eKYC (electronic Know Your Customer) is the automated, digital process for customer identity verification, which serves as an alternative to the traditional, physical document-based Know Your Customer (KYC) process.
Know Your Customer (KYC) regulations targeting anti-money laundering (AML) have been in place for decades now, and were only further strengthened following the 9/11 attacks as an effort to fight terrorism financing (CTF) with the Patriot Act.
Ensuring that the financial industry helps the government combat these illegal financial activities, companies in the sector are required to monitor for and report suspicious activities that may be related to money laundering or other crimes.
This is where KYC guidelines come into play, which makes it so financial companies need to verify that they are doing business with legitimate, law-abiding individuals or entities as part of their due diligence.
Though KYC processes and guidelines play an important role in national security, the traditional verification processes to collect authenticating documents from customers and manually verify them for accuracy can be resource-intensive and time-consuming for individual organizations.
However, the advent of eKYC has made it easier for reporting entities to verify the identities of their customers with better accuracy and efficiency.
What Is eKYC?
eKYC, or electronic Know Your Customer, refers to the automated process that an organization can implement to verify customer identities digitally.
This process typically relies on a sophisticated program that will help onboard new customers and meet regulatory requirements, and usually involves the following steps:
- Customer registration: The new customer will initiate the onboarding process through an online platform or mobile app that the organization has provided
- Document capture: Using the secure digital platform, the customer will capture images of their identity documents (a passport, ID card, etc.) using the camera on the device
- Biometric data capture: The platform may request some form of biometric data, like a selfie, as a way to verify that the person trying to verify the identity is the person on the provided documents through biometric verification
- Data/identity verification: The collected documents and biometric data will be processed through an automated verification software to check for authenticity and accuracy
- Customer approval: If the customer’s identity is successfully verified, they can be approved for the requested service, like opening up a bank account or taking out a loan
There are a number of industries that can implement eKYC, namely in the financial sector like banks or credit unions. However, it can also be utilized by telecommunication companies and online platforms to streamline their customer onboarding process and stay compliant with relevant regulatory requirements.
eKYC vs KYC
eKYC and standard KYC practices are based on the same principles and help companies reach the same compliance standards. However, the main difference is that standard KYC processes are done manually, while eKYC is done through digital automation.
In other words, with standard KYC, companies need to manually collect and process documents from customers to verify their identities, like their driver’s license, Social Security card, or other identification documents to prove they are who they say they are.
But, with eKYC, companies can utilize programs that guide customers through this process digitally by uploading their documents on their own time or providing biometric data. Then, the sophisticated program will verify the documents and data points for accuracy and legitimacy without requiring human involvement.
eKYC is typically seen as a more modern, accurate, and reliable way of carrying out customer verification practices, though manual KYC is still utilized by organizations across the country.
Benefits of eKYC
There are several advantages that organizations will find if they implement eKYC as an alternative to the traditional approach. Here are some of the biggest benefits.
1. Better Efficiency: When using eKYC, companies can get their customer verification processes done much faster since it removes the need for manual document verification. As a result, customer onboarding occurs much more quickly.
Organizations don’t need to wait to onboard new customers until the proper personnel is in the office to process the documents with eKYC. It makes the entire process much more streamlined and scalable without compromising on the compliance factor.
2. Greater Accuracy: Another standout quality of eKYC is that it can help an organization’s customer verification processes become more accurate. With an automated verification process in place, it can reduce the risk of human error and ensure that the identity is accurately verified.
In turn, this can help mitigate instances of fraudulent account openings or identity theft, especially with the use of biometric verification during eKYC processes.
3. Cost Savings: With less hands-on work, eKYC processes can actually help organizations save money. Traditional KYC can be very time-intensive and tedious, which can result in a large resource drain for companies. With automated identity verification through eKYC, organizations can save on the operational costs associated with manual identity checks and document processing.
4. Compliance: Perhaps most importantly, eKYC allows organizations to still meet relevant AML and CTF regulations while making the process more efficient and cost-effective. Organizations can ensure they are complying with these laws by implementing sophisticated eKYC processes, and avoid possible fines and penalties.
5. Enhanced Customer Experience: eKYC allows customers to complete the onboarding process at their own convenience, improving their experience. They don’t need to fax documents to the office, visit the location to speak with a representative or complete other in-person efforts that can drag out onboarding.
Possible Disadvantages of eKYC
Though eKYC measures can help organizations become more efficient and accurate with their customer verification efforts, there are some potential drawbacks that customers and organizations should be aware of.
For instance, the type of sensitive data and information that eKYC programs collect from customers during verification can pose some data security risks. If a possible breach or cyberattack were to target the eKYC program, it could put thousands of customers at risk of identity theft or having their information compromised.
Plus, there may be a technological barrier to certain organizations that may not have the support internally to implement eKYC effectively. Further, this gives organizations a dependency on technology, so possible outages could impact an organization’s ability to onboard new customers if the system is down.