All About Automated KYC Verification Process

KYC or Know Your Customer is a part of the customer onboarding process, mainly in banks and other financial institutions. This process is to be in line with the KYC and AML regulations. KYC broadly involves the following steps

• Collecting the information
• Checking the documents submitted
• Validating the information
• Starting the remediation
• Final approval process

With technology taking over most sectors, manual KYC verification has given way to automated KYC solution. In this article, we explain the Automated KYC Verification in detail.

Traditional KYC

In simple terms, KYC is a process of verifying the customer’s identity. It can be done before or during the business relationship. In banks, this helps understand the customer and assess the risk factor. It is a legal requirement and is part of the AML (Anti Money Laundering) measure. KYC has two goals

1. Protecting the Financial Institution

By proving the customer’s identity, assessing the risk tolerance and investment profile, KYC safeguards the Financial Institution by helping them choose the correct portfolio for the client.

2. Protecting the Client

It protects the client by providing the requisite information and limiting their liability.

Traditional KYC is heavily dependent on Humans. The data sorting, data entry, rectifications, approvals, etc., are all to be done manually. KYC can be traditionally done in the following two ways

1. Online

The customer must upload the relevant documents and fill a form online. The reviewers on the Bank’s end verify the same manually and connect with the customer to complete the process.

2. Offline

The customer downloads the form, fills it, and goes to the Institution to submit it along with the required documents. He physically does all the paperwork along with the reviewer.

Disadvantages of Manual KYC

Institutions need to follow all the regulations stipulated and ensure they do not break the rule. However, manual KYC has specific challenges. 

Data Entry is done Manually

In most Institutions that still follow the traditional method, data or information is collected manually and fed into the system. The window for human error is very high, and the remediation costs are not cheap. Also, since it is all paperwork, the data could be manipulated at any stage.

Time Consuming

The process is not standardized across Institutions. The documents to be submitted vary. This adds time to the process. Additionally, manual data entry, verification, and the need for further information consume a lot of time. A single customer’s KYC could take a month to be approved

Changing of Regulations

Banking sector regulations keep changing from time to time. To keep up with them, the KYC process must be streamlined too. If found non-compliant with the latest regulations, the cost involved can run into Crores. 

The frustration of the Customers

Due to the time-consuming process and the amount of information provided, the customer is not very happy. Apart from waiting for their forms to be approved, they also must be available to take the frequent calls from the banks seeking more information. It is stated that close to 40% of the potential clients leave during this tedious process.

KYC Automated Solutions 

Given the manual KYC’s drawbacks, the banks have started the digital onboarding process. Automated KYC takes the help of Artificial Intelligence aided with machine learning technologies to complete the process without much human interference. The catch here is, though most of the legal work can be handled by Automated solutions, the high-level decision-making must still be done manually. Intelligent Process Automation (IPA) is used for this digital process. IPA consists of the following

Robotic Process Automation (RPA)

A robot is used to handle repetitive tasks and high-volume work

Intelligent Document Processing (IDP)

Technologies such as Natural Language Processing and machine learning can process and collect data from multiple documents.

Artificial Intelligence (AI)

AI is used to analyze the data to recognize patterns and make intelligent decisions. 

The above technologies now form a part of the digital onboarding process of the customer. It provides a precise and more robust clarity about the customer to the Institutions.

Benefits of KYC Automation

Few benefits of using the KYC automated solutions are as follows

Onboarding is Cost Efficient

It is suggested that adapting to automation has reduced the vendor onboarding costs by 70%. The enormous costs of rework and rectification are avoided with no scope for errors.

Minimum Risk

Human error is minimized by end-to-end automation of the process. Mistakes such as in data entry or oversight are taken care of

Scalability is possible

Manual KYC doesn’t allow for scalability without spending on colossal manpower, and the success depends on their adaptability. In automation, however, the Bots can work all through the day and adapt easily and quickly.

Customer Experience

In any business, the customer is the king. With automation in place, the KYC process time is drastically reduced, keeping the customers happy. Frequently, back and forth are avoided, and the customer experience is excellent.

With the world gearing up for the digital era, it is logical that Financial Institutions also follow the same. Adopting the Automation KYC process is beneficial now and in the long run. Several KYC automated solutions are available to be used. If implemented and adapted efficiently, the savings on costs and keeping in line with the regulations are given.