In today’s global landscape, governments across the world mandate that businesses, especially financial institutions, must be intimately acquainted with their customers and their associations. The procedures for this, commonly known as Know Your Customer (KYC) or Customer Due Diligence (CDD), serve to detect and prevent money laundering and other financial crimes.
The term “eKYC” or electronic Know Your Customer has emerged from the need for heightened controls in sectors that necessitate stringent identity verification. While eKYC has gained popularity in recent years, it shares its core concepts with the well-established KYC processes practiced by professionals in various fields for a significant period.
Discover the world of eKYC, its significance, and the benefits it offers to businesses and individuals alike. Learn how the eKYC verification process operates, which countries are pioneering its implementation, and how it differs from traditional KYC methods. Additionally, we will explore what the future holds for eKYC in 2024 and how businesses are adapting to the digital age.
Electronic KYC (eKYC) verification is an automated process for validating identity and fulfilling KYC requirements. The specific method may vary based on the industry, corporate needs, and user preferences. Nevertheless, it mainly involves electronic forms, digital records, and various levels of automation. Similar to traditional KYC, eKYC is generally conducted during the initial stages of account creation and is subsequently maintained periodically.
eKYC vs. KYC
Traditional KYC processes necessitated physical presence, requiring customers to provide physical documents for verification when opening an account. In contrast, eKYC represents a digitized evolution of KYC. It involves customers filling out forms and submitting documents and other information electronically through applications or web portals. The core distinction between the two lies in the collection and verification of customer or client information.
While traditional KYC often involves offline processes such as handling and verifying physical documents, eKYC achieves the same objectives through digital technology. This change in thinking enables compliance risk assessment via eKYC without the need for in-person meetings or physical document exchange. It marks the next stage in a pivotal process that protects businesses and society from fraud, scams, terrorism, and other criminal activities.
Why eKYC is Important
As businesses increasingly expand into markets beyond their geographical borders due to the rising demand for digital products and services, scalability becomes a central goal. Scalability empowers organizations to harness their value propositions and the capabilities of digital technologies on a global scale.
adopted by most states, enables businesses to onboard users and customers in any jurisdiction, provided it is done correctly and tailored to each market’s specific requirements.
Moreover, productivity and efficiency are crucial for any organization. eKYC significantly enhances operational efficiency by utilizing error-free systems, allowing staff to focus on more critical tasks while minimizing bureaucratic overhead. Several industries are implementing eKYC, including banking, investment, insurance, fin-tech, e-commerce, healthcare, real estate, and more. Many countries around the world have empowered banking institutions to conduct KYC processes electronically.
Estonia and India are notable for being at the forefront of the eKYC revolution. Since 2001, Estonia has been leading the way with its national ID card featuring electronic functionalities. Estonian citizens utilize these e-IDs for accessing a wide range of government services and commercial activities. In contrast, India’s Aadhaar system combines a 12-digit number (similar to an SSN) with unique biometric data such as photographs, fingerprints, and iris scans, all stored in a centralized database accessible for identity verification in government-related transactions.
Other countries, including but not limited to Afghanistan, Bangladesh, Belgium, Bulgaria, Chile, Estonia, Finland, Guatemala, Germany, India, Indonesia, Israel, Italy, Latvia, Lithuania, Luxembourg, Malta, Morocco, Netherlands, Nigeria, Pakistan, Peru, Portugal, Poland, Romania, Spain, Slovakia, and Uruguay, are adopting, and implementing eKYC.
The Benefits of eKYC
eKYC offers several advantages, largely stemming from its enhanced automation capabilities when compared to traditional identity verification methods.
Benefits for Customers:
· Convenience: Individuals and businesses can complete forms and applications without the need to scan physical documents, print paperwork, visit physical branches, or wait in long lines.
· Rapid Approval Process: The automated electronic data review leads to faster account opening approvals, enhancing the customer experience.
· Enhanced Privacy: Using eKYC often involves fewer human eyes on sensitive data since much of the process is automated. This results in increased data privacy for customers.
Benefits for Businesses:
· Enhanced Processing Speed: Identity verification can occur within seconds of the customer submitting their information, significantly faster than traditional manual reviews. This expedites the process, reduces drop-offs, and increases conversion rates.
· Reduced Workload: With less reliance on manual inspection, financial institutions require fewer staff dedicated to KYC tasks. This allows resources to be reallocated to other areas.
· Scalability: eKYC systems boost corporate growth and flexibility by minimizing the need for hiring and training manual reviewers. Additionally, the availability of electronic KYC services 24/7 ensures business operations can continue beyond standard working hours.
· Reduced Human Errors: Decreasing human involvement lowers the chances of inaccuracies, resulting in smoother operations.
The Stages of eKYC
Biometric identification stands as the most reliable and efficient method for verifying identity across various industries. This process unfolds in distinct stages, including:
· User Registration
· Providing Documents
· Document Verification
· User Rejection or Acceptance
· Ongoing Monitoring
In the eKYC process:
· The user enters information into the platform.
· The system scans the ID card, and AI extracts data from documents, verifying its reliability and accuracy.
· To verify identity, the user is required to present their face and perform a specified action for live detection.
· The automated system extracts identifiable patterns from the user to confirm their identity, cross-referencing this data with the information included in their identity documents.
· Once the procedure is complete and the user is onboarded, the data is securely stored and continually monitored for the future. An optimal user experience and interface in which these steps occur are crucial. Only advanced eKYC online identity verification systems can prevent mid-process dropouts and ensure successful outcomes.
Different Signals for eKYC
eKYC offers businesses a more comprehensive understanding of their customers’ identities. Unlike traditional KYC procedures, eKYC harnesses a broader range of information and indicators. While traditional KYC relies on proactive signals such as Personally Identifiable Information (PII) supplied by the user and data from third-party sources like sanctions or watchlists, eKYC enhances this with passive signals and cognitive indicators that are challenging to detect manually by reviewing physical documents.
Active signals encompass data explicitly provided by individuals. These include:
· Social Security number (SSN) or any other identification number
· Documents and images uploaded, such as government-issued identification cards, financial records, and photos
Notably, some governments like India, Pakistan, and Estonia have introduced electronic identification forms that serve the same purpose as traditional IDs. The widespread adoption of eIDs is still evolving in some countries, including the US and the UK.
Third-party data is information collected from sources other than individuals, such as government agencies, businesses, data repositories, and authorized databases. These datasets can take various forms, including:
· Federal government watchlists
· Phone risk reports
· Lists of sanctions
· Adverse media reports
· Politically Exposed Persons (PEP) lists
· Email risk reports
Third-party data is typically gathered in the background throughout the account opening process, enriching businesses’ understanding of clients without adding significant friction to the KYC process. Moreover, many businesses routinely cross-reference client profiles with these data sources to verify the consistency of individuals’ information over time.
Passive signals, also referred to as device signals, are generated by the devices used by individuals to complete the KYC process. These signals are typically collected discreetly, without the individual’s knowledge. They encompass various data points, including:
· IP address or location information
· Software fingerprint
· Browser identifier
· VPN (Virtual Private Networks) information
Passive signals play a crucial role in eKYC as they facilitate digital verification by cross-referencing voluntarily provided information with data silently transmitted by the user’s device. For instance, if an individual claims to be in one location but their IP address suggests another, additional verification may be necessary to establish their legitimacy.
Individuals generate behavioral signals as they interact with web-based interfaces or applications. Typically, users are unaware that their actions are being monitored, analyzed, and assessed. Behavioral indicators include:
· Pauses in user interactions
· Patterns of disengagement
· Cursor clicks and keystrokes
· Use of developer tools
· Copying, cutting, and pasting operations
· Autofill usage
Behavioral signals serve various purposes, including distinguishing between genuine users and artificially intelligent bots during form submissions and detecting potential identity theft scenarios. For example, behavioral signals can help identify whether an application was completed by a real person or submitted in a suspicious manner. Consequently, behavioral signals, like passive signals, hold significant importance in the realm of eKYC.
Top 5 Predictions for eKYC in 2024
· Automation Takes Over Manual KYC Processes: Advanced technologies, including artificial intelligence and machine learning, are making significant inroads in replacing manual, time-consuming KYC procedures. Various entities, from FinTech’s to financial institutions, are beginning to adopt AI-based Customer Due Diligence (CDD) solutions. The main challenge lies in how AI or other technologies discern the authenticity of documents.
This includes checks on font size, spacing between phrases and words, identifying altered images, verifying document expiration dates, detecting photoshopped documents, identifying forged identification numbers, and even deepfake detection. Automation and related technologies are advancing rapidly, with the market projected to grow at a 20% annual rate and reach $5 billion USD by 2024.
· Ongoing eKYC Becomes Integral to AML Compliance: Not all individuals and businesses pose the same level of risk. For this reason, one-time KYC processes may not be adequate for onboarding high-risk businesses. Continuous KYC will increasingly play a crucial role in risk mitigation. High-risk customers, such as Politically Exposed Persons (PEPs), may require annual examination instead of the three- or five-year cycles sufficient for low-risk customers.
Instead of relying solely on traditional KYC, automated techniques are poised to uncover potential red flags associated with suspicious activities, such as unusually high transaction volumes, changes in firm ownership, and dealings with high-risk countries and entities. This approach empowers corporations to assess ongoing risks tied to their interactions with high-risk businesses and entities continually.
· Real-time Risk Profiling Utilizing AI and IoT: The Internet of Things (IoT) comprises an interconnected network of physical devices equipped with software and sensor technology that enables data exchange between devices. While still in its nascent stage, IoT is destined to underpin most of our digital activities in the future. The IoT market is experiencing a CAGR of 25%. When combined with advanced technologies like machine learning and artificial intelligence, IoT will usher eKYC into a new era.
Financial institutions, FinTech’s, and other businesses will harness IoT for time-efficient digital identity establishment and real-time monitoring of money-related activities. IoT will also assist businesses in risk assessment and profiling to reduce fraudulent activities.
· Additional UBO (Ultimate Beneficial Owner) Information Requirement: The Corporate Transparency Act of 2021, with its latest updates, mandates that American corporations must promptly disclose their beneficial owners. Consequently, the verification of beneficial ownership information will become essential. Unidentified Ultimate Business Owners (UBOs) remain a significant challenge in KYC processes. Inadequate information about company ownership has historically hindered efficient KYC operations.
Some countries, often considered tax havens, may require additional time to adapt to these new regulations. Nevertheless, regulatory bodies and governments will increasingly share information about beneficial ownership to strengthen KYC compliance.
· Increased Data Sharing: Enhanced data sharing with legislative and regulatory bodies will become more prevalent. Many countries have made it mandatory for businesses to furnish information about the organizations and individuals with whom they engage. This initiative aims to curb fraud and combat money laundering and terrorist financing. As AI improves eKYC verification efficiency, the onboarding process and data exchange will become significantly accelerated.
How Companies Can Implement eKYC
When transitioning from traditional KYC to eKYC, companies must carefully select the technologies that align with their specific requirements while considering aspects such as information security, regulatory compliance, user onboarding ease, and budget constraints. When seeking an optimal eKYC solution, businesses should look for options that:
· Integrate seamlessly with existing systems
· Minimize customer interaction friction and avoid unnecessary delays
· Meet or exceed relevant regulatory standards
· Provide real-time checks against reputable data sources
· Evolve and adapt to the evolving fraud-detection landscape using advanced technologies like AI and ML (Machine Learning)
· Demonstrate their value through certification from organizations like the International Organization for Standardization (ISO) 27001
Some eKYC solution providers go beyond artificial intelligence by incorporating human validation. All data verified by their AI systems undergoes revalidation by human experts, enhancing verification accuracy and reducing the likelihood of errors.
Why Choose FACEKI for Digital Verification
Amid growing global pressures on authorities and governments to strengthen anti-money laundering regulations and combat financial crimes, FACEKI offers valuable assistance to businesses in onboarding new customers. It achieves this by understanding customer behavior, developing risk profiles, and continually monitoring eKYC processes. FACEKI provides electronic KYC solutions across more than 240 nations and regions, supporting over 150 languages. It plays a critical role in helping businesses avoid scams and comply with stringent regulations.
Here is what sets FACEKI’s eKYC solution apart:
· An API and SDK designed for easy integration with a company’s existing systems.
· No need for document uploads.
· An impressive accuracy rate of 99.77% and rapid client verification within seconds.
· Full compliance with stringent AML and KYC regulations.
· Speedy customer onboarding, reducing friction and delays.
· Real-time authentication through government databases.
· Risk profiling via advanced technology and AI.
Are you tired of manual KYC processes and interested in onboarding customers while maintaining compliance? Choose FACEKI for efficient and reliable eKYC solutions that can empower your business in the digital age.