Companies in the financial sector deal directly with the sensitive data of their clients, whether individuals or businesses. From personal data to information about their accounts, cards, and other financial products, all are largely confidential. It is in this scenario that KYC appears.
In almost every country, there are regulations that these companies must follow when offering financial services. One of these is user verification, which ensures that the identity of the person attempting, for example, to get a credit card or open an account is who they say they are, in addition to other features.
This has always been fundamental and has become even more important for one reason: although technology has facilitated access to these products in recent years and made them digital, identity theft and phishing have become greater risks. Therefore, they must be combated in some way.
The KYC technology, short for Know Your Customer, aims to establish user authentication and verification protocols. To understand in more detail what KYC is, how it works, and why it is necessary in the present and future of financial services, keep reading!
Understanding this technology starts with knowing what the acronym KYC stands for: Know Your Customer.
It is an identity verification methodology and a set of technological solutions aimed at ensuring that the information a client provides is correct when they want to obtain a financial service from a web or mobile platform. Not only that the information is correct, but that it is the actual person attempting to do so.
The KYC verification process is not necessarily technological. Being a regulatory requirement mandatory for all financial entities, before the emergence of digital banks, KYC was manual. Typically, the necessary documents were sent in person to a branch or by mail, and that is why the opening of accounts or obtaining other services could only be done in person.
One of the reasons why KYC is so important is that, most of the time, it is part of the compliance policy of financial institutions. This means it ensures that companies offering financial services comply with the measures and rules imposed by the legislation of each country.
In addition to identity theft, money laundering is something that can be mitigated with KYC technology, such as understanding whether the person in question is a politically exposed person (which implies different handling of their data) and checking their background and financial history.
The KYC process generally begins as follows:
The user fills out their main personal information, such as full name, date of birth, identification card, names of relatives, address, among others.Then, images of their documents are uploaded to the platform to check that the reported data corresponds with their document, all while being verified against government databases.It continues with facial biometrics, which uses the device's camera (whether a computer or a phone) to verify that the person requesting the service is the same as the one in the document photo.And finally, the verification results. At this point, one may be approved or rejected, not always with a justification if rejected.We can say that the most frequent use of KYC is, in the case of financial services, for opening digital accounts and obtaining other services and products. But it doesn't just end there: the technology is used at other key moments throughout the customer's journey with the institution, to ensure the security of both parties. Below, we explain more about them.
At this moment, as we have already explained, KYC is part of the customer's digital onboarding, which consists of a basic procedure to access the service in question. This is the initial moment of either approving or rejecting the user from becoming a customer.
Although the initial verification is the most important, a good practice is to carry it out at a certain frequency. In some countries this may be mandatory and in others, not. Therefore, the frequency can vary, even according to the policies of the entities. Those users who have proven to be of higher risk may have their identity verified more frequently.
In general, the idea of KYC is to reduce the risk of money laundering and other financial crimes – after all, customer behavior changes over time.
Here, another "type" of KYC where the idea is to do it proactively when the customer's behavior differs from their usual pattern. These aren't frequent verifications, but verifications that are carried out when specific events occur – mostly, events that suggest the user was not the one who performed them.
This verification often eliminates the need for periodic checks, which is why it's considered a proactive measure that guarantees more security while optimizing company resources, compliance policies, and enhancing the customer experience.
As we have already explained, KYC is a mandatory process for all financial institutions, but it also offers other advantages to companies. The more intuitive, fast, and accurate the KYC technology, the more protected the companies are.
As the name itself suggests, knowing the customer means understanding who they are, their financial and consumer history. With that in hand, companies can identify suspicious behaviors and actions in advance and act preventively, such as not allowing the action to be completed.
In addition to that, KYC and its meaning define the customer experience from the first moment, giving companies the possibility to offer the best onboarding process possible.
There is no doubt: adopting KYC technology and ensuring it is the best for your end user is indispensable today.
A journalist and Communications graduate born in Buenos Aires, Argentina, she joined Pomelo’s marketing team after writing for media outlets, agencies, and IT companies—experiences that honed her ability to decipher technical information regarding software and blockchain. She is a cinephile who loves music and exploring new places, and—above all—she is a cat lover.
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