Ensure KYC Identity Verification to Streamline Banking Operations

Ensuring KYC identity verification is crucial for streamlining banking operations. In Japan, the market for electronic Know Your Customer (eKYC) and identity verification solutions is rapidly growing. In fiscal year 2022, the sales value was estimated at approximately ¥6.9 billion. Projections indicate a substantial increase, with the market expected to reach almost 19.8 billion yen by fiscal year 2026. This growth reflects the increasing adoption of eKYC services by financial institutions, including regional banks, to enhance operational efficiency and compliance.

What is KYC Identity Verification?

KYC (Know Your Customer) is an intricate term that defines itself as a phenomenon. Know your customer is the process is the specified protocol for verifying the potential customers. Before onboarding them in the banking departments and related financial institutions. It is an effective procedure that utilizes online frameworks to validate the identities of potential customers. For a long time, there was no concept of verifying the customers. In 1970, it was the first time in the U.S. there was a rule regulating authenticating identities to combat the significant threat of money laundering. Due to increased monetary losses, incidents such as money laundering and terror funding have encouraged officials to regulate such measures to fortify integrity within financial departments and potential businesses. 

How to Conduct a Digital ID check through KYC protocol?

Online ID verification in financial departments and related businesses has enhanced the working frameworks due to digital availability. KYC identity verification is conducted through online verification of ID and executed in a number of steps, which are given below: 

• The first step in KYC identity verification involves the submission of the acquired identity documents from the online customers. Who are conducting the registration process or trying to access the system. 

• The service provider asks the online user to submit the selfie, the supporting documents, and government-issued credentials. These are acquired from the customers to check whether he has uploaded the authentic credentials. 

• Meanwhile, the fast integrated systems of machine learning algorithms scrutinize the uploaded documents to check if they are forged copies or the authentic ones. 

• The uploaded documents are checked through the KYC identity verification program to identify their legitimacy. To find out if they align with the global standard rules of this protocol. The submitted credentials are passed through a series of verification steps. Which involves the machine learning programs and then the OCR system. Optical character recognition (OCR) extracts data in two ways. 

1. Data Extraction through OCR: The process in which system extracts the identity credentials from the system and checks the authenticity of the provided information. 

2. Data Extraction without OCR: Another method in which users manually provide their identity credentials. And integrated digital ID checks analyze the credentials for finding their validity. 

Essential Components of the KYC Program

The essential components of the KYC program include the three major programs, which are given below in detail:

CIP

The customer identification program is a significant step in the KYC identity verification protocol. It is designed to have complete information for identifying potential customers before opening a bank account to curb money laundering and terror funding incidents. These defined procedures of money laundering are majorly executed by creating fake accounts in the banks for conducting illegal transactions. For this purpose, the system asks for the submission of identity credentials such as name, proof of address, passport number, social security number, and previous financial details. The provided credentials are scrutinized against the biometric authentication and the document verification. The CIP mandate is designed in such a way that it is utilized to find out the customer’s financial risk assessment. These assessments show the risk score associated with each profile according to their previous financial history. 

CDD

Customer due diligence is another program designed to conduct authentication procedures for potential customers. The customer identification program is utilized for risk assessment in which identified high-risk customers are then scrutinized for further evaluation to mitigate the chances of false positives and negatives. On the other hand, low risk customers are directly granted access to the system for acquired services. 

Ongoing Monitoring

After hiring the customers, the ongoing monitoring verification is regulated for continuously checking the financial activities in which customers are involved. It is ensured for mitigating the potential threats of money laundering and terror funding within banking departments. 

The Bottom Line

KYC identity verification in banking and financial institutions has curbed money laundering and terror funding crimes by allowing any legitimate customers to enter the system. The regulation of such verification protocols has enhanced the overall working operations within businesses. As they provide digital checks for validating entities. Therefore, it is encouraged to have such systems in which only legitimate customers are allowed. Then, ongoing monitoring should be ensured so that potential chances of their involvement in illegalities can be identified.