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In today’s era of technological advancements, criminals have been empowered to use sophisticated strategies to fulfill their malicious purposes. It has become a common practice for established criminal organizations to misuse information collected by banks, fintech, insurance firms, brokerage companies, or credit unions to avail free services, file for false insurance claims, or commit other fraud. However, financial institutions have stepped up their game as well by introducing automated solutions that help them combat such fraudulent acts. This is where online KYC (Know Your Customer) procedures come in.

Understanding “Know Your Customer”

Know Your Customer, abbreviated as KYC, consists of mandatory procedures carried out by businesses in an attempt to identify and verify the true identity of their customers.

KYC processes are implemented by companies regardless of what business sector they are in. With the help of these procedures, companies can ensure that their current and potential customers, agents, or distributors are AML (Anti-money Laundering) compliant, and are not imposters disguised as someone else.

Financial institutions such as banks, insurance companies, export creditors, etc. are increasingly demanding their customers to provide information that may be necessary for the purpose of identity verification. At first, KYC and AML regulations were only imposed on the financial services sector. Now, however, non-financial industry including online gaming platforms, casinos, e-commerce stores, retail, virtual asset providers, etc. are also liable to oblige.

What is e-KYC?

E-KYC allows financial institutions to implement Know Your Customer processes through online platforms. Given the era of COVID-19, remote business operations are gaining prominence worldwide and have now become a necessity. To fill this gap, the procedures involved in e-KYC are similar to the ones used in traditional Know Your Customer methods. The main difference is that they are implemented digitally.

E-KYC steps typically include the following:

1. Collection Of Information

This step in the Know Your Customer verification involves collecting Personally Identifiable Information (PII) of the online customer. The customer is required to enter sensitive personal information, such as their full name, date of birth, address, etc. during the account registration stage.

2. Upload an Evidence

After PII has been collected, the customer is asked to upload a proof of their identity that acts as an evidence. Valid documents include a government-issued ID card, passport, driver’s license, utility bill, rent agreement, bank statement, etc.

3. Verification of Information

Once the customer has provided information and has uploaded an ID document, several checks are conducted. This involved verifying the document type, style, format, crumpled edges, and the identification of fake, photoshopped, or forged documents.

A major benefit of e-KYC is that data from the ID document is automatically extracted through Optical Character Recognition technology which streamlines the entire Know Your Customer process.

That said, let’s take a look at some other benefits of utilizing online KYC processes.

Benefits of e-KYC

1. Avoiding Costly Lawsuits

Frequent instances of credit card fraud, data breaches, and identity theft can lead to interrogations about the online security of a business. If found guilty of participation or non-compliance with know your customer procedures can cause elaborate lawsuits from victims that may have been affected by breaches and fraud.

2. Protection of Reputation

Digital e-commerce stores and online financial services are vulnerable to cyber threats. Weak cybersecurity systems can cause a company to build up a bad reputation in a highly competitive market. With the help of online know your customer processes, data security is enhanced without compromising on customer experiences.

3. Reducing Opportunities of Cybercrime

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Online companies often experience cases where customers request for false refunds. On other occasions, fraudulent transactions can also be left undetected which could harm the financial well-being of the form. Identity proofing solutions, that used online know your customer procedures, mitigate the risk of fraud by verifying customers remotely. This way, financial crimes such as false chargebacks can be reduced, leading to an increase in overall profits.