BBVA API Market
Knowing your customer is an essential asset in any business relationship, but in the digital universe it is even more so. In the financial sector, KYC (Know Your Customer) is carefully structured to ensure customer verification, which is essential in the highly regulated banking industry. Now, these processes are especially useful in all kinds of sectors for faster customer onboarding in digital platforms.
Banks often use KYC as a way of checking customers’ identity to comply with the different banking regulations. The objective is for the customer to prove their identity and to apply a series of controls to prevent commercial relations with persons who may have links to terrorism, corruption or money laundering, or any other illegal activities. If customers fulfill the legal requirements, the bank will give them access to the services or products they need through its commercial network.
However, it is not enough to have the customer’s identity at document level. The financial institution must ensure that the identity of the customer is real, understand the nature of the transactions to be performed and share this information with the government.
KYC is, therefore, an increasingly important process, especially in our increasingly digital world. It is applied in different sectors. As the banking sector is so strictly regulated, the process is extremely stringent and reliable for its users.
In the banking sector, where this procedure has been mandatory for years, most customers have done the KYC in person. This means the data and documents submitted have been checked directly by a bank representative together with the user being identified. But the growth of purely digital ecosystems has also spurred the development of reliable remote identity verification procedures.
For example, banks can also identify the user through a video call in which the user shows their identity documents, which are authenticated, and doing a face check. Technology now allows for other biometric tests, such as fingerprint identification or facial recognition tests.
Today, thanks to digitalization and APIs, any industry can benefit from and support its protocols in the user verification already done by the financial institution, which provides added value compared to other identification systems where the information is not verified.
KYC is not a static process. The bank must prove the customer’s identity when it begins the business relationship, but it must also do so throughout that relationship – while causing as little inconvenience to customers as possible.
As we have said, banks need to satisfy legal requirements, and to do so they might need the customer to submit documentation at any point. This usually happens when we have not delivered any documents or if unusual activity is detected in the accounts, especially regarding any large transactions.
In addition to the customer’s own verification of documentary sources, banks also cross-check information using external sources. As the software provider Kofax points out in its “Know you customer or KYC processes” report, KYC rules include checking a potential customer’s identity information against numerous external blacklists and public databases, as well as collecting and integrating the necessary external data with internal systems.
The report also adds that customer due diligence (CDD) is crucial too, as it involves regular checks and constant monitoring of the information collected.
Finally, the report stresses the importance of complying with the rules, and of causing the least inconvenience to customers when applying them. Although KYC requirements are stringent and create many challenges for a financial institution, the consequences of breaching these standards are serious indeed.
KYC processes are not simply a nuisance that can lead to heavy fines. How KYC processes are implemented and managed within an organization can also have far-reaching consequences on the financial institution, which can affect customer loyalty, labor costs, and ultimately, long-term revenue and profit margins.
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