Financial fraud remains a pervasive global issue. To combat identity theft, money laundering, and other malicious schemes, banks, credit unions, and all companies that offer financial services must conduct accurate identification proofing. Fortunately, this can be easily achieved by building a strong Know Your Customer (KYC) process.
As you strengthen your security infrastructure, being aware of the different types of KYC methods can help your company in several areas. Apart from deterring criminals, a streamlined customer verification process will also improve your operations significantly. This can mean better, faster, and safer means of providing services to your clients.
Given that organizations have different requirements, you should also take some time to know which KYC verification method will best meet your needs.
The Advantages and Drawbacks of the Five Main KYC Methods
Following a strong KYC process helps your business establish the identity of each of your customers and understand the nature of their activities.
1. Document-based KYC
How it works: This process handles physical documents that are scanned and saved into your network to identify a client. Acceptable records can include a passport, driver’s license, tax statements, or pay stubs. If the information matches the data in your system, then the identity can be considered valid.
Advantages: This is a thorough process that requires completion before a customer is allowed full access to your services. It also protects your client’s data while keeping your system secure.
Disadvantages: Complex privacy regulations can make the initial switch complicated. Storing and maintaining physical records also requires maintenance and upkeep. If managed poorly, this could lead to operational delays and other consequences.
2. Digital KYC
How it works: Digital KYC handles the entire process online, where identity is verified in real-time using Official Valid Documents (OVD). This can include submitting a digital copy of a customer’s valid photo ID like a passport or driver’s license.
Once collected, it is cross-referenced with the information saved on your system before someone can access your services.
Advantages: This process can be more flexible since your customers can use any type of OVD to confirm their identity. It can also become more secure by integrating AI technology.
Disadvantages: Digital systems need to be maintained carefully to lower the risks of breaches. These systems can also be costly during its initial implementation, making integration difficult for those looking to cut costs.
3. Video KYC
How it works: Video KYC systems, such as the Video-based Customer Identification Process (VCIP) or the Video-based Identification Process (VBIP), work by relying on the video-audio features of AI technology. This process involves an auditor and an agent that helps authenticate your customer’s identity through facial matches and geotags.
Advantages: Users can access their accounts regardless of their location without any compromise on their security. Additionally, remote verification will also speed up your processes by allowing you to onboard and authenticate clients seamlessly.
Disadvantages: Video KYC technology requires a knowledgeable staff familiar with the tools involved. This can imply establishing training programs to ensure the KYC verification process functions smoothly.
4. In-Person
How it works: Also known as the offline KYC, this model requires a client to make a physical appearance to confirm their identity. The financial institution can also ask for supporting documents like proof of residence, a valid photo ID, or an employment verification letter.
Advantages: This process ensures that the person holding the account is who they say they are. It also prevents other individuals from accessing the account and making anonymous transactions under a stolen identity.
Disadvantages: Unlike digital methods, this can be more time-consuming and tedious to go through. Just think of agents servicing a long line of clients at a bank.
5. Biometric KYC
How it works: The biometric method uses supporting technology to collect a customer’s biometric data to confirm their identity. This can include facial recognition, fingerprint or palm scans, and voice recognition which your system will analyze to prove eligibility for your services.
Advantages: Biometric technology gives your customers easy and convenient access to their accounts. It is also one of the best security methods since biometric data such as fingerprints are unique to each person and cannot be stolen.
Disadvantages: The biggest drawback to biometric KYC would be the cost of setting up your authentication system. But considering the convenience and security it provides, it’s evident that its pros greatly outweigh its cons. The initial price of an authentication system may be high, but in the long run, making use of biometric authentication will prove to be a worthy investment.
The Value of KYC
Many financial institutions carry out KYC systems to prevent any act of fraud or suspicious activities. Not only do they help improve the infrastructure of your security, but they can also streamline your verification processes and core operations.
If security isn’t really one of your organization’s strong points, partnering with a reliable vendor will be the best option. Q5id’s tailor-fit identity management solutions can help you better manage your network while improving the organization’s productivity. Get in touch with our team of experts to learn more.
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