KYC Verification: What It Is and What It Entails in 2024

Key takeaways

KYC (Know Your Customer) is an essential process for companies, especially in the financial sector, that allows them to verify the identity of customers and prevent fraudulent activities while complying with current regulations.

The KYC process includes the collection of personal data, document verification, and facial recognition, elements that can be performed digitally for greater efficiency and user convenience.

KYC regulations vary according to jurisdiction and industry, with AMLD5 (Fifth Anti-Money Laundering Directive) being a key standard in Europe that defines the requirements for identity verification.

Didit offers a free, unlimited, and forever KYC solution that includes document verification, facial recognition, and optional AML Screening, allowing companies to comply with regulations efficiently and cost-effectively.

The term KYC (Know Your Customer) has become a fundamental concept in the business world, especially for companies operating in the financial sector that need to comply with strict regulations against fraud and money laundering. But what does the KYC verification process really entail, and why is it so crucial in today's digital environment?

In an increasingly digitalized world, where online transactions are the norm, companies face the challenge of ensuring that their customers are who they claim to be. This is where KYC verification comes into play, an essential procedure that allows organizations to confirm the identity of their users securely and efficiently, while complying with legal and regulatory requirements.

But KYC goes beyond being a simple bureaucratic procedure. Its proper implementation can make the difference between a company's success and failure, as it not only helps prevent fraudulent activities but can also help improve abandonment metrics, optimize ROI, or reduce operational costs. In this context, innovative solutions like those offered by Didit, which provide a free and unlimited KYC service, can be a great ally for companies looking to thrive in the digital age. We'll discuss all of this throughout this article.

What is KYC?

KYC, an acronym for "Know Your Customer", is a set of procedures and regulations that companies, usually in the financial sector, must follow to verify the identity of their customers and comply with current regulations. This identity verification process is the first step in preventing illicit activities such as money laundering, fraud, or terrorist financing.

In other words, KYC involves collecting and analyzing detailed information about customers to confirm their identity and better understand who they are about to start a business relationship with. What data does this include? We typically talk about name, date of birth, and address, although the requirements may vary depending on the jurisdiction and industry.

Although KYC and AML (Anti-Money Laundering) are closely related, it's important to distinguish between them. While KYC focuses on customer identification and verification, the AML process encompasses a broader set of policies and procedures aimed at detecting and preventing money laundering. If you want to know more about AML processes, you can click here.

Is it mandatory for companies to comply with KYC? Each country has its own regulations regarding obliged entities. For example, the KYC process is mandatory for many companies in the financial sector. However, companies should not only see it as a legal requirement but as a competitive advantage that institutions can leverage.

KYC Process: Key Steps for Effective KYC Verification

The KYC verification process is fundamental to laying the foundations for a secure business relationship and complying with current regulations. This process consists of several critical steps that companies must meticulously follow to guarantee the identity of their customers and prevent illicit activities.

Collection of Personal Data

The collection of basic customer information is the first step. This includes data such as full name, date of birth, residential address, tax identification number (or similar), and contact information.

Phases of Identity Verification

Once all this data is collected, it proceeds to verification. How? Through document verification and facial recognition.

• Document verification: Using advanced algorithms, the authenticity of the document is verified, looking for inconsistencies that indicate if the documentation is false, generated by artificial intelligence, or edited. Additionally, other technologies such as NFC verification allow document verification reducing fraud to zero.
• Facial recognition: This is the authentication phase, where the aim is to ensure that the person trying to verify is truly the owner of the documentation. Through facial biometrics and passive liveness test or life test, it's possible to authenticate users' identity remotely.

Policies and Regulations: KYC as an Anti-Fraud Measure

Complying with KYC policies and regulations is not only a legal requirement for obliged entities, but it's also fundamental to prevent illicit activities and protect the integrity of the financial system. However, industries must keep in mind that regulations are not the same for everyone: they can vary depending on the jurisdiction and industry. What they do share is the common goal of promoting transparency and laying the foundations for regulatory compliance against money laundering. Because KYC plays a fundamental role in the fight against money laundering and terrorist financing.

What happens to institutions that fail to comply with regulations? Non-compliance with regulations can lead to economic sanctions and reputational damage. Therefore, it is essential to have solid KYC policies and procedures that close the door to fraud.

AMLD5: The Anti-Money Laundering Directive that Sets the Regulation in Europe

In the European context, AMLD5 (5th Anti-Money Laundering Directive), along with other standards such as eIDAS, define KYC standards. They also discuss secure identification methods (such as the implementation of reusable verified credentials or reusable KYC) that represent significant advances in how users can interact with companies from different sectors: banks, insurance companies, or even public administration.

AMLD6 (Sixth Anti-Money Laundering Directive), whose implementation will be progressive in Member States, brings modifications from the perspective of money laundering and other related crimes. The definition of obliged entities will also be expanded with this new regulatory framework. Although its implementation is expected to be phased in over the coming years, some experts are uncertain about how it will integrate into many local regulations.

Remote Identity Verification: The Advantages of Digital KYC

Technology has allowed for the automation of KYC processes and to carry them out remotely. Thanks to advances such as document verification and facial recognition, which we discussed earlier, institutions can offer remote identity verification, avoiding the need for users to physically travel to an office or branch.

Digital KYC presents numerous advantages for both companies and customers:

• Greater convenience: Users can complete the verification process from anywhere and at any time, using their smartphone, tablet, or computer.
• Speed: Process automation allows verification to be carried out in a matter of seconds, compared to traditional methods that can take days or weeks.
• Cost reduction: By eliminating the need for personnel and physical spaces dedicated to verification, companies can significantly save on operational costs.
• Improved user experience: A smooth and frictionless digital onboarding process can improve customer satisfaction and increase conversion rates.

However, it is crucial that digital KYC solutions meet the highest standards of security and regulatory compliance. Companies must ensure they choose reliable providers that use advanced encryption and data protection technologies to safeguard users' sensitive information.

How Can Didit Improve the KYC Process?

Times have changed. Spending hours in a bank branch, for example, to open an account is a thing of the past. Now, any financial institution (banks themselves, neobanks, or fintechs), which are the obliged entities par excellence, must offer their customers the possibility of verifying their identity remotely. And Didit is the ideal ally for this, thanks to our 100% digital tool.

Didit offers an unlimited, free, and forever KYC service. Our solution is based on three pillars: document verification, to ensure the authenticity of the documentation and extract information (ID, passport, driver's license, or residence permit); facial recognition, with facial biometrics and passive liveness test to ensure that the person on the other side of the screen is really who they claim to be; and optional AML Screening, to cross-check identities against different sanctions lists and PEPs. All of this, in real-time and in just 30 seconds. With a free, unlimited, and forever service, Didit improves the KYC process.

Why do we do it? In an era of fraud and AI, ensuring identity should not be a luxury but a fundamental right. At Didit, we are committed to this, and that's why we offer the highest technology at no cost to companies, regardless of their size. If you want to know more about our motivation, we tell you everything in this post.

Conclusion: KYC as a Pillar of Digital Trust

The KYC process has become a fundamental pillar for companies in the digital age, especially in the financial sector. Beyond being a mere legal requirement, implementing a robust KYC process represents a crucial competitive advantage. It allows organizations not only to comply with current regulations but also to prevent fraud, improve customer experience, and optimize their operations. The evolution towards eKYC has opened up new possibilities, offering greater convenience, speed, and efficiency for both companies and users.

In this context, innovative solutions like the one offered by Didit are redefining the landscape of identity verification. By providing a free, unlimited, and forever KYC service, Didit not only democratizes access to cutting-edge verification technologies but also reinforces the idea that security in digital identity should be a fundamental right, not a privilege. This approach not only benefits companies by reducing costs and improving processes but also contributes to creating a safer and more accessible digital ecosystem for everyone.

Are you interested in learning how Didit can help you optimize your KYC processes? With document verification, facial recognition, and passive liveness test, you can confirm your users' identity quickly, securely, and at no cost. Additionally, our optional AML Screening service will allow you to strengthen your regulatory compliance and prevent fraud.

Join the accessible KYC movement and discover how Didit can transform your approach to identity verification. Click here to learn more!