. As a result, digital KYC could empower economic growth by enabling financial inclusion through easier access to financial services.
Which Industries Should Adopt Digital KYC?
The financial services sector might seem like the sole candidate for digital KYC verification. However, the disruptive impact of digital transformation has created concerns regarding KYC for almost every industry. KYC verification can serve as the ideal recommendation for industries which have become the primary targets for criminal activity.
One of the notable additions among such industries would point towards the online gaming sector. Most of the users in the online gaming sector are teenagers or pre-teenagers, who are vulnerable to cybersecurity attacks. Digital KYC verification in online gaming platforms could help in keeping unauthorised individuals outside the community.
The applications of digital KYC verification could also support the online gambling industry in preventing money laundering scams. Without proper verification of identity, the online gambling sector provides a green pasture for everyone who wants to invest their unlawfully procured money.
Interestingly, the use cases of digital KYC verification in different sectors focus on ensuring some common advantages. First of all, digital KYC can facilitate seamless experiences in digital onboarding. Gradually, it can improve conversion rates, thereby expanding the customer base of an organization. Most important of all, digital KYC verification offers easier opportunities for maintaining regulatory compliance.
Is Digital KYC Really Efficient?
One of the general concerns about digital KYC sheds light on its efficiency. Will organisations experience any complications with digital KYC? How much time do you need for digital KYC? You can find the answers to these questions in the different types of digital KYC approaches. Businesses can verify the identity of customers within minutes through online KYC forms, video-based KYC or OTP-based KYC.
An online KYC form might be one of the fastest and simplest ways to complete KYC verification. Customers can use their digital signature to sign a KYC form before submitting it to the organisations. Businesses could include the facility of taking a printout of the online KYC form for physical submission. Therefore, it would introduce an additional overhead in the KYC verification process.
In the video-based KYC procedure, customers would interact with a representative of the organisation through video calls. The process involves an audio-visual interaction, and the company representative would capture the live photo, signatures, and video declaration alongside other important documents. You can find examples of video-based KYC verification in cases of customers opening new bank accounts.
The other forms of digital KYC verification include biometric-based KYC or OTP-based KYC. OTP-based KYC verification helps in opening digital wallets or bank accounts. Customers have to enter the OTP received on their registered phone number to complete the KYC verification process. In the case of biometric-based KYC verification, you must provide the AADHAAR number alongside registered biometrics such as iris scans or fingerprints.
The effectiveness of digital KYC verification in onboarding customers at a faster pace could generate long-term benefits. Businesses could improve the speed of decision-making about addition of new customers or enabling access to financial services. Digital KYC verification also provides the advantage of quick verification of identities, which leaves little room for fraud.
Therefore, digital KYC has become a necessity not only for organisations in the financial services sector but also for online gaming and online gambling services. Ultimately, digital KYC aims to offer faster KYC verification with accuracy alongside maintaining regulatory compliance. Learn more about digital KYC and the important components and processes involved in the verification of customer identities right now.