The finance industry is rife with risk. Staying ahead of criminal activities, while essential, can also be incredibly challenging. In a chaotic financial landscape, Know Your Customer, or KYC, has established itself as one of the pillars of trust and safety.

KYC involves verifying the identities of customers or partners to make sure that they are who they’re claiming to be. It’s a careful assessment of the credentials of a particular person or legal entity for the purpose of assessing the potential risks they might pose to the business they wish to work with.

With comprehensive KYC procedures, organizations can significantly mitigate the risk of financial crimes such as money laundering, corruption, and terrorist financing.

There are several key components of a KYC risk assessment. The first one is customer identity verification, where individuals’ identities are confirmed using reliable documents and data sources. Then come Anti Money Laundering (AML) checks, which include three critical steps.

• Politically Exposed Persons (PEP) screening
• Sanctions list check
• Adverse media check

These checks are meant to identify individuals or entities that might be associated with other high-risk individuals or activities. Then comes a series of AML questions intended to help gauge the legitimacy of their financial activities and reveal potential red flags. All the collected customer information is analyzed and a risk profile is assigned to the customer or entity.

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While KYC focuses on individual customer due diligence, businesses dealing with other businesses also require a similar level of verification. This is where KYB (Know Your Business) comes into play. KYB involves verifying the identities of corporate entities, understanding their ownership structures and hierarchies, and assessing potential risks associated with them.

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The Role of KYC in Anti Money Laundering

KYC is a central component of effective anti money laundering mechanisms.

While money laundering is a primary concern within the AML framework, KYC serves a broader purpose. It shields financial institutions and other businesses from the threat of criminals waiting to exploit any vulnerabilities in identity verification processes. KYC thereby foils attempts of identity theft as well as fraudulent transactions. It thus plays a vital role in fostering trust and transparency between businesses and their potential customers.

The processes that KYC involves also help to impeccably document all of the customers’ details. In case any customer raises a red flag in the future, the business can revisit its records to figure out what went wrong.

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The 3 Key Components of KYC

KYC is a set of guidelines and practices laid out by regulatory authorities all over the world. They’re designed to ensure that financial institutions thoroughly understand their customers, assess potential risks and establish a strong line of defense against money laundering, terrorism financing, and other financial crimes. While there might be procedural differences in implementation based on the region of operation, the underlying KYC regulations are enforced globally to create a standardized approach to financial security.

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We’ve already briefly touched upon the three components of KYC, but let’s dive deeper.

1. ID Check

There are three variations of the ID check component. Each version harnesses varying levels of tech and innovation to ensure accuracy and reliability.

1.1 Pictures Only

The most basic of all three methods, it involves collecting photographic ID documents, such as passports or driver’s licenses, to establish the customer’s identity. This is done by comparing a selfie of the person with the pictures of the ID document that they’ve provided. Apart from matching the picture, here are some other things that are also checked in the submitted ID.

• Is the document legit (not a fake or copy)?
• Is the document valid, i.e., not expired?
• Has the document been reported stolen?
• Has the document been tampered with?
• Biometric data and security elements
• Additional checks depending on the use case (e.g., age verification)

1.2 Pictures and Video Recording/Liveness Check

Building upon the pictures-only approach, this variation introduces an additional layer of security. Customers have to provide a video recording that demonstrates their liveness, making sure that doctored static images cannot be used to trick the software.

1.3 Pictures and Video Interview

This variant is the most comprehensive of the three. It combines images with a real-time video interview. Customers interact with a KYC professional who verifies their identity by asking them some questions. It adds a human and personal touch to the digital verification process.

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2. AML Checks

The second component of KYC focuses on Anti Money Laundering (AML) checks, which include the following.

2.1 Politically Exposed Persons (PEP) Screening

This process involves identifying individuals with prominent public roles, such as government officials or people with political connections. It assesses the potential risk associated with such influential customers’ involvement in financial transactions and makes sure they won’t misuse the service for illegal political or personal gains.

2.2 Sanctions List Check

Financial institutions cross-reference customer details against international sanctions lists, such as those published by the UN, Interpol, or OFAC. This is to ensure that the business doesn’t take on customers who have been in trouble with the authorities anywhere in the world or had their legal status compromised.

2.3 Adverse Media Check

This component involves scouring various media sources to pick up on any negative information, news, report, or other type of media linked to a customer. Adverse media checks offer crucial insight into existing and potential risks to a customer’s reputation.

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3. AML Questions

The third key component can have any number of questions needed to eliminate all risks. Here are some questions commonly asked in this process.

• What is the purpose of opening the account with us?
• What is the source of your funds?
• Have you ever been or are you currently under sanctions?
• Have you ever been or are you currently a PEP or RCA?

The answers to these questions are then compared to the results of the previous two steps to ensure consistency and accuracy. After that, the customer is assigned a risk level.

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What Is KYC Software and What Problems Does It Solve?

One can almost imagine the traditional KYC process – overwhelming stacks of paper lying around waiting to be manually checked. It sounds like it used to be a colossal spend of time and resources. The process has undergone a major transformation thanks to tech. The demand for a streamlined and efficient KYC process has led to the emergence of KYC software.

KYC software leverages cutting-edge technology to enable financial institutions and businesses to verify their potential customers’ identities much faster and ensure regulatory compliance without compromising on accuracy. By digitizing the entire process, KYC software eliminates the need for elaborate physical copies of data and documents.

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Common Features in KYC Apps

• Fraud detection
• Document submission
• Biometric verification
• Automated identity verification
• Convenient digital data extraction
• Video identification
• AML checks
• Blockchain verification
• Behavioral analysis
• Data analytics and reporting
• Warnings or alerts
• Secure data storage and retrieval
• Third-party integrations

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How KYC Software Typically Works

First and foremost, customers are asked to submit digital copies of their identification documents, such as passports or driver’s licenses, through the KYC app. The software uses optical character recognition (OCR) along with sophisticated algorithms to extract important details from the documents and check their authenticity.

Next, users undergo biometric verification, where their facial features or fingerprints are matched against public records or other external or internal sources of verified information.

The software then conducts the three different types of AML checks, scanning global databases for politically exposed persons (PEP), sanctions, and negative media mentions to identify potential risks.

Customers then answer AML-related questions, revealing key info, such as the purpose behind their financial activity and the source of their funds.

At the end of the process, the software assigns a risk profile to the customer. The level of risk can be labeled low, medium, or high, depending on the findings.

If all goes well, the customer is approved, which means official onboarding can begin. This doesn’t mean the process ends here. The risk profile helps the business decide on the level of scrutiny required for the customer’s ongoing monitoring.

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How Using A KYC Software Solution Benefits Financial Institutions

Speed and Efficiency

One of the most significant benefits of digitalizing KYC is that businesses get to enjoy more efficient processes. As discussed in the previous section, manual paperwork and verification can be excruciatingly laborious. KYC software streamlines and accelerates the verification process, significantly lowering the time it takes to onboard new customers.

Automation Opportunities

KYC software can automate repetitive tasks, such as data entry and document review, minimizing the risk of human error. It also frees up staff members’ schedules so they’re able to focus on more important tasks, thus boosting productivity and operational efficiency.

Cost-Effectiveness

By streamlining and automating KYC processes and eliminating the need for excessive manual labor, financial service providers can slash the high costs otherwise incurred from administrative overhead, paperwork, and other compliance-related activities.

Security and Privacy

A trustworthy KYC software app must have cutting-edge security mechanisms in place to safeguard sensitive information that the customers entrust to the business. Examples of such measures include encrypted data storage, multi-factor authentication, and access control.

Data Accuracy

Human errors in manual data entry can lead to inaccuracies that might have serious repercussions, given the sensitive nature of all kinds of financial activities. A digital process minimizes these errors and ensures that all entered data is correct.

Convenience and Reliability

For both financial institutions and their customers, KYC software offers a convenient and reliable way to carry out difficult processes. Customers can undergo the verification process from the comfort of their homes, eliminating the need for physical visits to offices.

Scalability

As financial institutions expand in terms of their customer base, so do their business needs. KYC software solutions are inherently scalable and capable of handling increasing volumes of customer data and processes without compromising on speed, efficiency, or accuracy.

Improved Customer Experience

KYC software greatly simplifies and expedites the verification process, increasing customer satisfaction and loyalty. When users go through a fast, frictionless onboarding process, it greatly enhances their experience and leads to greater customer satisfaction. Additionally, the quicker the process, the quicker customers can be granted access to financial services.

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9 Popular KYC Software Solutions

Now that you know how KYC software works and the many reasons why you should consider investing in one, let’s talk about some specific KYC solutions and the features they offer.

1. Vespia

Vespia is an all-in-one AML compliance platform that also incorporates KYC.

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With Vespia, you can verify both businesses and individuals. Its value lies in its data analysis capabilities, meaning it analyzes all KYB, KYC, and AML data points to provide you with suggestions and explanations on how to handle each case. The product is modular, which means that if you are happy with your ID check provider, but need the analysis part, you can use Vespia on top of your existing software.

To see Vespia’s platform in action, you can book a demo or register and get a free trial from our website.

Key Features

• KYB business verification for SMBs and large enterprises
• Extensive coverage with access to global business databases and AML lists as part of its 5000+ data sources
• Robust set of features, inclusive of an intuitive user interface that’s easy to use
• AI automation opportunities and real-time Check updates
• Seamless integration of their KYB API with existing systems, promoting ease of use

Vespia offers a 10-day free trial for its AML software.

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2. Veriff

Veriff specializes in online identity verification, catering to individuals and businesses across different sectors. A well-optimized UI supports its speedy verification processes. Veriff provides a demo version for businesses to test its capabilities. Prices depend on your usage and the features you require.

Key Features

• APIs and SDKs for easy integration into web and mobile applications
• Advanced biometric authentication technology for precise identity verification
• AI automation
• Free retries
• Multilingual support

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3. IDnow

IDnow is a trusted KYC software solution with a focus on offering remote identity verification services to a variety of industries. It offers flexible pricing plans based on your business requirements. IDnow also provides a demo version for businesses to explore its features before subscribing.

Key Features

• Powered by AI and ML
• Intelligent video identification via VideoIdent
• Support for document verification and biometric identification
• Easy web and mobile integration

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4. Onfido

Onfido is a well-known KYC software solution that offers AI-powered identity verification services. Equipped with all the basics of KYC, the powerful software has had some feedback regarding slow support response times and slightly limiting dashboard capabilities. Pricing is customized based on usage and requirements. Onfido provides a demo version and a trial to its businesses where you can run 50 free tests.

Key Features

• Liveness check
• Build custom workflows in their Verification Suite
• Smooth switching between laptop and mobile phone
• Allow human experts to take over complex KYC cases

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5. ComplyAdvantage

Lauded by its user base as being friendly on the pocket, ComplyAdvantage focuses on eliminating manual intervention to enhance the AML compliance and identity verification processes for businesses. Flexible pricing plans are available based on your business needs. You can also see how their service works by requesting a demo.

Key Features 

• AI-driven AML verification
• Easy API integration
• Automated monitoring
• Comprehensive reporting

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6. Ondato

Ondato offers a comprehensive KYC and identity verification solution with a focus on user-friendly experiences. It allows you to have a virtual branch for your business to connect remotely with your customers. Pricing plans vary depending on your usage and the features you choose.

Key Features

• NFC identification
• Quick updates in accordance with changing KYC regulations
• Customizable workflows to align with specific business needs and processes
• SDK for smooth integration on Android and iOS

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7. Trulioo

Trulioo’s KYC software solution focuses on helping businesses provide a smooth onboarding experience to their customers. The software comes with a normalized API for seamless integration with a variety of platforms. But in aiming for global coverage, its match rates can sometimes suffer.

Key Features

• Access to a vast network of data sources
• High-quality data
• Translation of data such as documents and owner information
• Real-time analytics and insights
• Customizable workflows

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8. Alloy

Alloy offers a comprehensive end-to-end solution from KYC verification to monitoring. It provides access to a wide range of sources, supported by easy API integration. The learning curve can be a little steep for users, along with the price point, keeping small businesses in mind. The initial setup is relatively easy, though. While pricing is not public information, you can reach out for a demo session.

Key Features

• Access to over 180 data sources
• Customized workflows
• Appealing visualizations
• Powerful, intuitive dashboard

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9. NorthRow

NorthRow provides a comprehensive suite of compliance solutions, including KYB, KYC, and AML checks. Its API enables seamless integration of data sources across borders. You can book a demo to check it out.

Key Features

• Intuitive yet comprehensive dashboard
• Liveness detection with anti-spoofing
• RemoteVerify, a mobile solution for your customers
• Complete audit trail

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Factors to Consider When Choosing the Best KYC Software

That’s a lot of options for KYC software, and we’ve barely scratched the surface! Plenty more options are available on the market, so it can be a little hard to choose. But worry not – here are some factors that can help you get started with the shortlisting process.

Speed and Ease of Onboarding: In KYC, this is one of the biggest factors! It is always a pain when your customers are used to easy one-click account creation, but then you start asking them to take pictures, answer questions, and whatnot. If you have a complicated KYC flow, the users will go to your competitor. Businesses want to onboard more customers faster to generate more money. At the same time, they don’t want to spend exorbitant amounts of money on KYC.

Features and Functionality: Go over the complete feature set offered by each KYC software. Does it have all the basics? Are there any glaring gaps?

Alignment With Requirements and Goals: Make sure that your chosen KYC software aligns with your organization’s unique goals and requirements. Think about the level of automation you want, the growth rate, and your short- and long-term objectives.

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Adherence to Recent KYC Guidelines: Check whether the KYC software complies with the latest official KYC guidelines and recommendations set by regulatory authorities. If something goes wrong, you could face heavy fines!

Cost: Understand the pricing structure of the software, including initial setup costs, ongoing subscription fees, and any additional pay-as-you-go charges.

Available Integrations: How hard will it be to integrate into your current setup? If you need a disruption-free transition without giving up on your existing systems, lack of integration can be a deal-breaker.

Interface Usability: Is the KYC software intuitive and user-friendly, or does it require extensive (or expensive!) staff training or technical expertise? Most tools offer demos and test runs: use them to evaluate the UI.

Personalization: Ask the providers if their software can be customized to align with your existing business processes, branding identity, or even aesthetic preference.

Security: What has the software provider done to protect sensitive customer data? Can you trust them? Databases, data storage protocols, and transmission channels must all be secured. And encryption is a must.

Access Control: Can you assign different levels of access to various team members based on their roles? Or is it open season for everyone?

Customer Support: Assess the quality and responsiveness of the vendors’ support reps. Timely help is super critical for keeping customers happy.

Clientele and Reviews: Research the vendor’s previous or current clientele. Has the vendor dealt with a company of your size and in the same industry? Read reviews published on trustworthy platforms.

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Conclusion

Know Your Customer (KYC) is a comprehensive strategy for financial fraud prevention and ensuring regulatory compliance. It has evolved from weeks-long manual processes to almost instant results.

The benefits go beyond compliance and security, though. A good KYC solution accelerates and automates processes, reduces costs, enhances data accuracy, and elevates the customer experience. The eventual goal is to establish a two-street of trust, provide smooth customer onboarding, and thus keep abandonment rates to a minimum.

Given how vital all the above-mentioned benefits are – not just for financial institutions but for all businesses – choosing the best KYC software solution for your business needs careful consideration. In the process of selecting the best KYC software, businesses need to take into consideration a wide range of factors, from feature sets and compliance processes to affordability and integration capabilities.

Want to see our KYC platform in action? Allow us to walk you through a seamless customer onboarding journey. Book a demo at https://vespia.io/get-started.

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