Why Lenders and Insurers Shouldn’t Fully Rely on Digital KYC Checks
Lending and insurance firms comply with KYC and AML rules to prevent fraud and money laundering. They collect customer data, analyze and verify it. They need to know who a customer is, their economic background, and if it’s legal to do business with them. For them to conform with regulatory bodies, they welcome Artificial Intelligence (AI) into their business. With AI’s ability, they can rapidly evaluate the worthiness of the borrower’s credit and mitigate risk cost-effectively.
You must have experienced the time-consuming traditional process in lending and insurance before all these technological development that offers convenience. And you’re here now crawling through your way understanding the digital process. Do you think it is possible to fully rely on it?
KYC process — traditional and digital
The traditional process of KYC in the financial industry is having a new customer submit their documents in a branch location and get verified by an employee. Sometimes, after waiting an hour for their number to get called, it turns out that they don’t have the right documents or forgot to photocopy the necessary documents. Worst case scenario, KYC documents may be misplaced at the bank itself. The process drains the energy and time of the people involved. So, the industry upgraded their systems for a seamless transaction and provided us with digital KYC checks.
Digital KYC or electronic KYC (eKYC) is the paperless KYC process that identifies and verifies customer electronically. It obtains all the required information such as name, address, date of birth, mobile number, and image online. Digital KYC checks provide speed and convenience than the traditional process that frustrates the customers with lengthy queues and a bunch of forms to fill out. In a nutshell, it offers users an instant and paperless process for transactions in financial institutions.
However, despite the benefits it possesses, there are still gray areas on the implementation of digital KYC checks.
What About Fraud Risk?
Almost all information is online now, and there is a risk that fraudsters and thieves may steal it from the servers or company databases. Data breaches include the possibility of identity theft as the customer’s information has been exposed. Last July 22, a credit reporting agency had a data breach that exposed the personal information of nearly 150 million people. The Federal Trade Commission ordered the company to pay $700 million, so far the largest settlement ever paid for a data breach.
There was another case where a fast-food business owner got a text message with a provided phone number to call, that the KYC was about to end and that his online wallet account will stop working at the end period. Details such as name, phone number, and ID’s had been shared in a said update of the KYC information. After that, about 80,000 Indian Rupees or around 1,121.52 US Dollars were debited from his bank account.
On average, insurance firms lose around $30 billion a year due to fraud.
However, the upgrade on the KYC process has proven to increase security in customer accounts. An improved KYC system can identify a fake document and can quickly verify a customer’s risk status, so it is beneficial for lenders and insurers.
Automation is fine, but there are still some cases in need of manual intervention. Lenders and insurers should know the warning signs of fraud, standard operating procedures, and basic AML laws to ensure a reliable, secure and convenient transaction. As a business selling financial products, you should know who your customers are and if it’s safe to do business with them. Even though digital KYC has been reliable ever since it came out, some areas still need a manual review of documents that were submitted for verification.
If you’re concerned about the security of your KYC process while keeping the human touch intact, then click the button below to set an appointment with our outsourcing consultant. Learn the many ways that a team of customer service agents can help you.