KYC: What it is and why it is important in 2024

Key takeaways

 

1. Relevance and Evolution of KYC in 2024: KYC (Know Your Customer) is a critical process for businesses, especially in finance, to verify their customers' identities. In 2024, technology has transformed KYC, incorporating Artificial Intelligence, facial recognition, and biometrics, making it more secure and efficient.

2. Importance of Identification and Risk Assessment: Customer identification and risk assessment are fundamental pillars of KYC, essential for preventing fraud, money laundering, and other illegal activities, thus protecting financial institutions and the global economy.

3. The Synergy between KYC and AML in the Financial Sector: KYC and AML (Anti-Money Laundering) collaborate in the banking sector to prevent illegal money flow, using advanced technologies for improved efficiency and security.

4. Didit's Innovation in Identity Verification: Didit is revolutionizing KYC with cutting-edge technologies, enhancing efficiency, security, and user experience, offering an innovative and cost-effective solution for identity verification in the financial realm.

Would you blindly trust a stranger? Probably not. And neither do businesses. That's why many of them implement a KYC (Know Your Customer) process, a vital measure to ensure security and legal compliance. If you've ever opened an account at a bank or neobank, for example, you would have had to go through this procedure.

You can view the identity verification method as a sort of filter, a way for the organization on the other end to ensure that someone claiming to be John Doe is indeed John Doe. KYC serves serious purposes: preventing fraud, money laundering (AML), and other illegal activities, such as terrorism financing. Nowadays, with the sheer volume of financial transactions happening online, its relevance is more significant than ever.

Ultimately, we can see this protocol as an essential tool for building solid and transparent relationships with customers.

What is KYC in 2024

KYC (Know Your Customer) is a process whereby companies verify the identity of their clients. This tool, commonly used in financial organizations (banks, investments, gambling, etc.), requires people to undergo a series of verifications to prove their identity.

In 2024, we can say that this process has evolved. It's not just about asking for a photo ID or posing next to it anymore. With the threat of advanced technology misuse, we see identity verification being conducted with cutting-edge technologies, like NFC. These innovations not only make the process more secure but also faster and less cumbersome for individuals.

However, despite these technological advancements, many companies still have an archaic, sometimes even manual, workflow, which demands a lot of resources (both human and financial), reducing efficiency and forcing visitors to endure a terrible user experience.

Key Components of the KYC Process

The KYC process might seem straightforward at first glance, but it's like an iceberg: there's much more beneath the surface. Let's dive into the three fundamental pillars of KYC and understand why they are so crucial.
 

1. Customer Identification: This is the first and most visible step. Here, basic information is collected: name, address, date of birth, and official documents like an ID or passport. For this, NFC technology (Near Field Communications) is the safest, as the chip containing the information is official and directly from the competent authorities.
2. Biometric Analysis: Verification isn't just about collecting data; it's about ensuring the data is real and legitimate. It's crucial to verify that the person trying to authenticate is who they claim to be. For this, biometrics with artificial intelligence is the best system.
3. Risk Assessment: This is where things get interesting. Once entities know who you are, they need to determine if you might pose any risk to them. This could be a risk of fraud, money laundering (AML, Anti-Money Laundering), financing illicit activities (CFT, Combating the Financing of Terrorism), or even risks associated with non-compliance with data privacy regulations (like GDPR in Europe). They use a variety of tools and analyses to evaluate your profile, including your financial history, usual activities and transactions, and any other indicator that might suggest a potential risk. Don't worry, it's not personal; it's just a standard security measure.

These components are essential to form an effective shield against fraud and other illegal activities in the financial sector. Thanks to them, you can feel a bit safer knowing that processes are in place to protect your assets and identity.

KYC in the Financial and Banking Sector

The onboarding process is key to ending identity fraud in the financial sector. Effective KYC helps banks or neobanks, among others, to know their customers and ensure they're not involved in suspicious or illicit activities. This involves a meticulous process of gathering and analyzing information, and the implementation of advanced technologies to verify data and track money flow.

Thus, by implementing effective KYC processes, banks not only protect themselves but also contribute to the financial security of all their customers and, ultimately, the global economic system.

AML and KYC: Complementary and Different Regulations

AML (Anti-Money Laundering) and KYC go hand in hand in the banking sector. While KYC focuses on knowing the customer, AML focuses on monitoring and preventing the illegal flow of money. Together, they form a dynamic duo in the fight against illicit finances.

Financial institutions are adopting emerging technologies like artificial intelligence, machine learning, and blockchain to make these processes more efficient, secure, and less prone to human errors. These technologies speed up the verification process and provide deeper and more accurate analyses, ultimately allowing for better detection and prevention of suspicious activities.

Automation and Technology in KYC: The Case of Didit

Technology has redefined the KYC process. Where it once was a manual and tedious process, open to potential human errors, Didit now makes it automatic, fast, and efficient. Our identity verification solution is based on NFC technology, AI-powered facial biometrics, and offers a great user experience.

NFC technology helps us verify humanity of those attempting to verify, a step before checking biometric patterns and performing a life test to ensure the ownership of the identity being authenticated. Thanks to this technology, fraud is reduced in 99% of cases. See for yourself.

Regarding AML Screening, Didit offers a real-time verification system, consulting global databases to prevent money laundering. This includes identifying Politically Exposed Persons (PEP) and monitoring sanctions, ensuring continuous and efficient surveillance.

If you also want to know what Didit and its automatic identity verification system can do for you and your business, click the button below to contact our sales department.