Know Your Customer (KYC) regulations require financial institutions and other businesses to verify customers’ identities and assess their financial crime risk. However, traditional KYC workflows are time-consuming, labor-intensive, prone to human error, and inconvenient for customers—multi-day KYC delays result in substantial drop-out rates during customer onboarding.
Businesses are increasingly turning to electronic Know Your Customer (eKYC) solutions to streamline and accelerate onboarding while ensuring compliance with strict KYC regulations.
What is Electronic KYC?
Electronic KYC is the digital verification of a customer’s identity through online channels as part of a business’s KYC procedures. Rather than relying on in-person verification or physical documents, eKYC uses digital technologies and data sources to authenticate customer identities remotely.
eKYC systems can verify identity documents, check customer information against trusted databases, and even incorporate biometric authentication for added security. By digitizing the identity verification process, eKYC enables businesses to more efficiently and accurately meet their KYC obligations.
For a more traditional understanding of KYC, view our blog overviewing the key differences between AML, CDD and KYC.
The Limitations of Manual KYC
In a typical manual KYC process, the customer must provide physical identity documents in person or by mail. The business then has to manually review the documents to confirm they are authentic and match the information provided by the customer.
Staff must then manually input data into the business’s system and file the paperwork. The process is slow, requires significant staff time, and can be frustrating for customers. There is also potential for human error in the document review and data entry steps.
The Electronic KYC Process Flow
In contrast, the eKYC process is much more streamlined and convenient for businesses and customers. While exact implementations can vary, a typical eKYC process flow is as follows.
- The customer or client electronically submits photos or scans of their identity documents through a web portal or mobile app.
- Optical character recognition (OCR) technology extracts data from the submitted document images.
- The eKYC system validates the authenticity of the identity documents by checking security features or comparing them to document templates.
- Facial recognition technology compares the customer’s face to the photo on their submitted ID document to verify they match.
- The extracted data is screened against trusted data sources and watchlists to confirm the customer’s identity and check for any red flags.
- If the identity is successfully verified, the customer is approved, and their account can be opened.
Identity verification can be completed remotely in minutes rather than hours or days with manual review.
What Can eKYC Do for Your Business?
eKYC dramatically accelerates customer onboarding and reduces friction in the process. Faster onboarding improves the customer experience and increases conversions.
The automation provided by eKYC also reduces the staff time and costs associated with KYC compliance. Banks spend an average of $60 million on KYC compliance, and staffing is one of the biggest drivers of compliance costs. With eKYC, rather than having employees spend time reviewing documents and entering data, those resources can be allocated to more valuable activities.
eKYC also improves the accuracy and consistency of identity verification by reducing the potential for human errors or oversights. Automated systems validate documents, match selfies to ID photos, and screen identities against databases with a speed and accuracy that would be impossible manually. Automation helps businesses to avoid non-compliance penalties.
Automated identity verification is just as beneficial from an auditing perspective. With eKYC platforms, the entire process is digitalized and centralized, leaving a comprehensive audit trail. Compared to scattered paperwork and physical or digital files, eKYC audit trails make it easier and less expensive to demonstrate compliance to regulators and auditors.
AML Beyond eKYC
While eKYC is a powerful tool, it’s important to recognize that it is just one component of a customer due diligence program. KYC verifies the customer’s identity, but effective due diligence should also assess the customer’s full risk profile and anticipated activity.
Businesses should have risk scoring and enhanced due diligence in place to determine the appropriate level of scrutiny for each customer. Ongoing transaction monitoring is also needed to identify suspicious account activity that may occur after the initial onboarding. eKYC provides a strong foundation for due diligence but should be part of a multilayered approach.
How to Implement eKYC for Your Business
If your business is looking to implement eKYC, there are a few key steps to take. The adoption process differs for every business, but a typical assessment and adoption undertaking should include the following steps.
- Assess your current KYC processes to identify how eKYC can help you meet compliance goals.
- Evaluate eKYC platform providers and select one that meets your specific needs.
- Integrate the eKYC system into your onboarding process.
- Train staff on the new system.
You should also consult with compliance experts to ensure that your eKYC process is adequately designed and meets regulatory requirements.
Streamline KYC with Alessa
Alessa’s identity verification software provides a comprehensive eKYC solution to help businesses comply with their KYC and customer due diligence obligations. Our powerful API makes integrating eKYC with your onboarding systems straightforward.
Alessa ID verification and KYC is part of a modular anti-money laundering and financial crime solution that also includes:
- Watchlist, sanctions, and PEP screening
- Risk scoring
- Transaction monitoring
- Automatic regulatory reporting
- Collaborative case management
Contact our AML experts today to learn how Alessa can streamline and optimize your business’s AML compliance processes.
