Fintech

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4 min read

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June 16, 2022

How Does KYC Optimise The Banking Process: KYC Requirements & Process

Want to learn about KYC in banking? KYC involves ID card, document, face & biometric verification. Click here to understand KYC process in banks, KYC requirements & more!

Introduction

Many types of banks provide various financial services, ranging from safe deposit boxes and currency exchange to retirement and wealth management, depending on the type.

Banks must verify that users are really who they claim to be, and KYC helps with these identifications and verifications. Read on to know more about KYC and its integration with the banking process.

Challenges in the Banking Sector

Of course, managing a bank is not an easy task. It takes a lot! There are several difficulties a bank faces to function smoothly. The major ones are keeping up with the competitors and gaining trust from its customers. In addition, the banking industry is undergoing a radical transformation, fueled by new FinTech competition, changing business models, mounting regulatory and compliance pressures, and disruptive technologies.

The rise of FinTech/non-bank startups is altering the competitive landscape in financial services, forcing traditional institutions to reconsider their business practices. In addition, as data breaches become more common and privacy concerns grow, regulatory and compliance requirements become more stringent.

And, as if that wasn't enough, customer expectations are changing as customers seek personalized service around the clock. The same technology that has caused the disruption can address these and other banking industry challenges. Still, the transition from legacy systems to innovative solutions has not always been easy. Banks and credit unions must embrace digital transformation if they are to not only survive but thrive in the current environment.

What is KYC in the Banking System?

People may be wondering, "What Is KYC?". The expanded form of KYC is Know Your Customer. It can also refer to Know Your Client. It is the process of validating and identifying a client's identification that is necessary when creating a new account and frequently afterward. Banks must verify that the users are really who they claim to be.

Suppose a customer fails to fulfil the minimal KYC criteria. In that case, banks have the authority to refuse to create an account or terminate a commercial connection with them, according to the law.

Evolution of Know Your Customer 

Know Your Customer is a technique used to identify and verify a customer's identity, as we have previously covered in earlier blog articles. The procedure comprises a series of tests that are carried out during the initial stage of the client's connection to verify that he is who he claims to be, considering his identification papers and personality, among other things. This process impacts the Anti-Money Laundering (AML) rules, terrorist financing restrictions, electronic identification standards, trust services regulations, and other regulations.

What is the Significance of the Know Your Customer (KYC) process?

Banks' Know Your Customer (KYC) protocols contain all measures necessary to guarantee that their clients are legitimate and to evaluate and monitor risks. This kind of client onboarding approach aids in detecting and preventing terrorist funding, laundering, and other forms of illicit monetary activities. The KYC process includes face verification, ID card verification, biometric verification, and document verification.

To reduce fraud, banks must adhere to KYC and anti-money laundering regulations. The banks are responsible for KYC compliance. In the event of noncompliance, harsh penalties may be imposed. Over the last ten years (2008–2018), fines totaling USD 26 billion have been levied in Europe, the United States, and the Asia Pacific for noncompliance with KYC, AML, and sanctions fines – not to mention the damage that has gone unmeasured.

Know Your Customer Documents 

When doing KYC checks, it is essential to use documents, data, and independent and trustworthy information. Therefore, each customer is asked to present identification and residency documentation to establish their identity and residence.

The Financial Crimes Enforcement Network (FinCEN) of the United States imposed a new requirement for banks to verify the identities of natural people who own, control, and benefit from legal entity clients when such organisations open accounts in May of this year.

KYC requirements for opening a Bank Account

Documents required for completing KYC for opening a bank account include a document for proof of identity/ address which might include a Passport, Aadhar card, PAN card, NREGA card, Voter’s ID card or a Driving Licence.

For persons living overseas, a duly attested copy of a Passport or a work/residence visa permit is acceptable proof.

Additionally, customers might also be required to submit passport-size photographs for opening a bank account. 

The steps of KYC for opening a bank account require verification of all these documents along with face verification and biometric verification. Compliance with these requirements is essential for banks to prevent any risks of money laundering and other financial frauds.

Optimizing and Automating the KYC process for banks

Innovations in technology can help automate this KYC process from being long and cumbersome to being quick and easy for both customers as well as bank officials. Manually reviewing, verifying and uploading each and every document for several clients is very time-consuming.

Online identity verification helps save time and effort and accurately performs the task of verifying the documents of a customer. It can be completed by uploading digital documents and filling out online forms as well as video KYC where user identity verification is completed using video calling features. AI and machine learning technologies help banks in enhancing the customer onboarding process. It reduces cost, minimizes errors bound to happen by manual data entry and also increases overall efficiency.

What is eKYC?

eKYC means electronic KYC. Online identity verification includes the capture of data from identity cards, extraction of data from smart Identity documents issued by the government, as well as the usage of verified digital IDs and face recognition over the internet. This remote, paperless "knowing your customer" process reduces the expenses and conventional complexity associated with KYC verification procedures. STR eKYC means Suspicious Transaction Reporting. CKYC means Central KYC (Know Your Customer)  

Customers and banks were encouraged to depend more heavily on digital channels and applications due to COVID-19. In the United States alone, 64% of central checking account openings were completed online in the second quarter of this year, according to the Federal Reserve (and 36% in branches). This isn't likely to change anytime soon. In a recent BAI and Visa study, the researchers predicted that the pattern would persist beyond the epidemic.

The banking sector may boost their conversion rate up to 80 percent with the eID solutions and provide customers with a pleasant and comfortable experience since their identities are instantly identified and verified. eKYC procedures also raise customer satisfaction by ensuring that customers utilise this service from the first point of interaction.

Furthermore, rising mobile use encourages organisations to adopt a mobile-first approach and design mobile-friendly onboarding experiences.

Conclusion

Financial institutions may invest in digital onboarding, including video KYC (video identification), by deploying biometrics via online and mobile channels to keep current consumer preferences. When a company creates a new account, it must supply the Social Security numbers of all of its workers, board members, and shareholders, as well as photocopies of their identification cards and passports. 

The HyperVerge Fintech Platform offers excellent versions of Digital KYC+, Dedupe Fraud Check, Data Verification, Credit Scoring, and Contract Verification processes. Contact HyperVerge to know more!

FAQs

What is the objective of KYC in the banking industry?
Know Your Customer is the practice of authenticating a customer's identification. KYC requirements keep banks from being utilised for money laundering by criminal groups.
Why is it important to "Know Your Customer"?
As one of the most critical components in preventing financial crimes, KYC actively influences the legislation's reach. By assessing and monitoring the risks, Know Your Customer (KYC) processes intend to assist in preventing and detecting unlawful actions like financing terrorism or money laundering.
Is KYC a legal requirement?
KYC is necessary for identifying client risk or whether the consumer is qualified to utilise the institution's services. It is also a legal requirement to follow Anti-Money Laundering (AML) regulations.
How do banks carry out AML checks?
AML transaction monitoring software enables financial institutions such as banks to monitor transactions on a regular or real-time basis.
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