2020, the year of the pandemic, gave a jump start to a new phase of innovation. Entering the new year, businesses are increasingly shifting towards digital platforms to stay afloat in the highly competitive market. One trend that became apparent was an increase in the number of partnerships between financial institutions and fintechs. Fintechs have long conformed to regulatory obligations, by incorporating Know Your Customer (KYC) and Anti-money Laundering (AML) procedures into their daily processes.
What is Meant by AML/KYC Compliance?
AML/KYC compliance refers to a set of legal obligations that enable the verification of a customer’s true identity. To accurately verify customers and the risk involved in onboarding them, KYC /AMLcompliance takes into account official ID documents, such as a government-issued ID card, passport or driver’s license, against which the identity is authenticated. This process not only helps mitigate financial fraud, but also assists fintechs to stay compliant with global and national regulations.
The Current Situation of KYC for Fintech
Fintechs have become more advanced thanks to the advent of new technologies. Potential cyber crimes can, therefore, be prevented by using automated software powered by artificial intelligence. In 2020, global fintech investments reached a staggering value of USD 44 billion, which laid down the foundation of improved financial systems in the years to come.
In order to abide by global KYC standards, financial institutions such as banks, insurance companies and fintechs have been utilizing these investments and abandoning conventional methods of identity verification to switch towards automated solutions. This allows KYC verification to be performed in real-time through online platforms, to remotely mitigate frauds such as money laundering.
AI-powered Verification Solutions
Banks and fintechs are moving towards automated solutions backed up by artificial intelligence to accelerate the process of customer onboarding. These solutions allow fintechs to monitor suspicious individuals and their transactions, to effortlessly carry out digital KYC. In today’s era of Covid-19, such institutions are banking on advanced verification solutions to maximize their profits and weed out fraudsters.
Here’s how fintechs can verify their customer base in three simple steps:
1. Data Collection
In the first step, the customer is requested to provide their PII (Personally Identifiable Information) to register for an account. This includes their full name, DoB, residential or business address, driver’s license, social security number, passport number, credit/debit card details, etc.
2. ID Document Collection
The second step involves official document collection for customer authentication. The customer is asked to upload a clear and scanned image of their identity documents, such as their government-issued ID cards, passport, debit or credit card, utility bill, driver’s license, etc. The software leverages OCR technology to automatically extract necessary data from the ID documents.
3. Customer Verification
In the final step, the data extracted from the documents by the OCR is cross-matched against the details provided by the customer in the first step. Once the customer is verified, the results are displayed on the screen to the customer and stored in the back office. In case a customer has uploaded fake or modified documents, or provided false personal details, the software can detect it within minutes and alert the company employees.
Apart from using ID document verification, numerous fintechs today are also utilizing biometric technology to streamline their processes and make their systems more secure without compromising AML and KYC compliance.
Biometric Security
An identity verification software that enables customers to be verified based on unique biological characteristics is known as a biometric identity verification system. These AI and ML powered systems use distinct identifiers that are impossible to forge, making it difficult for fraudsters to infiltrate a platform. Commonly used identifiers include fingerprints, facial features, palm and hand geometry, retina or iris, earlobe geometry, speech patterns and DNA samples. With the help of biometric solutions for KYC/AML screening, fintechs are able to prevent fraudsters from committing identity theft, credit card frauds and money laundering.
Key Takeaways
- Fintechs have long conformed to regulatory obligations, by incorporating Know Your Customer and Anti-money Laundering procedures into their daily processes
- Banks and fintech are moving towards automated solutions backed up by artificial intelligence to accelerate the process of customer onboarding
- Apart from using ID document verification, numerous fintech today are also utilizing biometric technology to streamline customer verification and stay compliant with AML and KYC regulations
