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What is KYC in banking and financial services?

Vivian Van Zy | Director, Product Line , FIS

June 20, 2022

From merchants to banks to brokerage firms, organizations tasked with verifying their customers face a siloed risk review process that is costly and inefficient. Know Your Customer (KYC) verification requirements vary across industries and regions, making the task of onboarding legitimate customers challenging for even the savviest businesses.

Fortunately, digital technologies and advanced data solutions are available to help organizations more efficiently onboard legitimate customers, reduce fraud and realize their revenue and growth goals.

KYC verification processes

The process of confirming the identity of a customer is important for all types of business decisions, from assessing customer risk to preventing illegal activity. Complex government and industry regulations, increased digitization in the marketplace and the prevalence of financial crimes worldwide are all factors driving a more rigorous KYC process.

What is KYC in banking and financial services? Some of the most common KYC verification processes include:

  • Identity verification. Real-time, real-world verification and correlation analysis across national databases and government data sources.
  • Document verification. Validation or authentication of driver’s licenses, passports and other government-issued IDs to rule out deep fakes with selfie comparisons and provide proof of life.
  • Watchlist screening. Checks against local and global sanctions, OFAC and politically exposed persons list.
  • Fraud screening. Identification of suspicious activity and risky behavior patterns, using scorecards and allowing for user-defined business rules to uncover the many forms and variations of identity-related fraud.
  • Device and behavior profiling. Gathering device-type, porting and SIM card information and performing device fingerprinting by combining attributes such as GPS location, VPN and IP address to identity uniqueness of a device, improve online and mobile fraud protection and minimize friction with behavioral biometrics.
  • Multi-factor authentication. Using one-time passcode or knowledge-based authentication questions to enhance the KYC process.

Why KYC compliance is challenging

Traditional KYC processes are complex, time consuming and expensive if not conducted properly. Government and regulatory requirements vary by country and region, making it challenging for organizations operating on a global level. In 2020, financial institutions incurred $10B in fines for non-compliance with KYC and AML regulations.

The proliferation of vendors and specialized solutions causes additional problems. Organizations must implement various solutions without sufficient IT resources and then wrangle disparate systems into a cohesive strategy, slowing speed to market. Another struggle is real-time access to consolidated KYC data. Inconsistent identity verification across various departments leads to operational silos and communication breakdowns that blur the KYC process.

Identity fraud remains a persistent challenge with losses from identity fraud totaling $16.9B in 2019. As fraudsters evolve and expand their tactics, organizations must be especially diligent in identifying, preventing and mitigating the fallout of identity fraud.

All these factors make for a cumbersome and lengthy onboarding process – and the customer experience suffers. The number of users that abandoned their onboarding applications rose 23% from 2019 to 2020, and 90% of bank customers abandon an onboarding application after one hour. Additionally, it takes an average of 24 days to onboard customers primarily due to the complexity of KYC and AML process.

The role of technology in KYC requirements

Businesses today are operating in a global, digital marketplace that requires streamlined KYC processes to be successful. Creating and executing complex workflows and automating customer onboarding decisioning in real time is critical to meeting market expectations.

KYC verification systems that employ digital technologies can help organizations realize greater operational efficiencies by replacing disparate systems with a single, unified process. Instead of dealing with multiple siloed legacy services, organizations can harness the power of Single API-driven workflows that combine data and make it accessible via one dashboard.

Additionally, solutions that utilize machine learning and AI technology help organizations in their risk and compliance efforts by coordinating data across multiple identity and fraud detection services.

Planning for the future

Amid the glut of customer identity services available today, organizations should seek out a digitally-based solution that is adaptable, easy to integrate and secure.

FIS Global KYC offers a single API so organizations can develop once and choose the specific verification modules they need to meet current KYC obligations and add on as needed. The solution utilizes facial biometric technology and irreversible tokenization to enhance security and verification accuracy. An industry leader for more than 50 years, FIS continually innovates to stay ahead of changes in KYC processes.

As you review the time and resources allocated to your KYC program, it’s advisable to discuss your needs and explore your options with an experienced and technological advanced payments partner.