In recent months, generative AI has been making waves by reaching millions of users in a short span. Although tools like GPT have no direct use in regulatory industries, such as finance, AI can still benefit KYC verification processes. From customer onboarding to ongoing monitoring, AI can significantly reduce the number of required human resources. More than that, the advancements in accuracy and efficiency of AI usage warrant the implementation of this technology in KYC. This blog gives an overview of KYC verification and discusses how AI can supercharge these processes.
What is KYC Verification?
Know Your Customer (KYC) is an established process in financial institutions to verify customers’ identities. As evident, banking and finance is a high-value yet high-risk industry. Therefore, it needs certain principles and policies in place to mitigate money laundering and fraud cases. Also, the recent few years marked a significant growth in the use of digital banking services and payment channels. The aim is to provide instant access to customers; however, such ease can also attract cybercriminals. Even though it’s been only a few months of 2023, the Federal Trade Commission has received 5.7 million fraud reports. These reports also include instances of identity theft.
In light of such events, authorities worldwide enforce stringent Anti-Money Laundering and KYC verification policies. During KYC compliance, the institution normally verifies the name, date of birth, permanent address, and authorized ID.
How to Harness the Power of AI in KYC
As mentioned, the KYC verification process can involve checking a plethora of documents. Moreover, the constant threat of regulatory audits forces organizations to update their methods. Apart from these variables, more and more customers are now moving towards digital payment systems, adding an extra burden on the sector. This is why KYC verification can be a demanding and time-consuming process. On the other hand, AI provides an automated solution to minimize these manual processes. In the long run, it can increase the accuracy and efficiency of KYC verification and improve customer trust in the institutions. Here’s a closer at some ways in which AI can enhance digital KYC verification:
ICR and Data Extraction
During KYC verification, a bank or financial institution must verify several vital points, including the name and date of birth. Moreover, they must also ensure the information is coherent on all documents. For instance, cybercriminals can use stolen ID documents to conduct transactions. However, cross-verification can mitigate these issues. The problem arises when the staff has to perform these checks manually. It is time-consuming, and manual verification can also introduce human negligence errors.
Online KYC Onboarding
KYC is an integral part of customer onboarding. Yet, the abundance of verification checks can overwhelm most first-time users. Also, people are now opting for digital onboarding since Covid. Therefore, organizations need to implement a robust system for digital verification. This is where AI comes in to save the day by providing an efficient solution for these problems. Moreover, a liveness test ensures that only genuine users can access the system. This liveness test utilizes deep learning techniques to match the customer’s facial features against their ID.
Enhanced Due Diligence
In the context of KYC verification, the above-mentioned checks fall under the customer due diligence process. However, a step further, the institutions also need to maintain risk assessment of all the customers. This process can involve a deep analysis of financial history, political associations, and relations with banned countries. Therefore, the risk assessment phase results in enhanced due diligence (EDD) of the customers. However, it can translate to countless working hours and communication resources to verify overseas information. Instead, AI scans authorized databases to perform verification in a matter of moments.
Real-time Transaction Monitoring
Apart from the verification at the onboarding phase, financial institutions must perform ongoing customer monitoring. This allows them to be proactive in case of any potential fraud or hacking attempt. Organizations can monitor customer activity and flag unlawful transactions by implementing this technique. AI enables the automation of these checks and minimizes the required time and resources.
Enhanced Customer Experience
Streamlining KYC verification using AI can result in numerous benefits for institutions and customers. For instance, a smooth and quick process ensures that users will not be overwhelmed. Instead, it will give the customers a better first impression of the company. In return, the organizations can build better client relations and enjoy increased customer retention.
In a Nutshell
KYC verification is a necessary process not only for the organizations but for the regulatory authorities as well. However, it can add unnecessary friction to the customer onboarding process. Current AI advancements present an opportunity for organizations to curb these issues once and for all. AI will be at the helm of KYC verification in the coming years. Therefore, companies must integrate these solutions into their processes.