When financial products and services are digital, verification systems should follow the lead. Today, regulatory organizations have implemented measures allowing financial institutions to conduct the onboarding process online. This is accomplished through eKYC, which simplifies the processing of financial services. The availability of eKYC online has made it easier to access digital financial goods and services, such as establishing a bank account, investing, and even taking a loan.
But what exactly is e-KYC? Simply put, eKYC refers to the digitalized version of the "Know Your Customer procedure. KYC is a method mandated by the RBI for financial institutions to use when confirming and authenticating a customer's personal information.
There are many advantages to the KYC policy, which also apply to eKYC. Continue reading to discover more about them, gain insight into the significance of eKYC, and learn how to get the eKYC process started.
Digital Transformation From KYC To eKYC
KYC is a technique for identifying and verifying a customer's identification. The procedure comprises a series of checks carried out at the first stage of the customer interaction to ensure that he is who he claims to be, taking into account his identity, documents, and persona.
This procedure is influenced by several rules, such as anti-money laundering (AML), terrorist financing, electronic identification standards, and trust services (eIDAS). And what is the primary distinction between KYC and eKYC? KYC processes can be created offline (in person) and online (remotely). Here is where we can see KYC's transition to eKYC. All organizations and economic agents, particularly financial institutions and banks, are undergoing a rapid digitization process. Digital transformation has been one of the most significant shifts in businesses over the previous decade, causing those that ignore this task to lose prospects or even disappear.
Companies and organizations are battling to change and digitize operations that initially appeared tough to automate and remote. However, specialized firms have emerged to accomplish this work, transforming and optimizing processes with cutting-edge technology such as artificial intelligence and machine learning.
Regtech companies have emerged, assisting businesses in implementing laws and legal procedures with solutions that optimize, enhance, and lower the costs of these processes.
How Does the eKYC Process Work?
The eKYC process employs a variety of advanced techniques and technologies to verify identities efficiently and securely:
- Biometric Verification: Utilizing biometric data such as facial or voice recognition simplifies the verification process for users, eliminating the need for them to remember complex security details. Modern smartphones equipped with high-resolution cameras facilitate this by capturing clear images without requiring additional hardware.
- Document Scanning: Customers can upload official documents—like passports, birth certificates, and incorporation certificates—using their smartphone cameras. Sophisticated software then verifies these documents by comparing a selfie with the provided photo ID.
- Two-Factor and Multi-Factor Authentication: This security approach adds layers of protection by requiring users to authenticate transactions through additional methods, such as a secondary hardware token or verification across multiple channels, thus enhancing resistance to identity fraud.
- Digital Footprints: Digital footprints, including data such as IP addresses, browser settings, and typing patterns, provide unique identifiers that can aid in online identity verification. These elements help corroborate an individual's identity based on their online behavior.
- One-Time Passwords (OTPs): Unlike static passwords, OTPs offer heightened security by generating a unique code for each transaction, which becomes invalid after a single use, thereby reducing the risk of unauthorized access.
- Trusted Data Sources: eKYC systems can cross-check individuals or entities against government databases, official registries, and sanction lists. They may also analyze online information, including news articles and social media profiles, to confirm identity and ensure compliance.
These methods collectively enhance the security and efficiency of digital identity verification processes, providing a robust framework for combating identity fraud.
Differences Between eKYC and KYC
When it comes to KYC and eKYC, there aren't necessarily any distinctions in the behind-the-scenes processes. Businesses must still perform identity verification and check that person's identity. What differs is the process of gathering and verifying data. For example, a consumer may have visited a bank branch to open an account through traditional KYC. Bank staff would verify their identification documents before comparing their information to databases and watchlists. Individuals can use eKYC processes to give a digital copy of an identification document and an associated biometric.
AML eKYC Approach
eKYC and digital identity processes are critical in achieving AML standards. AML checks on potential candidates are a legal obligation for financial services during onboarding and engagement. They are intended to combat money laundering, criminal activity, and corruption; visit our blogs for more information on particular anti-money laundering rules. eKYC processes need a company not just to identify their clients but also to assess their risk profile and stop money laundering before it begins. Laundering money is a lengthy procedure with several AML stages.
The Benefits of eKYC
The eKYC technology reduces costs and increases transparency in the customer authentication process for banks and financial organizations. In addition, it has enabled people to submit important papers and other information from the convenience of their own homes.
The three primary advantages of the eKYC user registration system are as follows.
- No Paper Trail: When applying for a loan or opening a bank account, the concerned bank's initial requirement is KYC. Although this is a straightforward process, the user must physically visit the bank's website to submit information and papers. Some people may need help obtaining all the challenging documents and correctly compiling them. By allowing users to submit KYC papers online, eKYC solves this problem. As a result, the entire process is now paperless and considerably more efficient.
- Cost-Effective: Under traditional KYC, the bank must pay inventory and staff expenditures. The typical KYC procedure is carried out between the user and a bank representative. The bank must pay a team of individuals to check the user's information to guarantee that every detail is correct and comprehensive. Everything is done online with eKYC. It saves money and time for both parties concerned. Furthermore, eKYC may be done 24 hours a day, seven days a week, and the consumer does not have to move an inch.
- Safe and Secure: The most crucial advantage of eKYC is that it is safe and secure. The bank would not lose any of your financial records, which is a chance that would be extremely high with a standard KYC. In addition, being online would ensure that everything was secure and that the data was not shared or altered. eKYC also eliminates the possibility of losing or destroying important papers.
- Extremely Fast: Online registration and authentication take substantially less time than conventional KYC. Because all requirements are accomplished online rather than physically visiting the branch to submit papers, eKYC is considerably faster.
eKYC Services In Different Sectors
For almost a decade, the banking sector has been among the first to digitalize critical procedures, including the digital KYC process. A person may complete the eKYC procedure online using automatic video identification and establish a bank account, sign a loan, or even a mortgage in minutes and from anywhere.
The Fintech industry was among the first sectors to benefit from the eKYC procedure since enterprises in this area could conduct 100% of their activities online. For Fintechs, eKYC provides the foundation for rapid regional and worldwide expansion by assuring scalable growth at meager costs and providing an outstanding user experience.
