KYC stands for “Know Your Customer.” It refers to the process where a business verifies the credentials and information of its potential and existing customers.
KYC is an essential step to prevent hijacking and tampering of sensitive customer data. It also helps businesses verify customers’ identities and assess their risk quotient.
Traditional KYC verification has many downsides, including restricted data portability and high costs. At the same time, vendors can’t exactly ignore KYC, especially as online transactions become rampant during COVID-19.
To overcome the limitations of pen-and-paper identity verification, businesses have started leveraging next-gen solutions like biometrics. Let us talk about the advantages and best practices of using biometrics to streamline KYC. But first, let us understand why KYC is important and what are the issues with conventional KYC.
Why is KYC Important for Businesses?
Businesses, especially banks and financiers, rely on KYC for many reasons. A robust KYC system helps them to:
- Thoroughly investigate new customers and verify their identities.
- Prevent money-laundering and identity theft.
- Assess the loan-repayment capability of clients.
- Minimize potential security risks.
- Comply with regulatory requirements.
Companies that don’t follow a stringent KYC procedure can expose themselves to fraudulent customers, insolvency, and reputation damage.
What Are the Drawbacks of Traditional KYC for Businesses and Customers?
Banks and financial institution have eliminated outdated KYC verification systems because of the following reasons:
1. Too Much Customer Friction
Customer-onboarding time has increased considerably ever since laws made KYC mandatory. According to a Thompson Reuters study, a simple account-opening process took 18% more time in 2018 as compared to 2017 since the verification time has stretched. 12% of customers say they got frustrated and switched banks when their bank asked for additional documents to complete complicated KYC.
Not only do customers have to wait longer for basic work, but they also resent the level of documentation they are asked to furnish. Privacy intrusion issues can arise when companies request for personal customer details.
2. High Compliance Costs
Companies are spending too much on legal fees and labor that are required to complete customer due diligence. Every week, 50% of bankers spend 1.5 days on onboarding new clients. The global compliance costs amount to $500 million annually for banks and finance-related businesses. If companies spend 15% to 20% of the total “bank-running” costs on compliance, risk, and governance, their profit margins dip.
3. Variable Data Rules
The list of permissible KYC documents varies from nation to nation. For example, Cyprus has recently updated their KYC requirements. They now demand an in-person meeting with each account holder.
On top of that, there is no cognizance between companies when it comes to KYC rules. Different banks can ask for different verification documents from different clients. For instance, corporations may have to provide the director’s tax and legal papers. LLCs may be asked to furnish the Articles of Organization, etc.
Compliance requirements depend on the Central Bank’s dictates. Plus, banks might formulate their own compliance policies. With such fluid rules, it becomes difficult for customers to keep documents handy.
For all of the above reasons, biometric verification for KYC has become popular.
Biometric-based KYC is scalable, company-agnostic, and standardized. The collection of user data is fast, simple, and portable. Moreover, biometric provides more precise and reliable MFA multi-factor authentication) than knowledge-based authentication (KBA) like passwords or PINs.
Last, biometrics can be based on facial-recognition, voice ID, or fingerprints. By disallowing shared user credentials, biometrics is the most secure authentication system for KYC and AML (anti-money laundering).
5 Biometric Best Practices You Need to Follow
There’s no denying that biometric KYC is the way forward. However, to use this cutting-edge technology in the best way, you need to follow the tips below.
1. Allow Single-Sign-On (SSO)
Often, users find it challenging to remember multiple passwords. Biometric-enabled SSO enables users who fail to recall passwords, to sign in. Busy, multi-taskers enjoy the convenience and time-saving of SSO. Intel has already leveraged SSO to allow users to log in to multiple systems securely using a single username and password.
2. Integrate Anti-Spoofing features
The biometric system should include built-in security systems that risk-proof your KYC from imposters. Fingerprint scanners require a live finger not recorded finger pictures to complete the scan. Similarly, liveness detection ensures that the customer is a live one. Iris-pattern scanners may require you to move your eyeball or blink to pass the due diligence routine.
3. Include Multi-Factor Authentication (MFA)
To prevent data breaches, add a security layer by using MFA. It has two components—a custom pin that is system-generated, and personal authentication data (fingerprint, voice ID, iris pattern, geolocation, etc.). Mastercard’s “selfie pay” biometric system double-checks users’ identities by asking them to upload an instant selfie.
4. Take Advantage of Multi-Modal Biometrics
Typically, a single biometric data point is used to authenticate users. But background disturbances can distort voice tags and lighting can impact facial recognition. In such scenarios, authentic users can be locked out of systems. Also, a single data point is relatively easy to penetrate. That’s why some banks use multi-modal biometric KYCs that combine the results of more than one biometric.
Your access control machines can be equipped with geolocation tracking and face scanners. Your bank locker systems can ask for voice identification along with eye patterns. This way, you can prevent spoofing even if one of your data points is compromised.
5. Be on Top of Trends
Identity verification is a fast-evolving space. Why so? That’s because fraudsters are always one step ahead of the legal system. As new ways of data leaks, account takeovers, and credit card frauds crop up, authentication systems also revamp. So, it is essential that you be abreast of trends in data security domains.
If you use outdated, weak protocols, you are risking your customers’ financial and personal information. You are culpable for damages that your customers incur for your negligence and incompetence. Apart from the huge legal costs, you can also damage your business reputation and goodwill in the market.
Are You Ready to Improve Your KYC with Biometrics?
With SSN and KBA systems phasing out, biometrics-based KYC is the need of the hour. Since your customer relationships and business reputation are at stake, leave no stone unturned to master biometrics KYC. They offer convenience, cost-savings, and security to you and your customers.
Leverage all the tips mentioned above and keep a lookout for changing trends. Subscribe to our blog to get free, monthly updates on the latest developments in product development, software innovation, design, and more.
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