KYC, or Know Your Customer, is the process of verifying a customer’s identity and gathering information about them.
As the world becomes more digitized, online scammers are mastering their skills and cyber criminals are using more sophisticated methods to access sensitive data. Given this, KYC is quickly becoming an essential part of doing business. Not only does it help to verify customer identity, but it also monitors transactions for suspicious activity, fights money laundering, and counters the financing of terrorism.
In this article, we’ll take a look at the latest trends and technologies in Know Your Customer software development. We’ll also discuss how you can prepare for these changes and stay ahead of the curve in 2023 and beyond.
KYC as a part of AML and ID verification solutions
The notions of KYC, AML, and ID verification are often used interchangeably. Yet, even though these concepts are similar, they are not the same.
Most people would be aware of the process involved in opening a bank account which requires you to provide identity documents that confirm you are who you say you are.
This is what KYC is about. Its main goal is to collect information about the customer and get to know them for further identification.
KYC solutions for banks and other financial institutions automate the process of collecting information about the client. They allow customers to upload documents in electronic format and enable organizations to extract data using specially developed KYC protocols and data processing tools.
ID verification aims to compare the identity a person claims to possess with data that proves it. For example, when you buy from an online store, the bank asks you to confirm the purchase in a mobile banking application. In order to do this, you need to enter a unique password or log in using biometrics. Thus, you verify your identity and give the bank approval to conduct a transaction.
ID verification tools are used not only in banking, but also in such fields as insurance, healthcare, e-commerce, education, communication, and more. With the help of ID check software enterprises reduce fraudulent transactions, build more trustful relations with customers, and personalize marketing campaigns.
AML (anti-money laundering) is the procedure of detecting and preventing suspicious transactions. For example, if your daily spending hasn’t ever exceeded $50 and you’re trying to make a multi-thousand-dollar purchase, a bank will not authorize the transaction until they are convinced of your identity.
AML software solutions are increasingly used by financial organizations to analyze spending habits and purchasing patterns of customers, as well as model their financial behavior. AML tools implementation is an important part of a company’s BPA (business processes automation) process. It allows you to rationally distribute the load between human operators and machine algorithms and receive timely warnings about any attempted fraud.
Most popular KYC features and services so far
You need to be aware of the most popular KYC services and features if you’re planning to develop KYC software.
Biometric verification. It uses unique physical characteristics to identify individuals. This could be anything from fingerprints to DNA profiling. Device sensors read the unique data of a person and eliminate the possibility of access by third parties to user bank accounts.
Online document check. This allows organizations to verify the identity of an individual by comparing their details against data held on a third-party database. For example, when a user uploads a photo of a passport or tax ID, the system can check if their name, age, date of birth, etc. matches the person in the registration account of a certain region.
Document owner verification. Even if a user has uploaded legal documents to the system, you cannot be sure that those documents belong to them. Using computer vision technology in your ID verification software, you can match a selfie taken with a phone camera with a photo in a document and verify the user’s identity.
Social network scanning. Social media have long evolved from an entertainment tool to a valuable source of information about a person. Your KYC software can connect to different social platforms and analyze users’ comments, reposts, and interests. If you identify alarming activities, you can refuse them further cooperation.
AI-powered AML verified by a human. You can significantly reduce your costs by trusting artificial intelligence to analyze suspicious transactions. However, some human participation is advisable in order to minimize false positives and customer dissatisfaction. It’s advisable to let AML scanners do the initial analysis but leave the human managers to make the final decision to classify a case as being fraudulent.
Electronic digital signature (EDS). Such a signature is created by the cryptographic transformation of electronic data. It is set using a private key and verified using a public key. EDS confirms customer data integrity, identifies the signatory, and gives all the documents legal force. Using EDS, you can significantly simplify the document flow within your organization and speed up transactions with external parties.
Industry-leading analytics. KYC tools should not only protect you from scammers but also provide a report on the work done. Deep analytics, which shows the number of detected criminals, prevented cases of theft, unrecognized fraudulent transactions, and false positives, helps evaluate business and software effectiveness. Thus, using KYC reporting tools, you can detect weak points in your business processes and focus your efforts on eliminating them.
Benefits of custom KYC software development
When it comes to KYC software, you can choose a pre-built tool, or develop a custom solution tailored to your specific needs. Both options have their benefits, but custom software development is the clear winner for companies that value time, money, and aim for business growth.
Here are the main benefits from developing custom KYC software:
1. You’ll get a solution fully adapted to your business processes.
2. You’ll have full control over your data.
3. You’ll be able to scale up quickly and easily.
4. You’ll be able to quickly respond to customer needs.
5. You’ll not have to depend on a third party.
6. You’ll have the right of ownership to your software.
7. You can sell your software to other businesses and generate revenue.
The future of KYC
There’s no doubt that KYC software development is going to change greatly in the next few years. Companies will adopt advanced technologies and methods to secure their businesses and make customer interactions more personalized.
Here are some of the trends and technologies to keep an eye on:
Artificial intelligence. KYC software will soon be able to automate many of the manual tasks currently done by humans. Not only will AI undertake repetitive simple duties but it will be able to make more informed decisions in non-standard situations. The main advantages of AI over humans are anti-bias assessment, 24/7 work, and stable productivity. Given that humans make up to 50 errors per working shift, AI could soon become a worthy replacement as it constantly develops and evolves.
Blockchain. KYC powered by blockchain will significantly reduce data processing time. After a financial institution enters the customer’s data into the distributed ledger, other institutions can easily reach this information and, thus, reduce the customer’s waiting time. Note: data access can only be carried out by a third party with the consent of the client.
Cloud computing. The cloud is already making a big impact on KYC and AML scanner development. In upcoming years, it’s only going to get bigger. Cloud-based solutions are more secure, scalable, and cost-effective than traditional software, so expect to see more companies move their KYC and AML transaction monitoring to the cloud.
How do I get started?
If you want to automate KYC with the help of software technologies here are the steps to follow:
- Understand the customer data you need to collect
- Study the legal framework that regulates data access in the target region
- Define KYC processes you want to automate
- Outline KYC software features
- Discuss the technical part with KYC developers
- Agree on project cost and deadlines
- Develop and launch KYC software
If you need help with ID verification development, feel free to get in touch with our team. All you need to do is fill out our quick and easy online form. Once you’ve submitted your information, one of our managers will be in touch to schedule a consultation.
We’ll go over your company’s requirements and map out a plan that best suits your needs. We want to make sure that our KYC solution is a perfect fit for your business, so we take the time to get to know you and your company inside and out.
1. What is KYC?
KYC is a process that verifies the identity of customers and collects information about them. It helps businesses ensure that they’re complying with anti-money laundering (AML) and counter terrorist financing (CTF) regulations.
2. Why do I need to go through KYC?
KYC is required by law in many countries. By going through the process, you’re helping your business stay compliant with regulations and protect itself from potential fraud.
3. What information do you collect during KYC?
The type of information collected will vary depending on the country and the specific regulations that apply. However, some of the most common types of information include:
- Date of birth
- Phone number
- Email address