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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!


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.

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.


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!

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