KYC and Digital Id&v – Stopping Fraud at the Source

KYC and digital ID&V – stopping fraud at the source

The transformation of society as a result of the global pandemic is evident in our everyday. The move to digital channels due to lockdowns has permanently changed how we work, how we spend and, of course, how we engage with services online. It fast-forwarded digitalisation in industries with typically traditional experiences, and it fast-tracked end users going digital.

A clear example of this is the growth of online banking in the UK: 78% of the population was using the service before the pandemic, but that figure is

Globally, this trend has been of benefit to both organisations and consumers. As the World Bank reported, one unexpected impact of the pandemic has been that it “

”, driving increases in digital payments and account ownership. But as with any global shift in behaviour it comes with its own set of challenges for organisations, especially those that are financially regulated and complying with anti-money

As end-to-end digital-only transactions are increasing, all types of fraud, including money

, are following suit. In fact, UK Finance’s annual report on fraud found there is an “epidemic” in the UK and

“Fraudsters have become increasingly adept at adapting their methods to suit changes in our lifestyles and in consumer behaviour.

For consumers – and financial institutions – verifying the identity of individuals they do business with at the outset is more important than ever; to establish a relationship based on trust, while preventing fraud from causing financial and reputational damage to your organisation.

In the global battle against fraud and financial crime, identification and verification (ID&V) solutions are critical to that effort – and central to Know Your Customer (KYC) processes.

KYC, sometimes referred to as Customer Due Diligence (CDD) is a key component of Anti-Money

or AML programs. KYC refers specifically to identity verification and risk assessment; AML may encompass a wider program, including transaction monitoring (TM), enhanced due diligence (EDD), and screening for sanctions, adverse media (AM) and politically exposed persons (PEPs).

It’s imperative organisations understand the stages of money

in order for an AML program to succeed. Money laundering begins with placement: illegally obtained funds being “placed” into the financial system. Layering, the second step, then separates the illegally obtained funds from their source, using complex financial transactions to disguise origins and ownership. Finally, integration sees laundered funds re-enter the economy using legitimate-appearing business or personal transactions.

journey can help businesses identify likely flashpoints, indications of potential money laundering and high-risk submissions. For example, unusual financial activity out of character compared to a customer’s transaction pattern, or transactions in an account becoming increasingly complicated.

Using a digital identity verification solution can empower a risk team in any organisation with automated decisioning for AML and KYC, allowing them more time to focus on high-risk submissions while genuine customers are onboarded seamlessly, which is key for any organisation’s success.

To deliver true fraud prevention via KYC frameworks, ID&V solutions must not only be secure but also seamless and scalable. High drop-off rates during onboarding continues to be an acquisition challenge for financial service providers. Having a user experience filled with friction adds little value to your business since it frustrates genuine customers, and even worse, can give opportunity to fraudulent actors to take advantage of loopholes.

The traditional approach of manually verifying the identity and address of an individual can lead to a much higher chance of fraudulent documents and actors slipping through. The hybrid approach of using mainly manual and partially digital processes carries an increased risk that data is not being processed correctly, and ultimately no security over who is exposed to it. There’s also a greater risk of misplacement, data theft or loss, let alone the risk of human error creating problems.

Having digital-only ID&V solutions that integrate with existing processes, including legacy systems, and enhance the user experience is paramount.

In the past, to onboard customers and reduce the risk of fraud at source, organisations were left using first-generation methods of identity verification that are typically database-reliant and powered by manual review in the background. However seeing the sophistication and speed at which fraud is progressing, these solutions lack the adaptability needed to fight the fraud of today.

Fortunately, the technology exists to achieve this with next generation solutions like ID-Pal, that offer a technology-first alternative that is customisable and agile. Using biometric, document along with database checks, a unique blend of identity verification layers is provided. Good solutions can defeat attempts to defeat “liveness” checks designed to ensure biometric inputs are from a genuine person. Better solutions can do this seamlessly, within seconds while verifying the document, the document owner and their address are all real, as we can do.

Identity verification is key to tackling AML, preventing fraud at source and complying with KYC requirements. Next generation ID&V solutions offer a robust method of achieving just this – and, as ever in life, prevention is better than cure.