eKYC or electronic Know Your Customer refers to the digital and automated processes organizations use to verify the identity of their customers. This verification plays a crucial role in the prevention of financial crimes like money laundering, fraud and in ensuring compliance with regulations in a specific country or state. The eKYC process typically involves the electronic collection and verification of documents, such as identification cards, passports, or proof of address. In a way, it’s considered the verification of a customer’s digital identity. Because of the threat of online identity fraud, sophisticated eKYC can include the use of information provided by trusted third-party sources and biometric verification.
What are the benefits of using eKYC?
Electronic Know Your Customer offers several benefits to the financial industry and consumers too. As a stringent process, it offers the following value:
Electronic KYC automates the verification process, significantly reducing the time needed to onboard a customer.
Digital verification minimizes human errors that can occur in manual processes, ensuring more accurate customer details.
By streamlining the verification process, organizations can reduce operational costs associated with manual checks and paper documentation.
Electronic KYC allows businesses to verify customers from around the world without geographical constraints.
Enhanced Customer Experience
Customers can complete the verification process remotely, eliminating the need for physical visits and paperwork, leading to a smoother onboarding experience.
Ease of Compliance
It helps organizations comply with Anti-Money Laundering (AML) laws and other regulatory requirements by ensuring a standardized verification process.
Digital verification processes are equipped with advanced security features that safeguard customer data, reducing the risk of fraud and data breaches.
Electronic KYC platforms can handle a large number of verifications simultaneously, making them scalable for businesses of all sizes.
By incorporating electronic KYC, organizations can enhance their customer verification process, ensuring a secure, efficient, and customer-friendly approach.
How Does eKYC Work?
The eKYC process typically involves the electronic collection and verification of documents, such as identification cards, passports, or proof of address. In a way, it’s considered the verification of a customer’s digital identity. Becuase of the threat of online identity fraud, sophisticated eKYC can include the use of information provided by trusted third-party sources and biometric verification.
This information is then processed to help financial institutions quickly, efficiently, and accurately verify customer information, leading to faster onboarding and enhanced customer experience.
There are several steps involved in initiating eKYC, all of which take place when a new customer creates an account with a financial institution. These steps include:
- Customer Onboarding: When a customer initiates a relationship with a financial institution, they are asked to provide their personal details, typically through an online platform.
- Document Submission: Customers submit digital copies of their identification documents. This could be a passport, driver’s license, utility bills, or other government-issued IDs.
- Document Verification: The provided documents are verified against trusted sources or databases. Advanced systems might use technologies like Optical Character Recognition (OCR) to extract data from uploaded documents.
- Biometric Verification: Some systems incorporate biometric verification, where customers provide fingerprints or facial scans that are matched against stored data or government databases.
- Data Analysis: Advanced solutions use artificial intelligence and machine learning to detect any inconsistencies or potentially fraudulent activities in the data provided by the customer.
- Completion: Once the verification is successful, the customer is onboarded. If there are discrepancies, the customer might be asked for additional information or clarification.
While seemingly complex, eKYC processes are designed to be efficient. They reduce the time taken for customer onboarding and enhance customer experience. For financial institutions, automated verification also helps ensure regulatory compliance is achieved.
How is third-party data used during the eKYC process?
Third-party data plays a crucial role in the eKYC process, enhancing the efficiency and reliability of online identity verification. Here’s how third-party data is utilized:
- Data Verification: Systems often cross-reference the information provided by the user with third-party databases to validate its accuracy. For instance, if a user submits a national ID number, the system can check it against a government database to ensure it’s genuine.
- Risk Assessment: Third-party data sources can provide information about a user’s financial behavior, legal history, and other relevant aspects. By analyzing this data, businesses can assess the potential risk associated with a particular customer.
- Fraud Prevention: By cross-referencing with third-party databases, systems can detect discrepancies, inconsistencies, or anomalies in the data provided by the user. This aids in identifying potential fraudulent activities or attempts at identity theft.
- Compliance: Regulatory requirements in many countries mandate the use of certain third-party databases to verify customer information. Leveraging these databases helps businesses ensure they are compliant with local laws and regulations regarding customer verification.
- Enhanced Customer Profiles: Third-party data can enrich customer profiles by providing additional details not directly given by the user. This can be helpful for businesses to tailor their services and offers based on more comprehensive customer information.
Third-party data can support customer identity verification, however, it’s crucial for businesses to ensure the integrity of the third-party data sources they use. Old, inaccurate, or false information can create a loophole for bad actors to exploit and cause financial institutions administrative, compliance, and brand reputational nightmares that are often hard to recover from.
What are some examples of third-party databases used for eKYC?
These are common types of third-party databases used to verify a customer’s identity. It is important to note that the specific databases accessed can vary based on the country, industry, and specific requirements of the verification process. Here’s a list of the most common third-party sources often used during identity verification.
- Government Databases: These databases hold official records of citizens, such as national ID numbers, passports, driving licenses, and more. They provide a primary source of identity verification.
- Credit Bureaus: Credit bureaus maintain financial and credit histories of individuals which can be used to establish the financial credibility and history of a customer.
- Public Records: Databases that store information on legal cases, property ownership, and other public matters can be accessed to verify particular claims or ensure or discover potentially conflicting information about the customer.
- Commercial Databases: These databases might hold various data, from transaction records to business affiliations, helping organizations get a more comprehensive view of a customer’s profile.
- Sanction Lists: These lists comprise individuals and entities under various sanctions due to illegal or suspicious activities. Cross-referencing with these lists ensures that businesses are not associating with risky individuals or entities.
- Biometric Databases: Databases that store fingerprint or facial recognition can be used to support the verification process.
What is the difference between KYC and eKYC?
KYC (Know Your Customer) and eKYC (Electronic Know Your Customer) are both processes used by businesses to verify the identity of their customers. The primary difference between them lies in the method of conducting the verification.
KYC (Know Your Customer) often requires customers to provide physical documents and sometimes even be present in person to verify their identity.
eKYC is a digital process that leverages active, passive, and behavioral signals, capabilities not present in traditional KYC processes.
Active and passive signals play a crucial role in the eKYC process. While active signals provide direct evidence of a user’s identity, passive signals add an additional layer of verification, helping detect potential fraud and ensuring that the person undergoing the KYC process is genuinely who they claim to be.
Active Signals are actions initiated by the user as a part of the verification process. Examples include:
- Uploading a selfie or video for facial recognition
- Providing a fingerprint or other biometric data
- Inputting a One-Time Password (OTP) sent to their mobile device or email
- Answering knowledge-based questions
Passive Signals are data points collected without explicit actions from the user. They are often gathered in the background to enhance the security and accuracy of the verification process. Examples include:
- Geolocation data to ensure the user is accessing from a known or expected location
- Device fingerprinting, which identifies the specific device being used for the transaction
- Behavioral biometrics, such as the way a user types or interacts with a device
- Analysis of transaction patterns and history
Behavioral signals, like active signals, are initiated by the customer and are captured on the backend without the customer’s awareness. These signals indicate how a customer is interacting with an online application.
Because online fraud is prevalent, behavioral signals help spot what could be suspicious or unnatural behavior. Behavioral signals can include:
- Hesitation detection is used in moments when a user pauses as they enter sensitive information
- Distraction events are identified when eKYC systems track suspicious mouse activity (including clicks), identify the use of developer tools and bots, the use of autofill features, and the use of copy-and-paste actions when completing forms or interacting with online applications
Picking an eKYC Solution
There are several identity verification solutions available today, however, not all provide the level of fraud detection needed to combat today’s threats.
Security is in our DNA. Our fully automated, advanced identity verification technology, continuous verification, and full-service approach ensure the best defense against fraud. In fact, our solution spots what others call ‘undetectable fraud’ with five times more forgery and risk checks than standard systems offer.
Learn more about the strength and sophistication of our Identity Verification Suite