How KYC Assessments can be enhanced with Document Verification

KYC Checks: Boosted by Smart Document Verification

Table of contents:

  • What is KYC Screening?

  • What is Anti Money Laundering (AML)?

  • Enhanced Due Diligence (EDD)

  • What Are KYC Documents? - Identity vs Financial

  • Why is KYC Important?

  • KYC/KYB Process Improvements - What's The Solution? How Can Homeppl’s Fraud Finder Help?

  • The Current KYC Trends To Look Out For

  • How much does KYC cost?

  • ML Tech Reducing Friction

  • Best Practices

  • Data Enrichment

The increasing use of new technologies has connected businesses and consumers around the globe, giving rise to groundbreaking economic opportunities. On the flip side, it has also contributed to the rise of fraud and illicit criminal activities, surging the risk and complexity of doing business across the world. Data breaches, application fraud, identity theft, phishing schemes, money laundering, and other digital scams continue to infiltrate innumerable organisations from every sector of the economy.

Consequently, organizations are feeling the pressure to identify, analyze and thoroughly verify who they’re doing business with in order to avert the international threat of financial crime. That’s where Know Your Customer regulations and Anti-Money Laundering directives come in.

In this blog we'll investigate what KYC processes are and how document verification technology can both enhance & streamline them.

What is KYC Verification? 

KYC is a component of an overall category of legal obligations and recommended practices called Customer Due Diligence (CDD) that businesses have adopted to verify the identity, as well as gauge the legitimacy and credibility of customers, clients, and suppliers. KYC standards are implemented to safeguard both financial institutions and clients from illegal activities such as money laundering or fraud. 

The primary objectives when gathering KYC information include: 

  • Establishing and verifying a client/customer's identity 

  • Understanding the customer's activities and establishing the legitimacy of the source of funding

  • Assessing money laundering risks associated with customers 

The majority of businesses operating in fiancial services have to adhere to KYC regulations. In particular mortgage lenders, business-to-business lenders and even motor finance lenders must remain compliant with industry regulations.

What is Anti Money Laundering?

AML refers to a shifting regulatory compliance checklist that financial companies, like lenders, letting agents and mortgage brokers, adhere to in order to stop criminals from disguising illegal cash as legitimate income. For example, AML prevents terrorist funding, drug money cleaning and large scale tax avoidance. AML checks play a vital role in meeting the fundamental regulatory requirement to undertake ongoing customer due diligence. AML compliance is a comprehensive procedure that functions to protect businesses and minimise the risk of involvement in criminal activity by screening candidates and customers.

AML and KYC can be distinguished by the classification of AML as an umbrella term for the regulatory procedures required, whereas KYC compliance is a required component of AML. Whilst KYC is typically introduced at onboarding, AML fraud detection measures are implemented continuously by financial institutions to prevent money laundering at any point. Outsourcing AML compliance is an option many customers take due to a lack of technology infrastructure in house.

Enhanced Due Diligence (EDD)

Enhanced due diligence attributes offer an additional component of the KYC process, providing advanced protection for high-risk accounts. The importance of EDD is reflected in its ability to detect things that may often be missed by standard customer due diligence. 

EDD procedures can be implemented on client accounts that fall under the following classifications:

  • Politically Exposed Persons (PEPs)

  • Clients on sanctions lists

  • Special interest Persons (SIPs)

  • High net worth clients

What Are KYC Documents? - Identity vs Financial 

Typically, KYC checks will request that a set of minimum requirements are met at onboarding, however, the exact KYC requirements vary depending on the industry. The fundamental information requested includes:

  • Name

  • Date of Birth

  • Address 

  • Identification Number (for banking purposes) 

Verification of this information fits into the customer identification program which is typically the first step of the KYC framework. In order to validate the customer's identity, any of the following may be requested:

  • A Passport Copy 

  • Driver’s License

  • Other Accepted Government-Issued ID

  • Proof of Address document

Institutions that require financial analysis will typically request bank statements or open banking as part of their KYC in order to prevent financial fraud. 

Why is KYC Important?

According to the United Nations, It is estimated that money laundering schemes make up 2%-5% of the global Gross Domestic Product (GDP), which translates to between £707 billion and £1.7 trillion yearly. In 2020 alone, global banks were collectively hit with approximately £9.2 billion in fines for money-laundering violations. For that reason, many AML laws, regulations, and processes require the use of KYC to prevent criminals and fraudsters from slipping through the cracks. As such, KYC AML Companies are a great option for lenders. KYC checks remove the risk of onboarding customers complicit in money laundering, fraud, and other illicit activities, such as terrorism financing. Failure to comply with KYC in the correct manner leaves institutions at risk of being fined or criminally prosecuted. It also jeopardizes the integrity and reputation of an organization. 

As a result, the overall significance of KYC is that it facilitates the establishment of trust between enterprises and customers, as well as offering insight into client behaviour to defend against fraud, losses, or being fined for involvement in criminal activities. 

Despite KYC initially being formulated for banks and other financial institutions, it has evolved to become standard practice across a wide range of industries. Organisations generally utilize four key approaches in their KYC procedures:

Nonetheless, many of the current KYC processes have been found to be less effective as they could be due to varying KYC regulations around the globe, customer apathy, insufficient customer data, and the rise of accessibility to technologies that aid in the development of fraudulent documents and data which can easily fool standard KYC checks. 

KYC/KYB Process Improvements - What's The Solution? How Can Homeppl’s Fraud Finder Help?

The KYC/KYB process requires a detailed understanding of client profiles, as well as transaction monitoring and a thorough evaluation of the application fraud risks associated with their profiles, in order to operate effectively. There is an increasing demand for institutions to be equipped with technology that enables them to thwart financial crime without the intrusiveness of traditional KYC methods. 
Fraud Finder Technology - Speeding up Application Reviews

Homeppl’s technology offers the ideal solution by utilizing financial data enrichment, document analysis, and behavioural analysis, alongside open banking, which together have created an impenetrable defence system that allows us to catch out fraudsters every time.

Collectively, Homeppl's technology gathers a snapshot of a customer's digital footprint by analyzing data derived from their email address, IP address, and online activity then cross-referencing this information against fraud databases to identify common fraudulent behaviour. Fraud Finder, Homeppl's latest product, conducts document analysis by uncovering even the slightest of document falsification and is applicable to every part of the KYC and AML journey, from identity and residence, down to financial information. 

Fraud Finder employs state-of-the-art technology which targets: 

  • Transaction Data

  • Data Enrichment

  • Document Verification

  • Meta Data Extraction & Analysis

  • Font Analysis

  • Image X-Ray Analysis

  • QR Code Analysis 

Entirely automated, our technology ensures that our clients are KYC & AML compliant when assessing consumer risk. Our technology streamlines the screening process, cutting verification time in half, reducing the need to verify bank statements manually and verifies income on any financial document regardless of Open Banking connection.

Open Banking and Identity KYC Checks augmented by Fraud Finder

Banks, mortgage lenders, unsecured loan providers and other financial companies who have to deal with applications and account opening on a daily basis will know the pain of a fully comprehensive KYC check and where the holes in the process are.

Most digital KYC companies deal mostly with ID verification and still verify their bank statements and other financial documents over the phone, causing time delays and friction. Whilst Open Banking income verification has gone a long way to solve this, many providers can only provide instant verification for applicants who chose to willingly share their data on an OB platform. 

Up to 50 or 60% of customers/applicants in some industries will still refuse to connect to Open Banking. This means their bank statements can not be analysed and checked instantly. 
Benefits of Fraud Finder Technology

Fraud Finder standardises any financial document into a JSON file. Once standardised, affordability insights can be instantly retrieved, grouped and analysed based on the financial data that can be instantly extracted from this file. We can reduce KYC friction by essentially turning any financial document into an Open Banking document.

Data Enrichment picks up where standard document verification falls down

The reason fraudsters like to target lenders is because their processes are easy to foil. 

We are sorry to say it to the mortgage lenders, the micro financiers, the auto lenders and anyone else but it simply is not enough to just check an ID or a Bank Statement that can be purchased on the dark web or by any other nefarious means.

Data enrichment plugs the gap. Technology, such as the proprietary fraud tech that Homeppl has developed, can take an email address, or a bank transaction and provide the lender a laundry list of insights, credit risk, spending habits and authenticity signals to see if the applicant is truly trying to defraud you.

It is the unique blend of data enrichment and affordability verification that protects lenders from £millions in fraud loss that many industries are currently suffering.

As a rule of thumb, verification should never just be based on the information given to you from a customer. They may be lying, they may be withholding data, they may be accidentally missing out information. All leaves you at risk of fraud and friction. Data enrichment, digital footprint analysis, and profiling eliminates the need to trust the customer and can collect a multitude of extra data points to build a more accurate creditworthiness and trustworthiness profile.

What Are The Current KYC Trends To Look Out For?

To develop a comprehensive understanding of how to better implement KYC, it’s important to understand the current and upcoming KYC trends. 

Seamless KYC Onboarding 

The emergence of more frictionless KYC solutions is one trend to keep an eye on. For many customers, the KYC verification procedures can be overly invasive, therefore they may seek out organisations that successfully streamline the process by adding fewer stages during onboarding. Keeping KYC processes as unobtrusive and speedy as possible helps minimise customer apathy and lower drop-out rates in the long term. 

Digital Identity 

In the last few years, there has been an increasing push toward new initiatives to digitise legal documentation.

The requirement for physical ID document verification frequently made the onboarding process more time-consuming, confusing, and costly for both the consumer and the institution, leading to poor customer experiences and even process abandonment.

The use of digital IDs and technology to replace old techniques feeds into the preceding trend by enabling a more smooth and speedier onboarding process. In addition, the use of new technology and anti-fraud tools has already proven more efficient and accurate than in-person document inspection.

Analytics and Orchestration Technologies

Financial crime has flourished on the internet as a result of technological advancements, rendering old KYC methods ineffectual in the face of the modern-day fraudster.

Criminals now have access to software that aids in the creation of synthetic IDs and doctored documentation. Accordingly, in order to successfully combat the rising financial crime, organisations are feeling the pressure to employ new technologies to enable an interactive and automated process for swift data collection and analysis, and many are turning to orchestration platforms to properly screen their digital customers.

Successful KYC & AML processes are at the heart of any successful compliance risk and management program. With the demands of meeting KYC obligations intensifying, institutions are urged to actively innovate and digitalize the KYC process at its various stages in order to remain compliant with the evolving regulations, as well as to elevate customer satisfaction, and offer versatility.

How much does KYC cost?

Know Your Customer costs to a business depend on whether you have an in-house KYC analyst, team or utilise third-party software. KYC checks are a necessary part of application approvals for financial products. In the UK, it has been reported that 25% of all financial applications are forsaken due to complex KYC friction.

KYC & AML checks can rely on identification checks, document checks, backgrounds checks - it is dependent on the specific requirements of your company.

How does Machine Learning Technology reduce friction and streamline application reviews?

Machine learning, in the universe of document reviews due diligence checks, refers to the spotting of suspicious patterns that have been identified across a number of documents and applications.

For instance, Fraud Finder is able to identify anomalies and fraud signals in a range of bank statements. Therefore, if a brand new bank statement submission, deriving from a country’s bank that has not yet been submitted, is unknown to Fraud Finder, the algorithm will go to its bank of common fraud signals as a first port of call. This is particularly useful in large organisations where in-house KYC analysts have to deal with tons of documents and a multitude of data points. 

Humans make a lot more errors when it comes to attention to detail than machines do. Obviously there are risk assessments that go beyond what Machine Learning algorithms can provide, but they can add significant value just by streamlining processes and reducing the time it takes to identify suspicious data points quickly.

In a nutshell, KYC checks are essential. In 2022, they must be tech-driven and founded upon Machine Learning & Document Analysis technology. Outsourcing AML compliance, as well as KYC is a preferred option as tech companies, such as Homeppl have the right tools to enhance both efficiency and security, leaving in-house lenders and financiers the time to maximise their own business opportunities. 

Read next: Managing Risk & Fraud during an Economic Downturn

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