ID and Document Verification

Streamline KYC Verification with AI Technology

January 2, 2024
Streamline KYC Verification with AI Technology

If you’re in the financial industry, then you know KYC is not just a buzzword—it’s a crucial step to prevent money laundering and other illegal activities. But you know what’s even more crucial? Keeping up with the latest technology to stay ahead of the competition.

KYC, or know your customer, is a cornerstone of due diligence and regulatory compliance. It’s a systematic approach for financial institutions to verify the identity of their clients, ensuring they are not partaking in financial crimes. Essentially, it is the primary method for businesses to know who exactly they are dealing with.

But let’s be honest: KYC is not just for banks and financial entities anymore. Its significance spans various sectors. It guards against identity theft, criminal activities, and unauthorized financial transactions in any industry that handles customer funds or sensitive data.

If you want to stay ahead of the game, you need to adopt AI technology for your KYC process. Automated KYC over manual checks has many benefits that can streamline your processes and help you achieve your goals. In this guide, we’ll show you how to leverage the latest technology to take your business to the next level.

Manual (traditional) KYC verification 

Manual KYC processes are the traditional means of verifying a customer’s identity. This approach usually involves a high level of human involvement and decision-making. 

It can be time-consuming and potentially prone to human error, of which 74% is attributed to breaches. However, it also offers the benefit of a personalized touch and the flexibility to handle complex cases that may not fit neatly into standard verification procedures.

Detailed steps in manual KYC verification

The manual KYC verification process typically commences with document collection. Customers are asked to provide identification documents, which could range from passports and driver’s licenses to utility bills and bank statements.

Next comes document validation. This is a critical step where the documents’ authenticity is assessed. This process can involve checking their security features, comparing them with known fraudulent or stolen records databases, or contacting issuing authorities for confirmation.

Following document validation, there may be customer interaction. This often involves in-person or video interviews to confirm the customer’s identity and the information provided.

The final step is decision-making and approval. Based on the collected and validated information, a decision is made on whether or not to onboard the customer.

Automated KYC verification

As the global user base for online and mobile banking is anticipated to approach the one-billion mark by 2024, automated KYC processes are not just a value-add—they’re becoming necessary for managing the burgeoning demand for digital banking services. 

This expansive growth underscores the need for technology that can handle an influx of digital identity verifications swiftly and accurately. In regions like Europe, where online banking penetration rates are among the highest, along with technologically progressive countries like South Korea, deploying AI-powered KYC solutions becomes imperative. 

These automated systems, backed by deep neural networks, not only accommodate the scaling user numbers but also align with the expectations for quick and secure banking experiences, demonstrating the critical role of technology in streamlining the verification process. So, what are the key components that make all this possible?

Key components of automated KYC

Automated KYC typically involves a few key components: 

  1. First, there’s document scanning and recognition. AI-powered solutions like BlinkID are designed to automatically recognize, read, and verify thousands of identity documents.
  2. Next, data analytics and risk assessment come into play. Once the document data is captured and extracted, it’s analyzed to assess the risk associated with the customer. This can involve checking the data against watchlists, politically exposed person (PEP) lists, and databases of known fraudsters.
  3. Lastly, the pros and cons of automated verification are weighed. While automation provides speed, accuracy, and scalability, it may not be as flexible in handling complex cases or providing a personalized touch. However, AI and machine learning advancements are continuously addressing these challenges.

Manual vs automated KYC

In the realm of digital identity verification, the decision to adopt manual or automated KYC procedures is a pivotal one. Both methods have merits and challenges, from efficiency and speed to accuracy and error rates, cost-effectiveness, scalability, customer experience, and regulatory compliance.

Efficiency and speed

Manual KYC procedures can be time-consuming and labor-intensive, often involving physically checking identity documents and manual data entry. This contrasts sharply with automated KYC procedures, which leverage artificial intelligence (AI) to scan and verify global IDs in seconds. Many providers offer automated KYC solutions that expedite the process and deliver accurate results in real-time.

Accuracy and error rates

Accuracy and error rates are inevitable in manual KYC procedures, leading to potential inaccuracies that might compromise the customer identification program. Automated KYC, powered by AI, can significantly reduce these errors by automatically recognizing, reading, and verifying thousands of identity documents. This results in a more accurate and reliable verification process.

Cost-effectiveness

Manual KYC checks can be a lot of work and require employees to spend significant time verifying identities. Moreover, lots of paperwork (physical and digital) is involved in manual checks, which adds to the cost. 

However, automated KYC procedures use advanced technologies such as machine learning and AI to simplify the process and reduce the need for manual intervention. This saves both time and money by streamlining the process and reducing the need for manual labor. Investing in automated KYC procedures can ultimately prove to be the more cost-effective option in the long run.

Scalability

The scalability of manual KYC is inherently limited by human capacity. In contrast, automated KYC solutions can handle large amounts of complex data with more accuracy and security, enabling companies to scale competitively.

Customer experience

Automated KYC verification provides a seamless customer experience by facilitating easy and fast onboarding. This not only enhances customer engagement but also drives customer loyalty.

The promise of anonymity on platforms like X and Reddit, which contrasts with other social media sites that require users to include their real names, is a testament to the power of digital identity products.

Compliance and regulatory considerations

Last—but certainly not least—are the legal concerns. Compliance with regulatory standards is crucial in a customer identification program. Automated KYC solutions can help companies navigate complex regulatory landscapes more efficiently by providing a robust, document-centric approach to verifying identity.

Benefits of AI and automated solutions

The rise of digital banks, or “neobanks,” is a pleasant side effect of rapidly advancing technology, with the market for them set to swell to over $2 trillion by 2030. This wouldn’t be possible without AI and automated solutions. Especially in identity verification, this tech offers numerous benefits: verification efficiency, overall cost reduction, improved customer experience, increased security and compliance, and data and insights. 

For digital-only banks—those financial institutions that don’t have a physical presence—automated KYC is vital. But it is also a game-changer for more traditional financial institutions, helping them streamline their KYC documents process and enhance due diligence procedures, thereby combating financial crime like money laundering more effectively.

Verification efficiency

AI-powered solutions like Microblink significantly streamline identity verification, making it faster and more accurate. By using deep neural networks, they automatically recognize, read, and verify thousands of identity documents. This automation reduces the chances of human error and increases the speed of the verification process, making it more efficient.

Overall cost reduction

Automated KYC identity verification solutions save both time and money. By converting analog processes to digital, companies can handle large amounts of complex data more accurately and securely. This reduces the need for manual labor and results in significant cost savings for businesses.

Improved customer experience

AI-driven solutions empower users with a seamless onboarding experience. BlinkID, for instance, allows users to onboard easily and on their own time without sacrificing security or the quality of experience. Furthermore, these solutions can provide unique insights that allow brands to make the customer experience more engaging and ultimately drive customer loyalty.

Increased security and compliance

With the rise in document fraud, robust AI-enabled solutions play a crucial role in unmasking the truth hidden in falsified documents. They analyze codes thoroughly to determine authenticity, thereby enhancing security and compliance. With a document-centric approach to verifying identity, fraudulent documents can be caught early on.

Data and insights

AI and automated solutions capture, extract, and verify data and provide valuable insights. These insights can support brands’ loyalty programs and strengthen customer lifetime value. They also help companies stay ahead of their competition by constantly evolving to meet their needs over time.

Company-wide KYC best practices to implement

By now, you know how KYC has become an integral part of the financial industry’s regulatory authority. So, how do you stay on the good side of compliance? 

Here are five best practices to implement:

  1. Have strict customer identification standards: Implement a customer identification program that includes collecting information about the customer and verifying their identity using reliable, independent source documents, data, or information.
  2. Do customer due diligence (CDD): Conduct CDD to understand the nature and purpose of the customer relationship. This includes ongoing monitoring of the relationship and updating customer information regularly.
  3. Take a risk-based approach: Adopt a risk-based approach for KYC. This involves assessing the customer’s risk profile and adjusting the level of KYC procedures based on the risk they pose.
  4. Maintain meticulous documentation: Keep accurate records of all KYC procedures, including all identification information, check results, identified risks, and measures taken to mitigate those risks.
  5. Train your staff: Regularly train staff on KYC procedures, regulations, and potential risks. You want them to be experts in identifying suspicious activity and taking appropriate action—or, at the very least, not causing security concerns.

Key takeaways

KYC compliance is crucial for financial institutions to prevent and detect money laundering and terrorist financing. It involves understanding the customer’s identity, monitoring their transactions, and assessing their risk levels. 

While manual KYC can be time-consuming and error-prone, automated KYC solutions—leveraging AI and machine learning—can provide seamless customer experiences, enhanced security, valuable insights, and help meet regulatory requirements.

Future outlook for KYC processes

Besides rapid advancements in AI and machine learning, the rise of digital identity verification and biometrics is set to revolutionize KYC processes further. Regulatory developments are also shaping the future of KYC, with stricter regulations being introduced to combat financial crime. As a result, compliance with these regulations will become increasingly important for businesses.

Microblink is at the forefront of this technological revolution, providing solutions that fit seamlessly into any identity verification process. These solutions not only help businesses comply with KYC regulations but also enhance the customer experience by making the verification process fast and easy. 

And, thanks to their document-centric approach, Microblink enables businesses to catch fraudulent documents early on, reducing fraud by over 50%. With its capability to handle large amounts of complex data, Microblink can help businesses scale competitively and stay ahead of their competition.

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