In this era of digitization, criminals and fraudsters have devised sophisticated strategies to fulfill their illicit means. A common practice of such groups is to misuse legitimate systems such as banks, financial sectors, e-commerce, credit unions, etc. to get benefit from the free services, convert illegally earned money into white money. Therefore, the financial sector relies on control systems that aimed to collect information about the client. This is known as Know Your Customer, abbreviated as KYC.

Another reason why many companies are being used for money laundering and other criminal activities is due to non-compliance with the local and global AML regulations. The black money is then utilized either for terrorism financing, drug-related financing, or other criminal activities. Businesses that don’t follow AML regulations are subjected to penalties and hefty fines. Thus, AML or KYC compliance is mandatory for businesses to consider. 


AML is the guidelines set up by the regulatory authorities are mandatory for the companies to follow, otherwise, they would have to pay heavy fines. While KYC is a part of AML regulations in which the customer’s identity is authenticated.

Each financial sector is required to devise its own digital KYC solutions but as the AML regulations vary from country to country, the KYC procedure must be developed according to the AML standards of that country. 

Steps of KYC Verification Process

Just like conventional methods, KYC verification is the online procedure to verify the identity of clients. The steps how KYC verification procedure is performed are as under:

  1. Collection of Information

In the very first step of the KYC process, the client is asked to provide their personally identifiable information which includes their name, date of birth, address, etc. The client is supposed to enter their personal details while getting themselves registered on the account. 

  1. Requesting the User to Provide an Evidence

Once the client is done with entering their personal details, comes the second step in which they are asked to upload a supporting document such as Id card, passport, driving license, etc as evidence to prove their identity. This helps the verification system to check that the information entered by the client is not fake but real.  

  1. Verification of the Information

After the client has uploaded a document as evidence, the template of that document is first identified and then passed through several checks. It is done to check that the uploaded document is not photoshopped or tempered. The data is extracted from the documents in two ways: 

  • Using OCR: The data is extracted from the identity documents automatically and check the validity of the information. 
  • Without Using OCR: In this, the client enters the data manually, and the IDV solution cross-checks the information provided by the client against the one present on their identity document.

Who Needs KYC Services

All the financial sectors need to perform KYC while they are onboarding any customer or opening and managing the customer’s account. A standard KYC compliance is applied while any client is onboarded or given access to a regulatory product or a service. Below are the financial entities that need to follow KYC compliance. 

  • Banks
  • Credit unions
  • Private lenders and the lending platforms
  • Broker-dealers as well as wealth management firms
  • Fintech applications – based upon activities they’re engaged in.

Any company that deals with money are mandated to adhere to KYC compliance strictly. Not only do the banks are mandated to follow KYC compliance, but any sector dealing with money directly or with banks is supposed to follow the guidelines strictly. 

What Triggers KYC

KYC (Know Your Customer) is usually triggered by:

  • Change in the business nature of the customer
  • Change in client’s occupation 
  • Unusual transactions
  • Addition of new parties in the account

Final Thoughts

Onboarding methods have been completely improved and digitized with artificial intelligence, removing any friction and making it easier for users to access virtual products and services in a completely secure manner, not only in the financial sector but across all industries.

Not all e-KYC solution providers use the most up-to-date approaches and tools in their platforms. As a result, it’s critical to rely on extensive Know Your Customer solutions that support the firm and the client throughout the onboarding process, along with additional verification needs, while providing the greatest regulatory and technical assurances. Otherwise, it is possible that the system doesn’t entirely follow KYC compliance and doesn’t offer all of the benefits that incorporating this procedure should deliver and it could also cost the company with hefty fines.


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