In today’s digital market, Electronic Know Your Customer (eKYC) measures have replaced the interpersonal relationship between customers and sellers. And that’s actually a good thing.
There is no denying online services are convenient and effective for all parties involved. On the other hand, preemptive measures must be implemented to mitigate the risk of fraud or misuse.
At its core, KYC guidelines help institutions protect themselves and their customers from criminal activities like money laundering and fraud.
In response to recent RegTech developments, new forms of eKYC are coming into play.
Below, we’ll be exploring the different trends in regulation technology to better understand its full potential for preventing online fraud.
From in-person to online
As we move further into the digital revolution, eKYC options will become more intuitive and sophisticated.
Currently, there are three types of eKYC, also called identification from a distance.
1. The most common is the verification of multiple factors such as ID and address, where an individual’s identity is cross-referenced through different data sources to verify its legitimacy.
2. Another option is video conference, where a customer answers questions to rule out a playback and presents the front and back of their ID.
3. Depending on the country, a company could have access to electronic IDs, which enables third parties to verify a client by reviewing the information associated with their bank account.
This type of eKYC is popular in the Nordics and is gaining prominence in the Benelux.
From manual to automated
One of the most evident advantages of digitalization is being able to automate meticulous tasks.
For instance, Robotic Process Automation (RPA) software allows for processes to be fast-tracked while reducing errors.
Automated eKYC is cheaper, more efficient and can verify things a human eye cannot.
For example, programs can read MRZ lines (code found in passports and other types of ID cards) or use biometrics to ensure the person in the picture is the same as the one in the video conference.
What’s best, properly executed automation is the best way to improve user experience without sacrificing safety.
Of course, we will still need human personnel to oversee the automation, test the software and correct errors.
Although eKYC regulations are based on European Directives, each country’s regulator interprets them differently.
The first of these directives was called Payment Services Directive (PSD1) and it focused on easier and faster KYC.
It’s second iteration, PSD2 prioritizes safety and making requirements stricter. It looks to not only collect data but also protect it, ensuring information is secured and not misused.
This new directive protects customers while also empowering them. They are now the owners of their data, which means they can transfer it to any financial institution they want for as long as they want.
Kenan Haskovic, Ria’s Compliance Operations Manager for Europe, shared his expert opinion on the future of KYC.
“As we head towards a digital society, our KYC processes are also becoming more technological. At Ria, we follow this transition closely, offering our digital customers a secure, top-of-the-line eKYC journey while also preserving the integrity and inclusiveness of our analog KYC services,” he said.
As of today, over a billion people lack identification, let alone an electronic footprint.
Thus, regulation policies still need to account for those who don’t have access to digital banking, mobile phones and other pillars of eKYC.
Although the use of eKYC is expanding, there is still a need for traditional KYC processes for customers who remain in the periphery of digitalization.