Category: KYC & KYB

Welcome to our meticulously curated KYC/KYB category, a comprehensive repository dedicated entirely to the multifaceted dimensions of Know Your Customer (KYC) and Know Your Business (KYB). As we stride deeper into the digital era, the procedures around KYC/KYB have emerged as a fundamental pillar, ensuring secure and compliant operations within the financial landscape.

The articles housed in this category plunge into the complexities of KYC/KYB, discussing its inherent challenges, potential solutions, and its indispensable role in the realm of identity verification. Our articles traverse a wide array of topics, ranging from the application of artificial intelligence in customer due diligence processes to the impact of regulatory shifts on KYC methodologies. These writings cover a broad spectrum of subjects, offering relevance to businesses and professionals operating within the financial industry.

As a leading industry player in the domain of digital identity verification, Signzy stands at the helm of innovation in KYC/KYB. Our cutting-edge solutions are engineered to simplify KYC, making these procedures faster, more efficient, and notably secure.

Regardless of whether you’re a compliance officer diligently maintaining regulatory standards, a fintech entrepreneur navigating the challenging waters of the financial industry, or simply an individual interested in gaining a deeper understanding of the evolving world of KYC/KYB, our category offers a treasure trove of information and insights.

We invite you to join us on this journey of exploration as we dive into the future of KYC in the rapidly evolving digital age. Our articles aim to enlighten, inform, and provide a well-rounded perspective on the significant role that KYC processes play in today’s digital financial landscape. Welcome to a world where knowledge becomes power, and compliance becomes simplified.

Digital Onboarding in Life Insurance Sector

Digital Onboarding in Life Insurance Sector

Posted on | by Signzian

The Life Insurance sector, historically reliant on paper-based processes and face-to-face interactions, is undergoing a transformative shift with the adoption of digital onboarding. This digital evolution not only streamlines the cumbersome enrollment procedures but also caters to the modern customer’s demand for quick, hassle-free experiences.

Life insurance policies play a crucial role in the insurance industry. The Insurance Regulatory & Development Authority Of India (IRDAI) is the regulatory body for all insurance companies in India. IRDAI has now allowed the use of paperless KYC collection or e-KYC. To enable this, the government has allowed insurers to avail the Aadhaar-based authentication services of the Unique Identification Authority of India (UIDAI)

Life Insurance Companies can use KYC For Fraud Prevention

Insurance fraud is a reality in this day and era. Many people who commit such frauds do so without realizing that their actions result in higher premium rates that have to be paid by other people. On average, insurance companies lose around $30 billion every year on account of fraud. The costs of these frauds are levied upon innocent, hard-working people. The necessity for fraud prevention systems in the industry is the need of the hour.

Moreover, the smaller cases are most harmful as they get ignored. After a while, they add up to become a cumbersome amount. Background checks are conducted in the insurance industry as they can single out money launderers, if not the fraudsters. Most people who engage in insurance fraud use fake or stolen identities to execute their schemes. As we proceed with the article, we will point out how KYC services providers can assist the insurance industry.

Frauds Mitigation Through KYC For Insurance

There are many types of frauds that happen with life insurance companies. However, some can be easily avoided by applying secure processes.

Fronting: The insurance policy is taken out using the details of another person to get favorable terms such as lower rates on premiums. Criminals or fraudsters usually use this process to carry out their scams. They use fake or stolen identities to identify themselves as someone else. Then they proceed to create fake documents to support their taken identity. KYC service providers can isolate such attempts and prevent them from happening.

Money Laundering: This is a global problem. Insurance companies too are a common target to launder money. The products offered by insurance companies are easy to target for fraudsters. This is because the processes that are associated with them make it easy for money laundering. Life insurance policies are extremely tempting to money launderers. This is because they allow for heavier premium deposits. Money Launderers take out such policies and deposit large amounts of money while canceling the policies after a while. KYC service providers conduct conclusive background checks. This helps prevent these types of frauds.

The KYC Screening Process

For a productive business, corporates require to deal with the right people with beneficial and favorable intent. Sectors that are particularly in the profession of handling money need to be careful. They must be sure that they are dealing with genuine entities. This is why the life insurance sector has to adhere to KYC norms mandated by their respective regulatory bodies.

As part of the Anti Money Laundering Act, KYC norms help in ensuring that the entity in question has an authentic identity. It is made sure that the source of money is not a shady one. The money would not be used for fostering any criminal activity either.

If we take the life insurance industry as an example, insurance companies deal with three entities-

  • the insured party
  • policy taker
  • agent.

All these entities need to be KYC screened.

Insured party — this is the entity on which the insurance policy is being taken making it imperative to be checked for authenticity. There have been instances when insurance policies have been taken on non-existent or fake identities or on persons who no longer exist. There also have been times when the policy is taken by tweaking a few pertinent details of an individual. The goal of KYC screening is to avoid such a situation.

Policy taker- the entity who is taking a policy should be eligible for taking such insurance. This is the rationale behind screening policy takers.

The insured party and the policy taker are screened with the same method. Their identity proofs are examined for authenticity and the specified address is examined by paying a site visit.

Agent- Insurance companies depend on agents to generate business. An agent is the one who markets the insurance products to individual customers. Agents also educate customers about various products and help them choose the most suitable one. Subsequently, they are also expected to provide all sorts of assistance in taking the policy, paying the premium, and receiving the insured amount when required. Given this significant role, insurance companies are extra cautious about their appointment of agents.

Drawback Of The Current KYC Process

Multiple insurance companies struggle to deliver digital experiences. This is because legacy applications are the most common obstacle for digital transformation. Onboarding a customer in lesser time with due diligence is a challenge.

The existing onboarding process for most insurance companies is similar to the following:

  • Customer lands on company website
  • Selects insurance type and plan
  • Fills-in Occupation, income details, and PAN details as (ID proof).
  • Life-cover details: pre-filled form
  • Basic Info: partially filled form
  • Customer Identity undergoes verification
  • Customer must enter Lifestyle-associated details
  • The customer fills the Nominee details

With digital KYC, the following areas can be addressed for a smoother customer experience::

  • Form filling is smooth
  • Liveliness check ensures more sanity
  • Telemedical video conference eliminates back and forth.

Digital Onboarding — Need For Digitization In Life Insurance

  • Industry analysts and large consulting firms claim onboarding is a top priority for digital transformation efforts across the insurance industry. After all, bad onboarding can increase customer attrition rates by between 25 and 40 percent, according to The Financial Brand.
  • Industry analyst firm Celent emphasized the need to focus transformation efforts on onboarding. In its November 2018 report, it also talks about industry trends for wealth management firms.
  • In a study by Bain & Company, customers who use digital channels tend to be loyal to their banks. Digital banking customers tend to own more products, and they transact and engage more with their banks. Mobile-first customers contribute to higher loyalty scores to their primary bank. This in comparison to the clients with low digital behavior. Globally, it is 50% higher approximately.
  • As noted by Argo executives at the InsureTech Connect conference in October 2018: “Customer acquisition is just the beginning. How you deliver value to customers — that’s the real benefit to them in this ecosystem. We’re trying to create a better experience for everyone we engage.” That means a better onboarding experience.

Major Challenges in The Life Insurance Onboarding Process

 

Fragmented signup process — There may be some customers who are unable to complete the signup process in just one session. Ideally, the onboarding process should track progress and let them stop. The process can later restart onboarding effortlessly, from where they left off.

Complex information requirements — Several industries have complicated data requirements and strict compliance regulations. Instances can be financial services, healthcare, and government. State or regional rules frequently oversee the information that needs to be gathered as well as the format. In general, customers have to sift through forms with irrelevant questions. This leads to a struggle to comprehend the exact requirement from them. This often results in high NIGO (not in good order) scores.

Multiple channels and devices — It is possible for customers to choose to onboard across multiple devices, or even via a call center. However, the experience is often inconsistent. Enterprises must provide clients with an integrated and seamless experience on each channel.

Paper-based processes — Many business processes require customers to complete and sign paper forms. They can either scan and fax or even worse, mail them back. No one enjoys this tedious and time-consuming effort, either externally or internally.

IRDAI Existing Guidelines For Life Insurance

  • Every insurer in the life insurance business must provide customized benefit illustrations to proposers or policyholders at the point of sale for all products. The exception can be to those issued under IRDAI (Micro Insurance) Regulations, 2015, Guidelines on Point of Sales (POS) — Life Insurance Products, 2016, and IRDAI (Insurance services by Common Service Centres) Regulations, 2019 as amended over time.
  • Such benefit illustration shall have to be signed by the prospective policyholder as well as the insurance agent. The signatories may also include the authorized person of an intermediary. Another alternative can be to include the insurer involved in the sales process, as the case may be, This should form part of the policy document.
  • Further, the benefit illustrations should be constructed as per the specific format prescribed by the IRDAI. The circular contains annexures specifying formats for these illustrations. These apply to different types of policies.

Need For Digital KYC — New Guidelines By IRDAI

Life insurance policy buyers will soon be able to complete KYC through a paperless process or e-KYC. This requires providing Aadhaar number as proof of identity to insurers, as per an IRDAI press release. This would make the Know Your Customer (KYC) process much easier for policy buyers.

This e-KYC will also be very useful in the current lockdown in the country. The government has allowed insurers to avail the Aadhaar-based authentication services of UIDAI. This can fulfill the KYC norms of policyholders.

The IRDAI press release, issued on April 24, 2020, mentions new KYC norms while availing insurance services. These norms will facilitate the general public to easily fulfill.

The release further states that the interested customers/policyholders/claimants may avail paperless KYC services in the coming days from the following insurance companies:

List Of Insurance Companies

  1. Bajaj Allianz Life Insurance Company Limited
  2. Bharti AXA Life Insurance Company Limited
  3. Exide Life Insurance Company Limited
  4. HDFC Life Insurance Company Limited
  5. ICICI Prudential Life InsuranceCompany Limited
  6. India First Life InsuranceCompany Limited
  7. Max Life Insurance Company Limited
  8. PNB Metlife India Insurance Company Limited
  9. SBI Life Insurance Company Limited
  10. Future Generali India Life Insurance Company Limited
  11. Reliance Nippon Life Insurance Company Limited
  12. Aegon Life Insurance Company Limited
  13. Shriram Life InsuranceCompany Limited
  14. Aditya Birla Sun Life Insurance Company Limited
  15. Pramerica Life Insurance Company Limited
  16. Kotak Mahindra Life Insurance Company Limited
  17. Star Union Dai-ichi Life Insurance Company Limited
  18. IDBI Federal Life Insurance Company Limited
  19. Edelweiss Tokio Life Insurance Company Limited
  20. Canara HSBC Oriental Bank of Commerce Life Insurance Company Limited
  21. Kotak Mahindra General Insurance Company Limited
  22. Future Generali India Insurance Company Limited
  23. Manipal Cigna Health Insurance Company Limited
  24. ACKO General Insurance Limited
  25. Religare Health InsuranceCompany Limited
  26. Royal Sundaram General InsuranceCompany Limited
  27. SBI General InsuranceCompany Limited
  28. HDFC Ergo General Insurance Company Limited
  29. HDFC ERGO Health Insurance Limited (Formerly Apollo Munich Health Insurance Company Limited

KYC For Agent Assistance — How Digital KYC Helps

Agents are the fundamental constituents and the first step of the customer towards the onboarding journey. Insurance agents introduce customers to the various products on offer by a life insurance company. They also clear doubts and confusions of the customer and in many cases, collect the KYC for a new customer.

Given below are some highlights on why digital KYC can help insurance agents:

Client identification

The first step which involves identifying the correct name of the entity is a bigger challenge than most people would expect. A significant amount of time is wasted when front office staff or partners provide compliance with details, but of the wrong legal entity.

A common example is a deficiency of understanding in the front end around corporate structures. When a sales rep embarks on a new relationship with an entity, it’s easy for them to use the wrong name. It is very frequent for the holding company to not have the same name as the brand or branch with whom you are engaged in communication.

Initial risk assessment

This is a preliminary setup using customer-provided demographics to assign an initial risk rating, such as high, medium, or low. Such information can contain :

– director and shareholder details

– company incorporation documents

– a basic risk screen to identify major red flags, like sanctions.

Based on the top-level information provided on the client, it is easy to assess the level of risk they can inflict on your organization. However, not all customers will be high risk. With digital KYC, there is no need to dedicate time and resources to performing unnecessary due diligence steps which makes for an inefficient process.

Manual verification

Manual verification is a part of most traditional KYC processing workflows. They are multiple scenarios in which these aren’t the most efficient. Several agents have to go through several documents, make sure the information is correct and check for fraud. Humans aren’t anywhere close to being as fast as computers. Automating this process can mean a lot of time and money saved for the company, a higher rate of onboarding, and better employee satisfaction. ‌‌Digital KYC can thus help remove the cost and time involved without any additional requirements from the agent side.

Authenticity of Agent

The primary channel through which insurance is sold in India is with the insurance agents. To increase the numbers for sales, agents may end up selling the wrong products to the clients. In such cases, agents do not provide complete information to the customers. This ultimately leads to customers who don’t get the best product. The consequence is a poor customer experience which is a loss for the industry. With Digital KYC, the insurance information can be identified. These cases can then be isolated to prevent further misuse by agents in the future.

Innovating Life Insurance with Digital Onboarding

For easier onboarding, Signzy has developed 2 unique Digital KYC solutions — RealKYC & VideoKYC.

With RealKYC, remote onboarding of new insurers is no longer a hassle. There are many benefits to RealKYC in the life insurance sector as follows:

  • Zero Paperwork: With RealKYC, customers can easily upload their KYC documents and IDs to the system. No need for making physical copies for manual submission.
  • Policy In Minutes: With RealKYC, customers no longer need to wait endlessly for the verification process to be completed. Get your life insurance policy active within minutes.
  • Easy Form Filling: Real-time data pre-population to eliminate manual form filling for submission of new claims.

VideoKYC has gained a lot of attention recently and has been the winner of multiple awards and accolades. With VideoKYC, you can get the following advantages:

  • Proof Of Life: With real-time in-person verification, insurance companies can easily establish ‘proof of life’ of the insurer from time to time.
  • Lesser chances of claims fraud: VideoKYC uses a host of Signzy’s proprietary APIs to verify all official documents and financial statements to mitigate potential claim frauds.

Conclusion

The fact that Digital KYC can be used for fraud prevention and to build trust is evident. Along with this, proper implementation will create a reliable and better onboarding process for the customers and the companies. This can be a boon for the Insurance Sector in India.

The operative word here is ‘proper’. Such an innovative idea demands excellent execution. That can be achieved by collaborating with credible associate companies and startups. If the insurance companies acknowledge this and process it, they will thrive in the booming Indian insurance sector.

About Signzy

Signzy is a market-leading platform redefining the speed, accuracy, and experience of how financial institutions are onboarding customers and businesses – using the digital medium. The company’s award-winning no-code GO platform delivers seamless, end-to-end, and multi-channel onboarding journeys while offering customizable workflows. In addition, it gives these players access to an aggregated marketplace of 240+ bespoke APIs that can be easily added to any workflow with simple widgets.

Signzy is enabling ten million+ end customer and business onboarding every month at a success rate of 99% while reducing the speed to market from 6 months to 3-4 weeks. It works with over 240+ FIs globally, including the 4 largest banks in India, a Top 3 acquiring Bank in the US, and has a robust global partnership with Mastercard and Microsoft. The company’s product team is based out of Bengaluru and has a strong presence in Mumbai, New York, and Dubai.

Visit www.signzy.com for more information about us.

You can reach out to our team at reachout@signzy.com

Reach us at www.signzy.com

Written By:

Signzy

Written by an insightful Signzian intent on learning and sharing knowledge.

Indian Insurance Sector

Fraud & Forgery in Indian Insurance Sector

Posted on | by Signzian

With a US$ 280 billion evaluation, the Indian Insurance sector is a huge market for both domestic and international companies. Life Insurance portfolios alone are expected to grow nearly 75% in the next 5 years.

Unfortunately, insurance fraud has been on the rise around the globe and in India, particularly. The Financial Express reports that more than 9% of claims in the insurance sector are false or fraudulent. Annually, it results in more than Rs.40,000 crores loss. In 2019 alone this was more than Rs.45,000 crores.

Continued, this will result in a massive drain of India’s economic prowess. On top of this over $6.25 billion is lost by insurance companies to fraudsters. This in turn might cause the companies to increase premium rates for genuine customers.

This article takes a detailed look at how that is possible. With some selected cases of fraud that could have been prevented with technology, it gives a better perspective on how useful is technology against fraud.

Indian Insurance Sector Frauds & Its Types

An act performed to defraud an effective insurance process is called insurance fraud. It occurs primarily when a claimant tries to gain an advantage or benefit not entitled to them. Fraud is deliberate and willful. In this sector, it always involves financial benefits performed under false and illegal pretense.

The Apex entity and the overseer of all insurance business in India, Insurance Regulatory and Development Authority of India(IRDAI) defines 3 generalized classifications for insurance fraud in India:

  • Claims/Policyholder/Customer Fraud- This includes fraud against the insurance company during the purchase, execution, or claims processing of an insurance product or policy.
  • Intermediary Fraud- If an Insurance Agent/ Third Party Administrator Agents(TPA)/Corporate Agent or any intermediary perpetrate any fraud against the policyholders, customers, or the insurance company.
  • Internal Fraud- If a Director, manager, or officer in the higher ranks indulges in misappropriation or fraud against the insurance company.

Out of these three, claims fraud is most common, and they are divided into Hard Fraud and Soft Fraud. If an individual deliberately invents loss such as theft, destruction of property(like arson), or self-inflicted injury to claim benefits from respective policies, it is called hard fraud. Soft or opportunistic fraud includes exaggerated claims by policyholders. The real damages are hidden and an exaggerated representation of the situation is presented.

Insurance Fraud In Different Sectors

Indian Insurance Sector

 

Fraudsters find different ways to operate in different insurance sectors. Thus a detailed look at how each sector defines potential fraudulent methods is helpful. Fraudsters usually target the following major fields:

Life Insurance

This is the most expansive field of insurance. This renders it the sector most susceptible to fraud. Most of this fraud occurs during the application process usually with applicants misrepresenting their income, health, personal information, or in certain cases, the true documents. Some of these might be to get less expensive premiums, but many cases are for scamming the insurance companies.

Digitizing the processes by insurance agents is an excellent move by companies. But inefficient implementation of this is futile. Some ways in which fraudsters trick the companies is by creating an additional identity as a beneficiary or faking death to claim the life insurance benefits. Fraudsters may return after disappearing for a few years claiming loss of memory to avoid any penalty.

Sometimes fraudsters withhold information regarding multiple policies. This is not allowed. The customer must provide information regarding all policies concerning the insurer. This prevents a single individual from having multiple claims on a single issue.

Health Care Insurance

Health insurance fraud is the intentional deception, concealment, or misrepresentation of information resulting in healthcare benefits for an individual or group. It can be committed by the policyholder or the provider. Some of the major modes of healthcare frauds are given below:

  • A policyholder trying to hide pre-existing conditions while applying is fraud. This is done by submitting false medical data or other documents. The legitimate waiting period for individual policies is ousted in such fraud practices.
  • Documents are outright fabricated to satisfy the terms and conditions of the policy. Insurance companies prefer youthful and healthy people as their customers. But if an aged person approaches them, the company would provide insurance. But the premium costs for this would be high as the risk for the company would be high. People try to conceal their ages in such cases. Faking disability is a divergent fraud practice from this.
  • Submission of duplicate bills that are either forged or inflated is also fraud. This is important in cases where no actual expense occurred. This is because of the basic understanding that insurance policies are not for profit but security.
  • A person participating in a fraud ring i.e collude with an agent, doctor, provide, etc to create a false claim is also illegal.

Automobile Insurance

Fraud rings in this sector collude to fake traffic accidents, collisions, or even death to make a fake insurance claim. The objective is mostly money. This ring may include insurance claims adjusters and forgery experts who make phony police reports and other documents. The Insurance Research Council estimates 21% to 36% of all automobile insurance claims to contain suspecting elements of fraud.

Automobile insurance frauds primarily fall under either of the following categories:

  • Staged Collisions- Fraudsters utilize a vehicle to stage an accident with innocent or involved parties. The fraudsters carry 4–5 passengers in a vehicle and the driver takes an unexpected maneuver that forces the innocent or opposite party to collide with their vehicle. Each fraudster can claim the insurance for the injuries he has been inflicted during the accident. Documents including medical reports and sometimes even identity proofs are forged for this purpose and submitted for evaluation.
  • Exaggerated Claims- After a real accident has occurred, the owner might incorporate a whole set of previous minor damage into the garage receipt associated with the accident. Personal injuries like whiplash might be exaggerated with false documentation.

Property Insurance

Fraudsters might try to insure a property and then destroy it to claim the insurance. This usually involves arson. They tend to forge the necessary documents to prove that the destruction occurred due to natural causes or disasters.

Selected Scenarios Where Technology Could Have Prevented Scammers

While taking a closer look at how individual insurance fraud cases have fared in India, one thing stands clear- We could have prevented them. Almost all fraud is motivated by money. With technology, we could keep better tracks on scammers and fraudsters. Some of those selected incidents are given below with how technology could have been used to prevent them.

Madhya Pradesh- July 9, 2019.

A 10 member gang in Madhya Pradesh that included a doctor and a lawyer pulled off a brilliant scam for nearly half a decade. With an estimated total of more than 2 crore rupees scammed from insurance companies, the gang was faring very well till early 2019. The gang operated from the Dhar district by forging fake documents of persons in a moribund state and terminally ill people.

The fraudsters first identified their victims that included terminally ill patients. Then they would obtain vehicle finances and life insurance claims in their names. After their natural death, forged certificates proving unnatural causes for their death are submitted. Even the age of these senior citizens was falsified to avoid suspicion. With these forged documents the gang claimed money from the insurance companies.

This is a classic example of how document forgery and pretense are used to defraud companies. This could easily be avoided with technology. If the documents were analyzed by specific and well-equipped APIs or other forms of automation, the fraud could have been detected. As much as a document can be forged, it could never be as good as the original. This difference which is negligible to the human eye can be caught by technology.

Andhra Pradesh- November 26, 2017

A 35-year-old woman declared herself dead to claim Rs.1 Crore from an insurance company. She appointed her husband to raise the claim. The woman’s husband, Syed Shakeel Alam submitted fake documents declaring his wife had died. He mentioned in the documents that his wife was the policyholder.

He approached the insurance company claiming Rs1 Crore insurance. The Rs.1 Crore policy was issued in 2012 and an annual premium of Rs.11800 was paid every year for 5 years. The death report of the woman specified the cause of death as ‘chest pain’. In truth, most of the documents and medical records were either forged or belonged to another woman who had in truth died. Though captured, they had almost pulled off the fraud.

This too could have been prevented if proper technology was used to analyze and identify the documents. Visual verification could have been used to ensure better credibility. The existing APIs available for such measures are very effective. Unfortunately, many companies are yet to adopt these.

Gujarat- January 18, 2021

Four individuals including a doctor, an insurance agent, administrator of a private hospital, and a policyholder claimed insurance with the help of spurious COVID-19 medical documents and records in Vadodara, Gujarat.

Dr. Anil Patel, insurance Agent Pravin Parmar and administrator Dipak Tiwari were the prime culprits. Patel and Parmar would obtain and use bogus medical records. They tried to claim north of Rs.4,00,000. Tiwari tampered with the COVID-19 test samples and pasted the names of policyholders on them. He even tampered with the test results to make them ‘positive’.

The lack of a proper database and the inefficient evaluation of the documents was the major reason this scam had been going on for some time. If the claims processing was more accurate and diligent, this could have been prevented. Technology provides us with APIs and RPA that can be used to make strict verifications and avoid such situations.

How Will Technology help the Indian Insurance Sector?

It is concerning that ‘insurance fraud’ is undefined in the Indian Insurance Act, 1938. Other instruments such as the Indian Penal Code(IPC) or the India Contract Act from the legal system are also void regarding insurance frauds. Thus, it is up to individual insurance companies to take action to prevent it.

One of the best ways is to use technology and automation to mitigate fraud risks.

Most claims are evaluated by agents or officers from the insurance company. They may make mistakes unintentionally or if dishonest may corrupt the process. This negative human factor can be eliminated with technology. It will also provide benefits to the company in the form of saved time and resources. Some of the specific reasons are given below:

  • APIs can be used to evaluate the document submitted at the time of application and claim. These APIs give unbiased and definitive results. Thus Forgery is detected much easily.
  • A digital repository of all policies can be digitally accessed by the APIs to decide if the applicant has applied for multiple policies for the same issue. This is not allowed by the government and the insurance company is not liable to pay the unmerited benefit.
  • Profiles of applicants and policyholders are double-checked with available repositories and history databases. This will help understand the background and history of the customer from a more credible perspective.
  • Immense time can be saved as a human evaluation would have taken days to complete. But technology can do this in a matter of minutes.
  • Constant monitoring for any fraudulent activities is possible as any kind of suspicious behavior in the database is detectable.
  • Lesser resource and manpower is required for conducting the process of policy claims. This saves the company funds.

Conclusion

As technology advances, the world too shall move ahead. Most of the financial sector acknowledges this and adapts to the changing world of automation. Unfortunately, the Indian Insurance Sector seems to be a little slow in this process.

With a growing number of fraudsters and scammers, it is wise for the sector to understand the technology and implement it in the most efficient manner possible This will save them time and resources while creating a well-fortified system devoid of human errors. This in turn will build their credibility and trust in the competitive arena.

It is only a matter of time before the whole sector transforms in the new era, but if the innovators in the field open their eyes and make the process faster, much attrition can be avoided for their companies. That is why adopting technology is not just necessary, but inevitable.

About Signzy

Signzy is a market-leading platform redefining the speed, accuracy, and experience of how financial institutions are onboarding customers and businesses – using the digital medium. The company’s award-winning no-code GO platform delivers seamless, end-to-end, and multi-channel onboarding journeys while offering customizable workflows. In addition, it gives these players access to an aggregated marketplace of 240+ bespoke APIs that can be easily added to any workflow with simple widgets.

Signzy is enabling ten million+ end customer and business onboarding every month at a success rate of 99% while reducing the speed to market from 6 months to 3-4 weeks. It works with over 240+ FIs globally, including the 4 largest banks in India, a Top 3 acquiring Bank in the US, and has a robust global partnership with Mastercard and Microsoft. The company’s product team is based out of Bengaluru and has a strong presence in Mumbai, New York, and Dubai.

Visit www.signzy.com for more information about us.

You can reach out to our team at reachout@signzy.com

Written By:

Signzy

Written by an insightful Signzian intent on learning and sharing knowledge.

A Brief Summary Of Video KYC In The Indian Insurance Industry

Posted on | by Signzian

The Insurance Regulatory and Development Authority of India (IRDAI) has permitted insurance companies to issue policies on the basis of a video KYC (know-your-customer) process. Moneycontrol had first reported the regulator’s plan of allowing insurers to adopt video-based KYC for policy issuance. It has already allowed insurers to use digital modes for validating policyholders’ signatures on documents.

Earlier, the Reserve Bank of India (RBI) and Securities and Exchange Board of India (SEBI), too, had allowed entities such as banks and mutual funds to use video-based tools to complete the mandatory KYC process. The Pension Fund Regulatory and Development Authority (PFRDA) has also permitted distributors to use video KYC for onboarding National Pension System (NPS) subscribers.

IRDAI introduces VBIP

In a circular sent exclusively to all general, life, and standalone health insurers; IRDAI expressed its readiness to introduce a Video-based Identification Process (VBIP) allowing insurers to provide a Video-based KYC method to their customers for KYC verification.

The circular also outlined regulations that will have to be followed to complete video KYC for insurance onboarding. These regulations are similar to the Video-based Customer Identification Process (V-CIP) introduced by the RBI recently, and the Video In-Person Verification Process (VIPV) brought in by SEBI.

The circular encourages the use of AI and other emerging technologies to ease the video KYC process and, on the surface, appears to be beneficial for the insurance sector. But what does VBIP really mean for insurers?

What are the problems with traditional insurance onboarding?

The inadequacies plaguing insurance onboarding are, to a certain extent, shared by manual and paper-based onboarding processes throughout all industries.

Traditional KYC verification in the insurance sector involves — manually creating insurance documents, collecting pertinent identifying documents from the customer, verifying the information in these documents, sending the relevant insurance contracts to the customer, and obtaining the customer’s signatures on these contracts.

This process encompasses numerous inefficiencies and areas due for optimization; some of the problems with paper-based insurance onboarding are –

  • High operational & onboarding costs: Paper-based KYC methods make use of inefficient and expensive mechanisms for documentation and verification purposes; these include paper documents, manual verification, and disparate KYC workflows. Operational costs are also high due to the manual nature of operations.
  • Lengthy verification processes & high drop-off rates: KYC verification is tedious and frustrating when done manually. These problems are compounded when the possibility of losing or misplacing paper documents is taken into account. Lengthy verification is also a burden to the customer, leading to low levels of satisfaction, numerous KYC drop-offs, and ultimately a business loss.
  • Excessive workforce requirements: Paper-based KYC documentation inherently requires a workforce to function; employees are also required to perform ID verification and due diligence on the verification processes. These requirements further exacerbate the operational liabilities of traditional onboarding.
  • Messy paper trails: Mountains of paperwork are almost a prerequisite for onboarding when a customer visits an insurer. However, all this paper is more than just daunting; it’s needlessly expensive, tedious, and time-consuming. The paperwork also increases the chances of losing or misplacing customer information, thus further increasing the time taken for onboarding.
  • Manual errors and data security: Manual errors are a certainty in traditional KYC verification. Organizing customer documents, data entry, and KYC verification are all subject to manual error, which significantly costs the insurer. Additionally, paper documents are the least secure when it comes to protecting customer data and can easily be lost or misplaced, leading to distrust amongst customers and further costs.

Traditional insurance onboarding, therefore, isn’t really a walk in the park. What will the alternative proposed by IRDAI look like? The circular gives us some clues.

What are the steps in VBIP?

According to IRDAI, VBIP in practice will be quite similar to the video-based customer identification process (V-CIP) envisaged by RBI a few months ago and also to VIPV.

However, we must note here that the IRDAI circular does not include PAN validation in the steps for VBIP, as opposed to RBI’s V-CIP in which PAN validation is a part of the process.

Now, here are the rules set forth by IRDAI for its new video-based KYC process

  • KYC verification must be conducted by an authorized official from the insurer via video after obtaining the customer’s consent. This video must then be recorded and stored in a safe place with date and time-stamps.
  • The official can either perform offline verification of Aadhaar or online OTP-based eKYC authentication provided that the customer voluntarily submits such identifying information. In offline Aadhaar verification using Aadhaar XML or QR code, the official must ensure that the XML file or QR code was generated at most three days before the VBIP process.
  • The official must capture a live photograph of the customer, ensure that it matches the picture in the customer’s Aadhaar and that the identification details in the customer’s Aadhaar match with those provided by the customer.
  • The customer’s location is to be determined via geo-tagging to ensure that the customer is in India.
  • The official must initiate an audio-visual interaction with the customer consisting of a varying series of randomized questions, to confirm liveliness and that the interaction is not pre-recorded.
  • Insurers must ensure that the process is seamless and takes place in real-time. Additionally, the official will have to make sure that the customer is not covering any part of his or her face and that the video quality is satisfactory so that the customer is easily recognizable.
  • The audio-visual interaction in question must be triggered from the insurer’s domain and not using third-party services, and the official conducting VBIP must be trained for this specific purpose. The activity log of the official undertaking VBIP and the details of the official must both be preserved.
  • Insurers will have to carry out security audits and validation to ensure that their VBIP application is secure and end-to-end encrypted before releasing their applications to the public.
  • All accounts opened via VBIP will only be functional following concurrent audits, underwriting, and verification.
  • Note here that IRDAI does not explicitly state that these steps are to be followed in a particular sequence; the circular states only that VBIP must consist of the aforementioned steps and that the guidelines must be followed.

Now that we know what VBIP will look like, we must next extrapolate these guidelines to figure out how this new video-based KYC process will affect the insurance industry.

How will VBIP affect insurers?

 

The IRDAI circular was preceded by decisions from both RBI and SEBI to introduce video KYC for onboarding purposes. This suggests that the introduction of VBIP had a lot to do with the ramifications of V-CIP and VIPV on the financial and securities-related industries.

The impact of video KYC on banking and securities has been exceedingly positive, resulting in massive reductions in onboarding costs and TAT, and several millions of accounts opened via video. Therefore it’s safe to assume that the intention of IRDAI in releasing this circular was to provide these same benefits to the insurance sector, and it’s highly likely that this is indeed what will happen.

As mentioned before, onboarding across industries is quite similar, and hence changes in the onboarding process are likely to shake out in the same way. Given the extensive advantages of video KYC in banking and securities, we can reasonably expect the following benefits for insurers:

Reduced onboarding costs: As with the banking sector, insurers can expect up to a 90% reduction in onboarding costs by digitizing onboarding using video-based KYC methods.

Lowered TATs: Automated verification and digitized documents ensure that onboarding is completed within minutes instead of days.

More completions: Video KYC is streamlined and efficient, allowing for instant KYC verification and smooth onboarding, which is guaranteed to massively lower KYC drop-offs.

Increased customer satisfaction and reach: Customers will no longer have to visit offices carrying folders full of documents to be onboarded but can instead complete their KYC using just a device with an internet connection. This will also allow more people to obtain insurance, which will be a positive development, especially during these times.

Customer safety: Customers, especially those in dire need of insurance, are either unable or too fearful to travel to insurers to obtain insurance. However, video KYC allows such vulnerable customers to complete KYC verification remotely and obtain the insurance they need without stepping outside their homes.

Secure customer data: In an age of frequent cyber-security breaches, data security is a prime concern for both businesses and consumers. Video-based KYC processes such as VBIP ensure the security of sensitive customer data and are instrumental in protecting information.

The benefits of video KYC are numerous, and the adoption of VBIP will certainly positively impact the business performance of insurers.

A video KYC is done to make sure the person buying an insurance policy is real and alive. It allows an insurance official to see you through a live video over the internet. Insurance companies — life and non-life — can now use a video-based identification process (VBIP) to obtain customers’ KYC documents, which is mandatory before issuing a policy. They will have to complete the process through their official technology platforms that facilitate recording videos of policyholders for the purpose. “Insurers may undertake live VBIP by developing an application that facilitates the KYC process either online or face-to-face in-person through video,” IRDAI said in its circular.

How will the process be carried out?

Either the insurers’ staff or authorized representatives can record a ‘clear, live’ video of policyholders at their homes and obtain identification information. “Discussions around implementation are still on. Approaches could vary as per the company. The first option is to enable advisors to visit the prospective policyholder’s house, connect her to the insurer’s employee through the official app and record the video KYC process as per IRDAI’s guidelines. The second option is to send a weblink to the policyholder who will use it to log in online At the other end, the insurer’s employee will record the identification process,” says Anilkumar Singh, Chief Actuarial Officer, and Appointed Actuary, Aditya Birla Sun Life Insurance.

As a customer, you can choose to share your Aadhaar information or any other officially valid document such as a passport and driving license. If you have signed up for the Digilocker facility, you can submit a digitally signed copy. Or, you can simply share it in the form of a clear photograph or a scanned copy of the original document, through the e-Sign mechanism. Your live location will also be captured, along with the date and time-stamp. “Geotagging is a must. The KYC process is valid only if the prospective customer is in India,” says Vaidyanathan Ramani, Head, Product, and Innovations, Policybazaar.com.

At your end, you should also ensure that your face is clearly visible in the video and not covered in any way.

Conclusion

In these COVID-19 times, you will not have to risk visiting an insurance company’s branch or agent’s office to complete the policy purchase process, including KYC verification. Insurers are yet to roll out the process. Once they do, it is likely that you will have to access the insurer’s platform via a link or app shared by the company. You will have to answer questions via a video instead of doing so physically, besides sharing KYC documents online to complete the process. “The questions could be dynamic. Since one of the purposes is to establish that the person is alive, questions could be devised in such a way that responses cannot be standard,” says Vaidyanathan.

While the onus of executing a secure transaction is on the insurer, on your part, ensure that you are dealing with authorized representatives of the company and the video is being recorded through company-authorized channels.

About Signzy

Signzy is a market-leading platform redefining the speed, accuracy, and experience of how financial institutions are onboarding customers and businesses – using the digital medium. The company’s award-winning no-code GO platform delivers seamless, end-to-end, and multi-channel onboarding journeys while offering customizable workflows. In addition, it gives these players access to an aggregated marketplace of 240+ bespoke APIs that can be easily added to any workflow with simple widgets.

Signzy is enabling ten million+ end customer and business onboarding every month at a success rate of 99% while reducing the speed to market from 6 months to 3-4 weeks. It works with over 240+ FIs globally, including the 4 largest banks in India, a Top 3 acquiring Bank in the US, and has a robust global partnership with Mastercard and Microsoft. The company’s product team is based out of Bengaluru and has a strong presence in Mumbai, New York, and Dubai.

Visit www.signzy.com for more information about us.

You can reach out to our team at reachout@signzy.com

Written By:

Signzy

Written by an insightful Signzian intent on learning and sharing knowledge.

 

The Saga Of KYC In US Banking Regulations — BSA To Patriot Act And The Road Ahead In The Digital Age

Posted on | by Signzian

KYC regulations have critical implications for consumers in the financial space. Banks need to comply with KYC to limit fraud. However, KYC requirements for banks are often passed down to those with whom the banks do business.

KYC In Banking — The Base At The Banking Secrecy Act”?

KYC requirements for banks help them verify the identities of their clients. It is also a way to assess any potential risks of forming a business relationship with them. The goal of KYC is to prevent banks from being used, intentionally or not, for money laundering and other illegal activities.

In 1950, the Federal Deposit Insurance Act was passed to monitor the Federal Deposit Insurance Corporation (FDIC). The bill included a list of regulations that banks must comply with in order to remain insured by the FDIC. This event was crucial to forming the foundation of modern KYC laws.

In 1970, the U.S. Congress introduced the Bank Secrecy Act. The BSA is an amendment to the Federal Deposit Insurance Act. It requires banks to produce 5 types of reports to FinCEN and the Treasury Department:

 

  • Currency Transaction Reports (CTR): This contains any cash transaction that exceeds $10,000 in one business day. It can include multiple transactions.
  • Suspicious Activity Reports (SAR): This report shows any cash transaction where a customer violates BSA reporting requirements.
  • Foreign Bank Account Report (FBAR): Any U.S. citizen/resident with a foreign bank account of at least $10,000 is required to file an FBAR report each year.
  • Monetary Instrument Log (MIL): Banks must keep a record of all cash purchases of monetary instruments. This includes money orders, cashier’s checks, traveler’s checks, etc.
  • Currency and Monetary Instrument Report (CMIR): Anytime a person or institution physically transfers monetary instruments in excess of $10,000 into/outside of the United States must file a CMIR.

The ABCs of KYC — The Major Focus Of Patriot Act

KYC laws were launched in 2001 as part of the US Patriot Act. The law was passed after 9/11 to provide a means to hamper terrorist behavior.

The particular section of the Act that pertained specifically to financial transactions added requirements and enforcement policies to the Bank Secrecy Act of 1970 that had thus far regulated banks and other institutions. These changes had been in the works for years before 9/11. The terrorist attacks finally provided the thrust needed to enforce them.

Thus, Title III of the Patriot Act requires that financial institutions deliver on two requirements for stricter KYC. These two are the Customer Identification Program (CIP) and Customer Due Diligence (CDD).

 

CIP — The First Pillar Of The Patriot Act

CIP is the more straightforward of the two components, and likely more familiar.

To comply with CIP, a bank asks the customer for identifying information. Each bank conducts its own CIP process, so a customer may be asked for different information depending on the institution. An individual is generally asked for a driver’s license or a passport.

Information requested for a company might include:

  • Certified articles of incorporation
  • Government-issued business license
  • Partnership agreement
  • Trust instrument

For either a business or an individual, further verifying information might include:

  • Financial references
  • Information from a consumer reporting agency or public database
  • A financial statement

Nonetheless, every bank is required to verify their customers’ identity and make sure a person or business is real.

CDD — The Second Pillar of The Patriot Act

The second component, CDD, is more nuanced.

In conducting due diligence, banks aim to predict the types of transactions a customer will make.

This is done in order to be able to detect anomalous (or suspicious) behavior.

This also helps assign the customer a risk rating that will determine how much and how often the account is monitored.

Finally, it also helps identify customers whose risk is too great to do business with.

Banks may ask the customer for a lot more information. This can include the source of funds, the purpose of the account, occupation, financial statements, banking references, description of business operations, and others. There’s no standard procedure for conducting due diligence. This means banks are often left up to their own devices.

In fact, the Patriot Act doesn’t even directly highlight a CDD requirement. On the contrary, it denotes that a bank is required to file a suspicious activity report if it suspects or has reason to suspect such activity. But without knowing about its clients, a bank won’t be able to meet this requirement — hence the CDD.

The Financial Crimes Enforcement Network (FinCEN) regulates and strictly enforces KYC. FinCEN also manages other regulators for banks. It also manages the Fed’s Board of Governors, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency of the U.S. Treasury. Other financial institutions can be regulated by the SEC, the U.S. Treasury, the IRS, or the National Credit Union Administration, among others.

As a result of due diligence, a bank might flag certain risk factors. These are like frequent wire transfers, international transactions, and interactions with off-shore financial centers. A “high-risk” account is then monitored more frequently. In such cases, the customer might be asked more often to explain his transactions or provide other information periodically.

KYC requirements for banks in the Digital Age

Today, banks and their fintech counterparts can go to great lengths to assure compliance with KYC standards. As a result, more money is poured into new KYC technologies constantly. This was found as a study of the CEB TowerGroup. Currently, KYC solutions rank amongst the most valuable banking technologies. More than 62 percent of executives are certain, KYC investments will grow even more in the future.

In the modern context of digital, border-free and contactless payments, AML and KYC cannot deny their beginnings. Many KYC procedures still derive from a time when financial services were stationary. Back then, the client had to be physically present in a banking branch to access them. Identity verification was a simple matter of seeing the client physically. This was usually followed with collating the paper documents and ID with official records. The client databases had to be updated manually.

Users supply bank account data, social security numbers, etc to fulfil the KYC requirements for banks. They may also provide hard physical proofs of identity like a valid passport and utility bills (water or electricity bills). Should the customer deliberately hand over false information, the reviewing company will have the case investigated. This may ultimately lead to legal action. Modern technologies help alleviate the human factor. AML procedures today are more about lines of code on a server than types of seals on paper documents.

Yet, in many cases, banks and fintech businesses don’t settle for the state-of-the-art in regulatory tech. A KYC Market Report by CEB states that the systems by which banks identify their customers are often outdated. With general anti-money laundering technology, the situation gets even worse.

This is why banks and financial institutions are invited to rethink the KYC requirements for banks in light of modern software solutions and technologies like:

 

  • Blockchain: Sharing of KYC related data without intermediaries
  • Artificial intelligence: Approvement of documents via self-learning algorithms
  • Biometrics: Identification through biometrical features
  • CDD and EDD by evaluation of social media activity
  • Streaming: Voice and face identification via video chat

Regulatory technology (or RegTech) like this has the potential to make processes a lot faster, more accurate and transparent with digital kyc.

Conclusion

In our current time of digital disruption, KYC and AML are in a constant state of change. The online market for financial services and products is growing and so are the risks for customers engaging with them. The international banking and fintech scene keeps changes this will keep regulators occupied. Innovative technologies and flexible software give businesses an edge, allowing them to stay compliant and to adapt to new forms of cybercrime.

But within this period of change, one thing remains firm:

There will always be customers. And knowing what they are up to, will always be a key factor for corporate success.

About Signzy

Signzy is a market-leading platform redefining the speed, accuracy, and experience of how financial institutions are onboarding customers and businesses – using the digital medium. The company’s award-winning no-code GO platform delivers seamless, end-to-end, and multi-channel onboarding journeys while offering customizable workflows. In addition, it gives these players access to an aggregated marketplace of 240+ bespoke APIs that can be easily added to any workflow with simple widgets.

Signzy is enabling ten million+ end customer and business onboarding every month at a success rate of 99% while reducing the speed to market from 6 months to 3-4 weeks. It works with over 240+ FIs globally, including the 4 largest banks in India, a Top 3 acquiring Bank in the US, and has a robust global partnership with Mastercard and Microsoft. The company’s product team is based out of Bengaluru and has a strong presence in Mumbai, New York, and Dubai.

Visit www.signzy.com for more information about us.

You can reach out to our team at reachout@signzy.com

Written By:

Signzy

Written by an insightful Signzian intent on learning and sharing knowledge.

 

KYC in the USA- The Origin, Evolution, and Future of America’s Frontier Against Financial Fraud

Posted on | by Signzian

Introduction

In 2017 a survey from FDCI revealed that 25% of all US households were unbanked or underbanked. This meant that more than 30 million households did not have a bank or credit card account. In 2019 the numbers fell to less than 5.4% of the households being unbanked. That was an estimated 7 million households. This indicates the untapped potential in the banking industry.

More customers than ever will start a bank account in the coming years. This pace at which citizens are starting a relationship with a bank is impressive. But how much can we ensure that all the applicants are legit? How can we make sure that no fraudsters are aided? To put things into perspective 2019 alone saw 650,572 cases of identity theft and 271,823 cases of credit card fraud in the US. To prevent this, KYC comes into play.

KYC process in banks is used to obtain information about the customer with their consent. The obtained information includes their identity details and addresses. It ensures that there is no misuse of the bank’s services. This stops fraudsters who try to imitate or forge identities for financial crimes.

We must also notice that fraudsters have found newer ways to evade KYC through the ages. These include digital synthetic ID frauds and scraping for ATOs(Account Takeovers). In 2021, we have enough resources and methods to maneuver the issues with traditional KYC processes. An upgrade is inevitable. The introduction of Digital KYC is set to change the whole process of onboarding. Let’s have a detailed look at the KYC process in banks in the US and what its future holds.

Does KYC Require The Attention It Demands?

Before the introduction of the KYC process in banks, fraudsters conducted crimes without much resistance. The lack of regulation coupled with unverified customer identifications caused easy manipulation of the financial system. Combatting this was inevitable. With the introduction of KYC financial crime has reduced, but new challenges await the sector.

According to a report from Atlas VPN, Q1 2020 saw a 116% increase in loan/lease fraud, alone. Credit Card frauds were at an all-time high of 435.8% during the same quarter. To add flame to the fire, overall fraud reports compared to Q1 2015 were over 435%. We can not attribute this to solely human errors or insufficient data collected.

The real culprit( other than the fraudsters, of course) is the inefficient handling of KYC. It might come as a shock that all this fraud occurred even after concerned institutions implemented the KYC process in banks. One can only imagine the outrageous leaps these numbers might have taken if such a regulatory process didn’t even exist.

KYC acts as the firewall against these fraudsters, but with advancing technology and global connectivity the fraudsters have an edge. The era of traditional KYC is nearing dusk. It is only a matter of time before the government brings regulations and advises for digitized KYC process in banks.

The primary objective of KYC is not fraud prevention, even though it does filter out the fraudsters for the better. The Patriot Act intended CIP or KYC to prevent Terrorist Funding and Money Laundering. To an extent, it has been effective. But as all things go, it can be better. This is where banks should upgrade their processes..’ A system devoid of human errors and manual processing will be the next step for this.

How KYC process in banks Came Into Being In The US

 

The need for KYC came with an increase in financial crimes in the Country. Every decade fraudsters find ways to commit crimes avoiding the regulatory oversight. To eliminate the problem at the source, the government and experts came up with KYC. Proper verification of the customer helps identify fake and fraudulent activities if any.

Though KYC was introduced under The USA Patriot Act, its history spans several decades before. Here is an overview:

  • In 1950, Congress passed the Federal Deposit Insurance Act to govern FDIC( Federal Deposit Insurance Corporation). It had regulations for banks to comply with to be insured by the FDIC. This was the first primitive step towards modern KYC.
  • In 1970, Congress passed the FDI Act Amendments also known as the Bank Secrecy Acts(BSA). It was a modified take on the FDI Act adding five types of reports for banks to file with the Treasury Department and FinCEN.
  • On October 26, 2001, Congress passed the USA Patriot Act. This act contained all the ingredients for modern manual KYC.
  • On October 26, 2002, The Secretary of Treasury finalized regulations defining KYC mandatory for all financial institutions. All associated processes conformed to CIP(Customer Identification Program) under this act.
  • In 2016, FinCEN made it necessary for banks to collect the name, address, social security number, and date of birth of persons owning more than 25% of an equity interest in any legal entity.

KYC was met with mixed reception during the two decades that have passed since it became mandatory in the US. Nonetheless, none of its criticism countered that KYC helps ensure safety and prevent fraudulent activities. Rather most of it was associated with the difficulty in implementing such a procedure and the privacy concerns.

What Does KYC Mean In The US?

KYC refers to the process implemented by a financial institution or business to:

  • Establish verified customer identity.
  • Understand the exact nature of the customer’s activities. This is to confirm that the source of associated funds is legitimate.
  • Assess money laundering risks.

 

It has 3 aspects:

1. CIP- Customer Identification Program

Any individual associated with a financial transaction requires identity verification in the US. CIP ensures this. This is under the recommendation of the FATF( Financial Action Task Force). FATF is a pan-government anti-money laundering organization.

A pivotal element to proper CIP is risk assessment. This has to be at the institutional level as well as at the level of procedures for individual accounts. Most of the exact implementation decisions are left to the institution, but CIP provides a guideline to follow.

The minimum requirements for opening a financial account in the US are:

  • Name of the customer
  • Address of the customer
  • Date of birth
  • Identification Number/ Social Security Number(SSN)

The documents verified for KYC include social security card, passport, driving license, and credit/debit cards. It is up to the institutions to install the necessary protocols for the specific documents.

The institution is to verify this information within a reasonable time. This includes comparing provided information with information from public databases, consumer reporting agencies, among other diligence measures.

2. CDD- Customer Due Diligence

CDD ensures if you can trust a particular client. It assesses the risks and protects the institution against criminals, PEP(Politically Exposed Persons) presenting a high risk or even terrorists.

It has 3 levels:

  • SDD(Simplified Due Diligence)- it is a simplified procedure. The risk of money laundering is low.
  • CDD(Basic or Standard CDD)- standard procedure for average or moderate levels of risk. Performed for most clients.
  • EDD(Enhanced Due Diligence)- Additional information is obtained. It has a clearer understanding to mitigate associated risks. Mostly done in high-risk circumstances.

Some of the important measures taken during CDD are:

  • Confirm the identity and location of the client including a proper understanding of their business venture. This might be a simple act of verifying the name and address of the potential customer.
  • Categorize clients based on their risk profiling. This must be done prior to any digital storing of information and documentation
  • In areas that require EDD, ensure that the entire process is performed. This is an ongoing process as any low-risk client can become high-risk. Thus, periodic CDD is necessary.
  • The necessity of EDD depends on certain factors. These include the location of the person, occupation of the person, types of transactions, and pattern of activity.

3. Ongoing Monitoring

It refers to the program monitoring the customers on an ongoing basis. This includes oversight over accounts and financial transactions. This includes accounts with spikes of activity, adverse media mentions, or any other concerning occurrences. Periodical reviews of accounts and risk factors are done.

What Are The Types Of KYC?

 

Standard KYC

Includes the KYC performed for individual customers and clients. It is most widely done. The process has slight variations depending on the jurisdiction the banks fall under.

KYB- Know Your Business

It is an extension of KYC for anti-money laundering. It verifies a business including the registration credentials, UBO(Ultimate Beneficial Owners), location, and other factors. The institution screens the business against the grey and blacklists that include entities involved in fraudulent activities. It identifies fake businesses and shell companies.

It is also known as Corporate KYC.

KYCC- Know Your Customer’s Customer

It identifies the activities and nature of the customer’s customer of a financial institution. It includes identifying the people involved, assessing the risk levels and major activities of all entities.

eKYC- Electronic KYC

eKYC, also known as Digital KYC is the remote and digital transposition of the KYC process. Authentication is done through electronic and digital methods with verification performed digitally without the requirement of physical documents. It uses the aid of technology like OCR and live-video access.

The Not-Too-Distant Future Of KYC

KYC is criticized for the increase in dropout rates during onboarding as it makes the process more complex. This overwhelms the customers trying to onboard who become reluctant to do business with the banks.

This is worth notice as newer fintech startups are increasing their customer onboarding every year. Since 2018, Venmo has performed KYC on more than 30 million customers before onboarding them. They do this through technology and digitization. eKYC or digital KYC was the key factor that gave such impressive results.

Another concern regarding KYC is the amount of machinery and expenditure associated with the traditional modes. In 2016, regulatory compliance cost banks over $100 billion. This cost was expected to rise by 4% to 10% by the end of 2021 by Forbes. The expenses banks have to bear for KYC compliance is high.

This can be reduced to fascinating degrees with proper digitization of the entire KYC process. The perks of adopting such revolutionary technology will drive companies to success. It is time we understand this and proceed further into the future. For the future is not too distant!

About Signzy

Signzy is a market-leading platform redefining the speed, accuracy, and experience of how financial institutions are onboarding customers and businesses – using the digital medium. The company’s award-winning no-code GO platform delivers seamless, end-to-end, and multi-channel onboarding journeys while offering customizable workflows. In addition, it gives these players access to an aggregated marketplace of 240+ bespoke APIs that can be easily added to any workflow with simple widgets.

Signzy is enabling ten million+ end customer and business onboarding every month at a success rate of 99% while reducing the speed to market from 6 months to 3-4 weeks. It works with over 240+ FIs globally, including the 4 largest banks in India, a Top 3 acquiring Bank in the US, and has a robust global partnership with Mastercard and Microsoft. The company’s product team is based out of Bengaluru and has a strong presence in Mumbai, New York, and Dubai.

Visit www.signzy.com for more information about us.

You can reach out to our team at reachout@signzy.com

Written By:

Signzy

Written by an insightful Signzian intent on learning and sharing knowledge.

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