The Importance of Adopting Automated KYC
February 17, 2022
More than 82% of Americans are using digital payments. Unsurprisingly, rapid digital growth has resulted in consumers having higher expectations and less patience—they expect a streamlined and fast onboarding experience that doesn’t compromise the security of their PII. But that’s not enough. In addition to balancing customer experience and data privacy, companies must also have the proper measures in place to prevent fraud while still complying with Anti-Money Laundering (AML) regulations, including Know Your Customer (KYC).
What is KYC?
KYC may feel like a buzzword, but it is in fact a crucial component of identity proofing, particularly when it comes to evaluating the risk a customer poses and to preventing financial crime. It is also essential for maintaining regulatory compliance. Know Your Customer is the process of evaluating the risk a customer poses by verifying a customer’s identity and monitoring their behavior during onboarding and throughout the customer life cycle. This includes customer due diligence on all clients during onboarding, enhanced due diligence for evaluating higher-risk individuals and ongoing monitoring of a client’s risk profile to detect any suspicious changes in behavior that could indicate fraud or illicit activity.
The Disadvantage of Manual Review
Manual review is when a company’s (human) analysts manually review cases to detect fraudulent behavior and evaluate the risk of doing business with a specific individual. While this is often necessary for high-risk or more complex cases, applying this approach to all customers is a misuse of resources. As well as adding a strain on the business by requiring company resources—including but not limited to extra employee time and training and thus, increased operational costs—a manual review of every customer negatively impacts the customer experience of good users by adding excess friction to the onboarding process. Applying the same verification approach or using manual review for all customers is not effective.
Automated KYC Verification
Automated end-to-end KYC is imperative for businesses that want to stay competitive. In contrast to the inefficiency of depending solely on manual review, an automated KYC solution is key for implementing an effective risk-based approach for identifying and validating the digital identity behind a transaction, for both new and existing customers. A risk-based approach will evaluate a customer’s risk profile and determine whether additional checks are needed to further verify high-risk users or use cases.
By helping evaluate risk, an automated KYC solution that utilizes a risk-based approach throughout the customer journey can help compliance teams react accordingly to the high-risk cases without that carrying over to trustworthy new or repeat customers.
Learn more about how to choose the right platform: A Guide to Automating Your KYC.