KYC verification plays a pivotal role in ensuring user compliance within businesses and promoting reliability and integrity. It operates as a crucial step in the onboarding process by actively confirming the identities of customers or clients of the industries. By verifying identities through KYC procedures, businesses uphold regulatory standards and mitigate risks associated with financial crimes such as money laundering and identity fraud. This proactive approach not only strengthens trust with stakeholders but also creates a secure and transparent business environment.
Let’s dive into the working phenomenon of KYC verification and how users can combat identity theft crimes using advanced technologies of enhanced due diligence (EDD) and customer due diligence (CDD).
Industry of e-KYC Verification in Indonesia by 2022
In 2022, about 34.61 million new bank accounts were made in Indonesia. Banks were the largest group with verified accounts through electronic verification (e-KYC) in the country. According to the survey, the total value of verified accounts from banks that year was more than 1.3 million U.S. dollars.
Understand the Working Mechanism of KYC Verification to Ensure Integrity
Online KYC verification has a process similar to traditional KYC, which can be seen in banks. The following steps are involved in KYC document verification.
Accumulation of User Data
In the first step of know your customer procedure, it is required to collect the necessary credentials, including personal information from the digital user. It usually happens in the early phases of account registration, where personal data is required for the sign-up process.
Requirement of Document Submission
The user is asked to submit the identity documents for evidence of proof. This step incorporates facial, address, and document verification to span across a wide array of document types. It is executed to check the legitimacy of the information entered by the user.
Authentication of the Provided Credentials
When the user uploads a document as proof, the official document checker identifies and examines the template against established standards of KYC compliance. KYC authentication software can identify tampering and use Photoshop to mark illegitimate documents. After confirming the validity of the document, the credentials are extracted through advanced technology called optical character recognition (OCR), and it is usually done in two major steps, which are as follows:
- Credential Extraction via OCR
Information is extracted through the OCR system automatically from the identity documents and checks the validity of the credentials.
- Credential Extraction without OCR
It is usually done by manually entering the information and the IDV solution confirms the entered credentials with an identity document.
Customer Identification Program
After reviewing the authentication of the provided credentials, the customer identification program is introduced for further validation. The requirement of CIP is to ensure the verified financial transactions executed by the customers. It is essential to combat money laundering, terrorist financing, and related crimes that interrupt the financial system. Financial institutes are required to submit the user’s personal credentials to open a bank account. The information includes the address, name, date of birth, and identification number.
After gathering the required information, it is authenticated against verifying evidence of the biometric system. It is done to ensure the risk assessment while observing the critical components of the businesses and the users so that risk scores can be assigned accordingly.
The risk score varies depending on the compliance of the organization. And it helps in fraud prevention so that institutes can decide their Enhanced Due Diligence (EDD) and Customer Due Diligence (CDD) processes.
CDD and EDD Procedures
It is the procedure of assessing customer information through KYC checks. kyc regulations is the second step in digitally collecting the basic credentials of the user. In CDD, the required information is name, date of birth, age, and address. All the information is assessed to validate the customer’s onboarding process. After executing the financial credibility and AML screening procedures, the proposed rating is assigned to a customer. If the user ID is marked illegal due to already presence on watchlists, in such cases Enhanced Due Diligence is required to be performed.
CDD decides the risk level that can be endured by the users to the institutions and should reveal the prior involvement in terrorist financing and money laundering.
Final Statement
KYC verification stands as a standard solution in maintaining user compliance within businesses and fostering a culture of integrity and reliance. Through diligent identity verification processes, businesses actively safeguard against potential risks and uphold regulatory standards. By ensuring that customers’ identities are accurately verified, businesses not only protect themselves from financial crimes but also maintain trust and transparency in their operations. This commitment to KYC verification not only safeguards businesses but also contributes to a safer and more responsible financial ecosystem for all stakeholders involved.
