Financial transactions are continuously and  increasingly taking place today. What used to be only an occasional thing- transferring money for business matters – has today become extremely prevalent. People now use digital means of transferring money for paying out as little as units of dollars. In this digital age, entering the legitimacy of financial transactions has become crucial. Thus, verification of customer identities via KYC or know your customer approaches is paramount. 

KYC procedures today act as the foundation of anti-money laundering or AML and CTF or counter terrorism financing efforts. This makes KYC procedures essential for intuitive financial institutions’ compliance with regulations and also, for the mitigation of security risks.

Where in the past KYC used to be limited to paper documentation and physical signatures, today, the advent of digital tech has changed the world. With an increasing adoption of artificial intelligence and machine learning-like technologies, the future of KYC verification procedures will change even more.

Why We Need KYC Procedures To Evolve

Traditional KYC procedures have been in place for decades and so, we are well familiar with them and understand how they work. For example, traditional KYC procedures generally involve a multi-step approach.

Customer onboarding

The verification procedure starts as the system interrupts the user to initiate the verification process. The user has to submit one or more official government-issued documents. The documents that are needed to be submitted vary based on situations. For example, where the age of the user is supposed to be verified, the system will only ask for a photo ID. However, when an employer is carrying out the KYC procedure, they might demand proof of address and passport as well.

Manual verification

Once the required documents are submitted at the desk, the institutional employees initiate the KYC procedure. They manually go through each and every submitted document, review for authenticity, and cross-check the data provided against databases or compare the users’ faces

Enhanced Due Diligence (EDD)

Not all but some cases demand extra attention and reviews. For such high-risk transactions or customers, additional data such as source of funds or business ownership is demanded.

Traditional KYC methods have been used for many years. They helped establish strong foundations for KYC procedures of today. However, these are not enough in this era. While they have been effective for quite long, today they can be time-consuming, produce errors, and also, be very expensive.

This leads us to identify the need for improved KYC procedures. In light of the technology available now, innovation has become much easier.

Creating the revolution – The KYC process in light of AI and ML

Just like computer technology has reformed most other industries, it also holds the potential to transform KYC procedures into a more efficient, secure, and user-friendly experience. Here’s how:

Biometric authentication and verification

While there are many different ways that modern computer technology helps KYC procedures, biometric verification is likely the most notable among all. Facial recognition and fingerprint scanning powered by machine learning again offer strong security. Computers do this by comparing customer selfies against government-issued photo IDs. These may be during video calls or mobile app onboarding.

Automated document verification

Today, AI-powered OCR and proofreading tools are accessible to all. Businesses carrying out KYC procedures make use of the same technology. These tools help to analyze uploaded documents such as IDs, utility bills, etc. They have very high accuracy, and authenticity, and extract relevant data while flagging potential inconsistencies.

Risk-based KYC

ML algorithms can help analyze customer data such as transaction history and locations. This can be critical for assessing risk profiles which ultimately leads us to be able to specifically tailor KYC process and requirements. With risk-based KYC regulations, we can reduce friction for low-risk customers while ensuring stringent verification in high-risk scenarios.

Online KYC Verification –  Benefits and Challenges

The integration of AI and ML in KYC procedures offers several advantages, such as improved efficiency, stronger security, increased public receptivity, and lower costs for compliance.

However, at the same time we have some issues as well. These specific challenges exist in almost all domains where tech is acting as a revolutionary. For KYC procedures execution, the challenges include the following.

• Bias and inclusivity issues arise as AI algorithms present results based on data produced by humans. Careful design and data selection for training is crucial to prevent discriminatory outcomes in KYC processes.
• Explainability and transparency can get tricky when the public does not understand the verification process used by the software. Understanding the approach is essential to develop trust with the masses
• The collection and handling of customer data for AI-powered KYC procedures must be done carefully owing to the massive potential for data breaches.

Conclusion

No matter how much technology involves, for human beings the presence of human influence will always be essential. Thus, to say that the future of KYC procedures depends on technology is very closeted. This is why we can expect the future to be shaped by a collaborative approach between digital technology and human expertise. While software can help with laborious and time-intensive tasks, human beings can work alongside executing those that require the human touch.