In this digital era, the rate of financial crimes is at its peak. According to PwC’s Global Economic Crime and Fraud Survey 2020, thousands of businesses have reported cases of fraud from across the world, with financial losses over US$42 billion. Businesses are increasingly shifting their services to the online platform, thereby providing convenience to their customers and attaining greater profits.
As a result of this, their online presence is also making it easy for cybercriminals and hackers to carry out fraudulent activities on their platform, causing harm to the business or its clientele. Despite regular measures and efforts by the law enforcement agencies to prevent these activities, these fraudsters are always coming up with new techniques to by-pass the barriers set to impede fraud.
Financial regulatory authorities introduced KYC regulations to fight money laundering and financing of terrorism. What does KYC basically stand for and how is it beneficial for businesses?
An introduction of KYC
KYC or Know Your Customer refers to the process of proper customer verification using different identity proofs to establish that the individual actually is who he/she is claiming to be. It is a standard due diligence process done by businesses and companies to assess investors and customers they are conducting business with.
It was initially introduced by the US Partiot Act in 2001 after the tragic 9/11 incident to counter terrorism activities. Later in 2002, it was adopted by the Reserve Bank of India, who then implemented it on all banks across the globe.
Apart from being a legal requirement, KYC is a good business practice as well since it is meant to better understand investment objectives and suitability, and reduce risk from suspicious activities.
KYC is a means for providing unique service, preventing liability, and avoiding connection with money laundering, and other illegal money transfers. Obtaining detailed information about your customer secures both parties from incurring losses in a business transaction and relationship, resulting in a long term customer-business relationship.
How is KYC conducted?
KYC or identity verification has been done since ages by banks and government institutions. Customers had to visit banks or state offices to have their KYC procedures done. The process involved an analysis of the customers documents against government databases to ensure that the person is authentic.
It was conducted by officials who asked various questions and checked documents for verifying information such as D.O.B., address, passport, etc. The process took hours to complete and a lot of time was wasted. Let’s not forget the occasional probability of human error as well.
In order to cater this problem, different tech companies started developing systems to reduce the hassle of the verification process. Recently some ID verification solution have developed Artificial Intelligence-based systems that automatically verify the identities of customers in a matter of seconds.
The software is incorporated into the digital platforms of businesses or institutions and once the customer accesses those platforms, their identity verification is conducted by AI systems linked with their computer webcam or mobile camera.
The software extracts relevant information from the documents using OCR technology and analyzes it with accuracy. It even detects even minor errors and faults in the documents with the help of artificial intelligence technology. This digital KYC process revolutionized the process of identity verification. This technique conducts customer authentication in a matter of seconds and is much more accurate than traditional verification processes.
The importance of KYC is evident from both the customer and the business’s point of view. Although these rigorous checks can be an onerous and expensive process for the business, they create a safe and trustworthy environment to enable financial or investment activities with the company. This creates a healthy business environment, safe from the evil schemes of criminals and fraudsters.
In this digital era, the rate of financial crimes is at its peak. According to PwC’s Global Economic Crime and Fraud Survey 2020, thousands of businesses have reported cases of fraud from across the world, with financial losses over US$42 billion. Businesses are increasingly shifting their services to the online platform, thereby providing convenience to their customers and attaining greater profits.
As a result of this, their online presence is also making it easy for cybercriminals and hackers to carry out fraudulent activities on their platform, causing harm to the business or its clientele. Despite regular measures and efforts by the law enforcement agencies to prevent these activities, these fraudsters are always coming up with new techniques to by-pass the barriers set to impede fraud.
Financial regulatory authorities introduced KYC regulations to fight money laundering and financing of terrorism. What does KYC basically stand for and how is it beneficial for businesses?
An introduction of KYC
KYC or Know Your Customer refers to the process of proper customer verification using different identity proofs to establish that the individual actually is who he/she is claiming to be. It is a standard due diligence process done by businesses and companies to assess investors and customers they are conducting business with.
It was initially introduced by the US Partiot Act in 2001 after the tragic 9/11 incident to counter terrorism activities. Later in 2002, it was adopted by the Reserve Bank of India, who then implemented it on all banks across the globe.
Apart from being a legal requirement, KYC is a good business practice as well since it is meant to better understand investment objectives and suitability, and reduce risk from suspicious activities.
KYC is a means for providing unique service, preventing liability, and avoiding connection with money laundering, and other illegal money transfers. Obtaining detailed information about your customer secures both parties from incurring losses in a business transaction and relationship, resulting in a long term customer-business relationship.
How is KYC conducted?
KYC or identity verification has been done since ages by banks and government institutions. Customers had to visit banks or state offices to have their KYC procedures done. The process involved an analysis of the customers documents against government databases to ensure that the person is authentic.
It was conducted by officials who asked various questions and checked documents for verifying information such as D.O.B., address, passport, etc. The process took hours to complete and a lot of time was wasted. Let’s not forget the occasional probability of human error as well.
In order to cater this problem, different tech companies started developing systems to reduce the hassle of the verification process. Recently some ID verification solution have developed Artificial Intelligence-based systems that automatically verify the identities of customers in a matter of seconds.
The software is incorporated into the digital platforms of businesses or institutions and once the customer accesses those platforms, their identity verification is conducted by AI systems linked with their computer webcam or mobile camera.
The software extracts relevant information from the documents using OCR technology and analyzes it with accuracy. It even detects even minor errors and faults in the documents with the help of artificial intelligence technology. This digital KYC process revolutionized the process of identity verification. This technique conducts customer authentication in a matter of seconds and is much more accurate than traditional verification processes.
The importance of KYC is evident from both the customer and the business’s point of view. Although these rigorous checks can be an onerous and expensive process for the business, they create a safe and trustworthy environment to enable financial or investment activities with the company. This creates a healthy business environment, safe from the evil schemes of criminals and fraudsters.