The Know Your Customer (KYC) standard is an essential tool to prevent fraud. From finance all the way to insurance and simply opening an account with a business, many industries rely on it to identify who they’re dealing with.
At the heart of the matter, KYC can be essential for a company to mitigate risk and stay profitable, so its importance goes beyond mere compliance. There are multiple types of KYC verification methods out there, and depending on the type of business you’re running, some may be more fitting to implement than others.
In the list below, we will be covering 3 of the most popular types of KYC, right along with their advantages and disadvantages:
1. Traditional KYC
Traditional in-person KYC is one of the oldest and most traditional forms of customer identification. Typically, this involves a customer who physically shows up on the premises and wants to do business, resolve a matter, or otherwise get something taken care of.
During the process, they may be asked to present a proof of ID and proof of address. For the former, a driver’s license or an ID card will do. The latter requires an official document that shows that person’s officially-registered address (a utility bill or a bank statement usually meets the criteria).
In addition, the customer may be asked to sign some documents as proof of agreeing to a service or to authorize a company representative to do something on their behalf.
The pros and cons
Since this is the simplest way to enforce the KYC standard, it doesn’t require any specialized technology or IT solutions. Thus, the company representatives won’t need to be trained beyond the basic concepts and understanding, which saves valuable resources.
At the same time, this is not the most efficient way to go about it, as it can create several operational delays. When social distancing is in effect, the disadvantages and sheer limitations of this method can become even more apparent.
2. Digital KYC
Digital KYC retains some of the same protocols and procedures as its traditional in-person counterpart, with the added difference of introducing the convenience of conducting business through digital websites and portals.
With digital KYC, there is no need to show up in person, but on the other hand, you will need to upload either a scan of your documents or take a photo of them. Note that not every institution, company, or organization may be willing to accept both, so it’s important for the client to follow the instructions and upload the document image in the right format.
The pros and cons
One of the key advantages of this method is how streamlined everything is. It’s also convenient due to it not requiring a customer’s physical presence, meaning it can be done from anywhere as long as there’s an internet connection. Moreover, since it doesn’t require a physical company representative to oversee the process, this can cut down the costs dramatically.
As efficient as digital KYC may be, it still requires someone to verify the document scans uploaded to ensure their legitimacy (either that or a suitable software solution). Also, it requires a fair bit of trust on the customer’s side, since not everyone is comfortable uploading digital copies of their documents quite yet due to cyber security concerns. There are many security considerations at play with this approach, including the time of exposure, access tracking, and encryption.
3. Video KYC
Video KYC involves having a video chat with a customer so the company representative can verify their identity. Oftentimes, a customer may be asked to physically demonstrate they are in possession of their personally identifiable documents by holding them up and showing them on camera.
To make the process easier, there are many industry-acclaimed tools like Idnow.io that take the stress out of the equation while ensuring fraud-free authentication. Alternatively, the customer does not even need to show up to a scheduled virtual appointment, but may simply record a video of themselves instead.
The pros and cons
Smartphones are a widely-available technology that allows for video KYC procedures to be performed from anywhere in the world where there is a signal. Yes, this includes the cheaper models!
Even the most affordable modern smartphone models are suitable for video KYC identity verification.
One of the few drawbacks, however, is that the company or organization will need to invest in a digital solution that allows for error-free authentication. Still, this is way more affordable than having to onboard additional staff and provide the necessary training just for the purpose of customer identity verification.
Is digital KYC the future of identity verification?
There’s no denying that the world is moving into the digital sphere and how we’re now used to the digital aspects of doing business reflects it quite well. Deloitte has found that 87% of companies share the opinion that digital is the future, and it shows on multiple fronts.
Post 2020, the majority of business interactions have transitioned to the online world due to necessity. One of the positive aspects of this, however, is that people have become more comfortable ordering things online and trusting the stability and security of the overall process, despite how certain second thoughts still persist.
Although there is still some reluctance, particularly due to privacy and cyber security concerns, more and more people are willing to trust that companies are now equipped with the knowledge and tools they need to make sure the sensitive personal information doesn’t slip into the hands of an unauthorized third-party.
Even the essential personally-identifiable documents that used to be entirely physical in nature are now connected to the digital world in some way or have a digital chip attached to them. This, in turn, opens the doors to other potential forms of digital identity verification that are not even possible right now but will more than likely become so in the not-too-distant-future, the kind that may not even require taking a photo or scanning the document.
So to answer the initial question – absolutely! Digital technology certainly opens more doors than it closes. We just need to find the right way to implement it all.
As we progress through time, only our imagination can set the limits for what is and isn’t possible to achieve – for the most part, the technology is already there. The rest boils down to people’s acceptance of it and seeing how it all falls together in practice.