Financial service institutions (FSIs) are currently in the midst of a digital and regulatory revolution. Customers expect a streamlined onboarding process as these institutions move towards digital products and services. Although it is true that nothing is more constant than change, this digital change means that governments and regulatory authorities need to implement modified legislation to keep up with fraud and cybersecurity cases. Besides governments, it also comes as a challenge for businesses. Businesses working in finance need to understand what’s next in knowing your customer (KYC) verification. Addressing the following trends as part of the compliance KYC strategy can help companies stay ahead of the regulations and competitors.
Advancements in AI and Machine Learning
Artificial intelligence (AI) and machine learning (ML) are two of the widely known technologies behind the advancements in most industries. The ability of AI and ML technologies to create algorithms that identify underlying patterns and preferences in data makes them the best choice for companies to invest in. Keeping these capabilities in view, AI can streamline the KYC verification process. For instance, it can help analyze patterns in customer behaviors, identify which transactions are risk-prone, and evaluate the customer’s associations.
Most forward-looking banks and FSIs already use AI-powered screening tools for KYC due diligence. It’s important to note that the trend of using AI in the Regtech and Finance industry is not just a gimmick. Instead, it represents a generational leap from manual to accurate automated KYC verification. One thing that company leaders need to focus on before investing in an AI-powered KYC verification solution is its accuracy rate. Since the demand for this technology is increasing, newcomers are providing identity verification services riddled with false positives. Therefore, the accuracy of the tool and its efficiency in working on real-time KYC should be scrutinized.
Merging Ongoing Transaction Monitoring with KYC
The US has been on the receiving end of cybersecurity and fraud cases, especially in the finance sector. In 2022 alone, the US suffered a loss of $1.59 billion due to payment fraud. Due to the rising number of such cases, FSIs need to know who their customers are and who they do business with. The AML customer due diligence and KYC compliance online programs enable banks and other companies to identify red flags in customers or their transactions. However, the most critical thing to point out here is that such verification processes are not one-off projects. Instead, they must continue even after the onboarding process to review customer behavior.
Traditionally, high-risk and medium-risk customers were reviewed after one or more years. However, the increased regulatory pressure from financial authorities makes it compulsory to increase the frequency of these checks. Ongoing or continuous monitoring is now a norm in the finance industry. Therefore, organizations must merge ongoing transaction monitoring with KYC verification to ensure regulatory compliance.
Adoption of Quick KYC Verification in Industries
Apart from significant changes in KYC verification, Quick KYC is one trend quickly picking up the pace. Customers today are more demanding than ever, they want a quick process with the same security features of an advanced solution. It becomes a challenge for companies to maintain a high level of customer experience with traditional KYC authentication tools. For this purpose, modern firms are now providing Quick KYC processes. In most cases, this process includes two features. It starts with document verification and uses customer feedback to verify the extracted information. The next phase continues with face verification to provide enhanced KYC verification.
Affect of Disruptive Technologies on AML/KYC Compliance
In recent years, customers are adopting modern technologies such as Web 3.0 in their daily work and even for financial transactions. Since these technologies are still in their nascency, hackers and cyberattackers can exploit the system for illicit gains. Therefore, it can be assumed that new KYC verification services will also appear to secure these technologies. Global regulators have started to tighten legislation around Web 3.0-based financial services. Moreover, authorities are also moving to introduce changes apart from crypto regulations. For instance, the Travel Rule from the Financial Action Task Force is an example of changing regulations.
Key Takeaways for Next-Gen KYC
2023 is an important year for the RegTech and Finance industry as a whole. The introduction of Web 3.0, AI, and other disruptive technologies brings a challenge and an opportunity for companies to enhance their KYC verification process. Companies need to transform to incorporate the shift in the regulatory environment. However, an even more critical step is to understand the areas where to concentrate the efforts. To confront this, companies need to identify the emerging trends of 2023 and devise a strategy for enhanced KYC verification. Such a strategy can help businesses stay updated with the regulations and the competitors.
