Know Your Client (KYC) processes to grow and be compliant

12 May 2022

Updated 12 July 2022

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Know Your Client, Know Your Customer, KYC... What is the most appropriate term to refer to the most complete identity verification method? All. The incorporation and registration of new customers to become part of the databases of companies and platforms has received many names, all synonymous with each other.

Whether it is required by industry regulations or to prevent fraud, Know Your Client has spread to companies of all sizes and areas, becoming part of the onboarding process in a standardized and even everyday way.

As this is the first decisive contact that users have when interacting with a business or platform, it is very important to take care of the experience they are going to receive, since, in some cases, it may mean that they do not end up becoming customers if it is not properly planned.

If they do decide to complete the process and become part of the customer database, the Know Your Client will be the starting point for any subsequent relationship and the initial image they form of the brand.

Discover the Tecalis  Know Your Client platform without obligation

What does Know Your Client (KYC) really mean?

Know Your Client is a standard originating in the financial and related industries for companies to obtain a risk profile of their potential customers. This procedure is useful and beneficial for both the companies in the industry and the customers, as it protects both from identity fraud.

The process is primarily about certifying that a person is who they say they are before registering them with a company and being able to start offering them products and services. Why is Know Your Client (KYC) so important? Initially, to prevent money laundering practices, but later, with the rise of online services, to be able to identify people remotely with guarantees and without risk.

Initially, this was achieved at the face-to-face locations by handing the ID card to the customer service agent. The agent had to inspect it to check that it was not a forgery and to verify that the person's face and the photograph on the document matched. 

Later on, a photocopy of the document would be required to be made, stored and associated with the customer file. This brought with it two problems: a slow process that required time and resources to complete, and forged identity documentation so accurate that it went unnoticed by the human eye.

Technology came to solve this problem with digital tools to perform a Know Your Client process in seconds, without paperwork or bureaucracy and with advanced anti-fraud controls. This is where eKYC (electronic Know Your Client or Know Your Digital Client) is born.

Discover this in-depth analysis of its counterpart term, Know Your Customer (KYC)

Which industries are applying Know Your Client

Although Know Your Client is an identity verification policy mainly carried out in the financial sector, it has taken on great relevance in recent years and has expanded to different industries. When we talk about the financial industry we refer to a set of businesses where monetary operations and transactions are the basis of the core business. We find then:

KYC is equally relevant in the telecommunications sector, which is closely related to the financial industry when it comes to user identification. 

SIM Swapping, for example, has put many companies in the financial sector in check, being a problem that originated in telcos. However, thanks to technology, this type of fraud is history for companies in the sector that decide to implement KYC, shielding one of the authentication factors used by banks to authenticate their customers.

Know Your Client is mandatory

In all the areas of finance and related industries detailed above, KYC is not an option, it is a legal requirement in the vast majority of markets and regions. Companies that do not adapt their processes to comply with the Know Your Client policies outlined in the regulatory frameworks of the locations in which they operate face not only business shutdowns but also severe penalties if they fail to properly establish the relevant controls.

In the European Union, the AML6 (Sixth Directive on the Prevention of Money Laundering) and eIDAS stand out as regulatory frameworks, although, in turn, each state has transposed these international directives into its national legal frameworks.

On the other hand, although it is not mandatory for them, sectors such as mobility and transportation or the tourism industry have decided to integrate this standard at certain points of their customer journey and take advantage of the benefits of Know Your Client to optimize their processes and establish a risk management strategy at the highest level. 

In any case, KYC is applicable to all types of businesses, having proven to be a tool that generates growth, opportunities and cost savings, both direct and, especially, indirect.

Get to know your customer in the onboarding process

Not before, not after. Know Your Client must be integrated during the onboarding process without the user perceiving friction. One of the biggest mistakes made when implementing KYC and AML controls is to do it in a separate process, differentiated from the rest of the phases that make up customer onboarding.

When and how to integrate KYC at a time when the user is still deciding whether or not to become a customer can tip the balance decisively one way or the other. Conversion rates at this time are high if the process is simple and smooth and low if the user experience does not match what is expected.

This is even more crucial in the case of digital onboarding where the customer is operating autonomously without the intervention of a human agent. It is very common to see users abandon the website or close the app after giving up because their identity document was not being well captured by the Know Your Client tool.

The technology that makes KYC processes possible

Before going into detail about which technologies are enabling Know Your Client processes with good success rates, we need to understand what happens during them.

Phases and steps in Know Your Client

The Know Your Client procedure is generally and in most cases composed of the following steps:

  1. The client accesses the onboarding platform and enters the required data.
  2. You are requested to show the camera your identification documents on both sides.
  3. The system, in a process that does not affect the customer and is imperceptible to him, performs a series of automated anti-fraud checks thanks to AI and exhaustive ML on the document.
  4. You are asked to look at the camera and make a gesture such as a movement or a smile.
  5. The system collects your facial biometric pattern, cross-checks the information with that obtained in the identity documentation and validates the generated proofs of life.
  6. The information is sealed with blockchain, everything that happened in the process is traced and a report is generated and linked to the customer's profile. This biometric information can be used to subsequently authenticate the user with facial recognition to access, for example, their personal area.
  7. Optionally, if the use case requires it, products and services can be contracted with an electronic signature digital solution.

It is important that the RegTech provider of identity and KYC tools is able to integrate both identity verification and e-signature with a seamless experience.

Discover how KYC, AML and eSignature can work together

Innovative technology to avoid friction

So which Know Your Client provider should I choose? There are dozens of options on the market to choose from and sometimes there seems to be no clear difference between one or the other, with very similar value propositions and regulatory support as per the norm

We have seen how the user experience, the complete integration in the onboarding flow and with the brand or the fact of having extensive functionalities not only to apply in the use case but also possibilities in the management platform to be used by our employees or collaborators are essential aspects to take into account for a KYC solution. However, despite all this, the technological power of the automated Know Your Client system will be the key to conversion

The process is already widespread and standardized but, nevertheless, showing our face and identity documentation to a camera can still generate some reluctance in certain types of users. This being the case, ensuring a smooth process that works in less than 3 attempts is decisive to avoid the abandonment of the user who wants to become a customer in the middle of the process. Not all solutions are capable of OCRing identity documents, performing the relevant checks instantly or recognizing the biometric facial pattern on the first attempt. Only the best ones can ensure a success rate of more than 98%.

We encourage you to continue discovering what a Know Your Client solution should be like by visiting our more detailed article where you will find all the types and models for this procedure on the Tecalis blog: KYC: What is Know Your Customer. In-depth analysis.

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