KYC Onboarding Process Explained
KYC onboarding is a stepwise process that a business takes to verify a customer’s true identity. It is also known as Customer Onboarding or Client Onboarding Process. Especially, in the case of banks and other financial institutions, Identity verification is vitally important. In KYC (Know Your Customer), the Onboarding Process is considered the key to a seamless user experience.
Outrightly, financial fraud, money laundering, and tax evasion are highly corrosive to the legal financial system, and to mitigate these crimes, the customer’s identification and verification are mandatory from the moment a customer enters the bank.
Mostly, the KYC Onboarding Process differs from country to country. Yet, every business today needs to collect and verify the basic information of customers such as:
- Date of Birth
- Proof of Address
Businesses prefer to have unique identity verification parameters for each customer. For example, a Social Security Number or ID card number. Once the information is collected through a well-defined process, it is verified through a database. After the customer is verified, he is onboarded successfully and is provided with services.
Types of KYC Onboarding
Basically, the KYC Onboarding Process is of 2 types. Each type is based on the purpose of use and the advancement in technology.
1 Traditional Client Onboarding Process for KYC
Previously, KYC Onboarding used to be a complex procedure that was time-consuming. Mostly, KYC Onboarding Requirements for a traditional system are stringent. Due to the hard copy data verification and documentation, Traditional Client Onboarding is slow. Particularly, in physical KYC/AML, the onboarding starts from the Front Desk Office of any firm where the customer appears.
Afterward, the Customer Identification Program (CIP) is initiated after the customer submits his basic information. Customer Due Diligence (CDD) and Enhanced Due Diligence (EDD) are carried out to verify and assess the risk. Once the risk score is given to the customer, the customer is dealt with according to the KYC regulations. Overall, Traditional KYC is highly dependent on human resources. This also compromises the system’s transparency and other attributes.
2 Smart KYC/ eKYC
Although the traditional approach is still in practice, eKYC is now a rapidly growing approach for KYC Onboarding Compliance Requirements. Moreover, eKYC is a seamless and convenient way of conducting Customer Onboarding. It is also known as Smart KYC in a few jurisdictions. Through eKYC customers can now sign up and provide information through their smartphones. Remotely, customers can provide the video recording, selfie, ID card, and other documents scanned PDF copies to the bank and FIs for account activation. The back-end working of this process is summarized in the image above.
Overall, Digital KYC has minimum human involvement in the process. This makes the system more secure, fast, logical, and highly stringent for keeping it transparent.
KYC Onboarding Process and AML
Primarily, KYC Onboarding supports the AML (Anti-Money Laundering) implementation. Since KYC is a compliance approach and requires in-depth verification, the process has evolved a lot. Almost all famous banks around the world are practicing the eKYC approach for onboarding. Similarly, other financial institutions and firms that require customer data for different purposes have also introduced seamless processes for KYC. Furthermore, the KYC Onboarding Process has a strong potential to mitigate the Fincrime.
Following are a few ways in which Client Onboarding KYC supports the AML:
- When the customer’s data is recorded, it can be cross-verified at any time if a red flag is raised.
- Blockchain Technology makes the database highly secure and impenetrable for 99% of hackers.
- eKYC Onboarding is seamless and enables fast and convenient ways that improve customer experience.
- Protecting the public from Identity Theft and Money Laundering, many Criminals have been caught through this process.
- Regulating the AML system is much easier with KYC being done accurately.
Customer Profiling & KYC Customer Onboarding
Following are the salient features of a customer profiling process that strengthen the identification & authentication process while conducting KYC.
- Account Title [Name]
- Address on File [Mailing Address]
- Business Registry Information
- Date of Opening
- Status & Last Updated
Each Customer profile is verified against the mentioned features. In the case of a business entity, the following features are verified too:
- Business Entity Name
- Business Entity Address
- Business Registration Date
- EIN (Employer Identification Number)
The KYC Onboarding Process is an imperative requirement for the firm’s secure compliance with AML and other regulations. Especially, customer identity theft, fraud, and money laundering are on the rise, and efforts to combat such crimes require more advancements. eKYC is a digitized approach that has greatly reduced the efforts for making KYC a seamless process. So, it is the responsibility of firms and institutions to embrace the concept for the common good of fighting Money Laundering.