You might have heard of KYC in banking a lot of times but do you know what it is and why it is important? In this article, we will be providing everything you need to know about this process. So if you wonder what is KYC in banking, you have come to the right place! Read on!
What is KYC in bank and why is it important?
For those who don’t know, KYC in banking is the process to verify the identity of a customer who uses the bank’s services. As a customer, you obviously want to have an easy and fast identification experience. And KYC in banking makes the collection and processing of identity documents easier than ever.
If banks successfully increase their customer’s satisfaction with the registration period, the customers will keep using their services. Obviously, banks or any financial organizations want to have more and more customers, that’s why KYC is very beneficial to them.
In addition, this process secures the storage of data, therefore, reduces the risk of internal counterfeiting and transaction errors. Furthermore, KYC in banking is implemented because it’s believed to provide tools that help prevent financial terrorist acts.
It’s crucial to combat illegal financial activities, that’s why financial institutions must understand who their customers are, as well as what kind of transactions they are taking.
Besides, KYC in banking also helps prevent and identify illegal corruption plans. Banks have the responsibility to comply with KYC regulations as well as anti-money laundering regulations to limit fraud.
What are the innovations in KYC?
The advancement of technology leads to innovations in KYC. In this digital era, eKYC helps reduce the time and cost of KYC workflows and improves the customer experience significantly. Not only does it improve data quality, but eKYC also makes transaction monitoring more effective.
In addition, real-time I.D. verification satisfies customers and improves security at the same time. The innovations make this process less painful and time-consuming for both the bank and the customers.
Besides, digital process automation (DPA) can automate various KYC processes, from setting up customer data, gathering and monitoring customer information from different databases, validating the information, storing and managing data from multiple systems for easy access, customer screening, to real-time monitoring alerts, etc… Needless to say, this can reduce a huge amount of work for bankers and the system.
What do banks need from customers during the onboarding process?
KYC in banking requires banks to gather and verify identity information at the point of onboarding new customers. Depending on the group of customers, there are different sets of requirements.
If you are an individual customer, you will need to bring some proof of identity, such as government-issued identification like ID card, passport and driver’s license, proof of address, etc… These documents need to be checked by the bank to make sure that you are who you claim to be.
If you are opening a business account, you will need to provide more information verifying the identities of beneficial owners and business activity such as business licenses or financial reports.
When creating an account online or doing online transactions, it’s more complex. Banks need to have digital identities to match the actual, real-world identities of their customers. The process might need to include a combination of biometrics or ID verification. But it’s not too complicated thanks to the advancement of technology.
The future of KYC and digital banking
Obviously, in the future, banks need to move away from traditional identity proofing and replace it with eKYC identity verification. If banks are careful, they can use both biometrics and traditional ID verification to strengthen their security system to avoid online fraud as well as illegal activities.
With that said, KYC in banking builds trust among customers and creates a seamless, efficient onboarding experience. Similar to other important sectors such as healthcare organizations, online gaming venues, the need for sophisticated KYC checks is increasing in the banking system.
In fact, plenty of banks and financial institutions are already using online identity verification processes. If the digital identity of customers has been validated, banks can ensure that the legitimate customer is present during future transactions.
When banks can verify a person’s face-based biometrics, they can improve their customers’ satisfaction and secure online transactions. As a result, banks and financial organizations can operate more securely and effectively.
So you have learned about KYC in banking. Do you want to work with a bank with KYC checks or one with a traditional verification tool? Of course, technological advances are difficult to ignore in this era. Not only is this a trend, but some technologies like eKYC are also necessary and compulsory to improve the security system and protect customers in a better way.