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In today’s fast-paced digital landscape, the importance of efficient, accurate, and real-time customer onboarding cannot be overstated. One crucial aspect of this process is Know Your Customer (KYC), a standard due diligence procedure that regulated entities must use to verify the identity of their customers.
As the demand for seamless digital experiences grows, KYC automation is emerging as a pivotal solution to streamline customer onboarding processes.
A brief overview of KYC and customer onboarding
Know Your Customer (KYC) is a regulatory requirement that mandates businesses, especially those in financial services, to verify the identity of their clients at the point of account opening.
The process assists fraud prevention efforts, Anti-Money Laundering (AML), and prevention of financial crime by ensuring that businesses truly know who its customers are.
Customer onboarding, on the other hand, refers to the entire process of forming a relationship with new customers. This includes gathering the necessary information, verifying it, and setting up a customer’s account.
Traditionally, KYC and customer onboarding have been manual processes involving physical document verification, extensive paperwork, and a significant amount of human interaction.
Whilst a manual approach to verification works for a small minority of businesses, it is time-consuming when dealing with a significant number of customers, prone to errors, and more susceptible to a poor customer experience.
Challenges of manual KYC onboarding processes
Manual KYC onboarding presents several challenges that can hinder the efficiency and customer experience of the onboarding process:
- Time-consuming: Manual verification of documents and data entry can take several days or even weeks, delaying the onboarding process and frustrating customers.
- High costs: The need for dedicated staff to handle KYC checks and the associated admin works increases operational costs.
- Human error: Manual data entry can be susceptible to mistakes, leading to potential compliance issues and inaccurate customer information.
- Poor customer experience: Lengthy and cumbersome onboarding processes can frustrate customers, leading to dissatisfaction and potential loss of business.
- Scalability issues: As a business grows, the volume of KYC checks increases, making it more challenging to scale operations and keep on top of compliance without automation.
What is automated KYC?
Automated KYC involves the use of technology and software to enhance the onboarding process. By leveraging these tools, businesses can automate various steps of KYC, from data collection to document verification and data extraction. Some of the main technologies used in automated KYC include:
This typically involves an API integration at onboarding and matches the data inputted by the customer on the onboarding form to data sources such as Credit Reference Agencies, Electoral information, and telco.
Biometric verification
Biometric technology such as facial recognition and fingerprint scanning enhance security by ensuring that the person submitting the documents is the actual individual attempting to onboard.
Optimate Character Recognition (OCR)
OCR technology extracts information from scanned documents and images, converting it into machine readable text and verifying the document itself is legitimate.
Artificial Intelligence (AI) and Machine Learning (ML)
Emerging as a new method to perform automated KYC, AI and ML can be powerful as both can create algorithms to analyse and verify data, identifying patterns and anomalies that may indicate fraudulent activity.
How automated KYC works
The reason why automated KYC has emerged as a more popular choice of customer verification in the last decade is because it works the same as traditional manual verification, but more efficiently and in real-time. A typical onboarding process includes:
- Data collection: Gathering customer information (including name, address, date of birth, and Government issued ID documents) through digital forms and document uploads.
- Identity verification: Once the personally identifiable information is entered by the customer, an API integration will send the information to match against data sources and find a match.
- Compliance checks: If a successful KYC is found, the customer can then move onto the account opening process. If a match is found against a PEP, sanctions, or adverse media list, or if a KYC match is not found, the compliance team can be notified to perform manual intervention and investigate further.
- Approval and onboarding: If a match successful match for KYC is found in step 3, the customer can be automatically approved and onboarded. If the compliance team must perform a manual intervention, the customer will be notified that either their application has been approved or rejected dependent on the result of the investigation.
If a business is using manual KYC, all the onboarding steps will take longer and require more human input, whereas automated KYC ensures that legitimate customers can complete onboarding seamlessly and reduce the amount of time spent on each verification.
How KYC automation helps business
KYC automation address the challenges presented by manual verification in several ways:
Speed and efficiency
Automated processes significantly reduce the time required for KYC checks, enabling faster customer onboarding.
Cost reduction
Automation lowers operational costs by minimising the need for manual intervention and reducing errors that can lead to costly compliance issues including fines and suspensions.
Accuracy and compliance
Automated systems are less prone to human error as it reduces workload, ensuring more accurate data collection and better compliance with regulatory requirements.
Enhanced customer experience
A streamlined and real-time onboarding process improves customer satisfaction and reduces drop-off rates within the onboarding journey.
Scalability
For businesses looking to grow their customer base, automated KYC can easily scale to handle increasing volumes of KYC checks.
Are there any challenges with automated KYC?
Whilst KYC offers numerous benefits including improved efficiency, cost reduction, and scalability, businesses should be wary of several factors before deciding on changing their process.
Initial investment: Implementing automated KYC software can involve significant investment. It is critical that businesses find a supplier with a favourable pricing model without sacrificing quality.
Integration headaches: Some automated KYC solutions will require complex and time-consuming integrations or won’t be able to work with existing systems. Its vital that during the consideration of a new platform, businesses understand the integration process and how new systems can work seamlessly with other internal systems.
Data privacy: Outsourcing KYC to achieve automation likely means that businesses will be storing customer data in an external platform. Therefore, understand the security measures and data privacy of the external provider should be carefully considered to ensure compliance.
How to transition to automation KYC
Transitional to automated KYC requires careful planning and execution. FullCircl has created the ultimate Buyer’s Guide to IDV & KYC software to help businesses navigate the market. Here’s a step-by-step 4 stage framework to follow:
- Review the current state of play: Are you using any KYC tools currently? Or are you using too many?
- The research phase: Not all KYC platforms are built equally. There are many distinct types of vendors out there, each with different solutions, coverage, experience, and costs. It’s vital to do your research.
- The approach: It’s time to put each vendor through their paces. Understand first-hand experience of the KYC capabilities, features, dashboard, and of course the verification process itself.
- Decision time: You should now have all the information you need to make an informed choice and be confident you have selected the KYC partner or solutions best places to fulfil your current and future needs.
Want to learn more about the KYC buying process? Download our ultimate guide here.
How FullCircl can help
FullCircl’s automated identity verification platform includes automated KYC in 160+ countries, a full suite of AML checks including PEPs, sanctions, adverse media, and watchlists, fraud prevention tools, and more.
FullCircl is trusted by 500+ clients to support compliant growth, efficient customer onboarding, and innovative use of technology. Interested in learning more? Book a demo here.
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