Often, video KYC operates in two modes: agent-assisted and self-serve. Businesses can incorporate a video interview as part of the Know Your Customer (KYC) process or automatically capture video at the customer onboarding phase and later examine the results during a manual review. Video KYC involves remotely verifying a customer’s identity through a live video interview, eliminating the necessity for physical presence.
Over the years, KYC has changed to reach customers where they are, use new technologies, and better tackle the tricks of fraudsters. In response to the escalating fraud challenges, businesses had to seek innovative solutions to enhance customer experience and streamline their operations. Video Know Your Customer (vKYC) has emerged as this innovative solution, swiftly gaining huge popularity.
Video KYC verification combines the convenience of online ID verification with the security of face-to-face interactions. This involves gathering customer data, conducting real-time video interviews, and performing necessary checks to ensure compliance with regulations. As a new technology, it offers several advantages over traditional methods, including heightened security, improved customer experience, and faster onboarding.
But how does the integration of video into the KYC process work, and can we actually make the customer experience smoother in practice? Let’s find out.
What is Video KYC?
Video KYC, or vKYC, refers to the process of verifying the identity of individuals remotely through video calls, typically for financial or business transactions. It’s a popular KYC method that incorporates video, also known as video verification or video-based customer identification process (V-CIP).
Video KYC is based on live video interactions to confirm the identity of the user by assessing various identification factors, such as document verification, facial recognition, and biometric data, in compliance with regulatory requirements. Through the application of video verification technology, banks and other companies can enhance their ability to verify customer identities and reduce risks associated with fraud and identity theft.
Video KYC aims to enhance security and streamline the onboarding process while maintaining the necessary due diligence in customer identification. Keep in mind that the specific implementation of video KYC varies depending on how it is integrated into a business’s KYC workflow.
What is the Difference Between Traditional KYC and Video KYC?
The key difference is the use of real-time video interaction in video KYC, which enables immediate verification and reduces the reliance on physical document submission. Here’s a more in-depth explanation:
- Traditional KYC means verifying customer identity through physical documents like government-issued IDs, bank statements, and utility bills, which the company’s internal KYC analysts manually review for validation. These processes rely on paper-based procedures that are time-consuming, labor-intensive, and prone to human error, which also can cause delays for the end customers.
- Video KYC presents a digital alternative to this method. Using video conferencing technology, customers can remotely complete the KYC process without the need to visit a banking branch. By incorporating technologies like AI or biometrics, companies can take Video KYC one step further and offer their customers a faster and more accurate verification process.
Banks and other regulated entities must conduct the KYC process for every new customer opening an account. Additionally, they need to regularly monitor users for suspicious activity, leading them to revisit and perform certain aspects of the KYC process more frequently. This makes many financial institutions switch from traditional KYC to Video KYC since an automated approach provides scalability and cost-effectiveness for companies.
What Led to the Popularity of Video KYC?
As more and more customers looked for online account opening processes, financial institutions transitioned the KYC procedure to the digital world and onto mobile phones. Naturally, when malicious actors also found AI and more complex methods to bypass these measures, banks needed a new way to prevent spoofing, deepfakes, and similar fraudulent attacks to bypass KYC.
This is how Video KYC gained popularity and became an effective verification method that now allows banks to swiftly and precisely confirm customer identities, mitigating the risk of fraud and enhancing the security of the onboarding process. Now, instead of facilitating video calls between users and live KYC agents, companies prefer automatically capturing video at critical points in the KYC process to identify potential fraud signals.
Who Needs to Conduct Video KYC?
Financial institutions such as banks, insurance firms, and cryptocurrency exchanges are obligated to verify their customers and comply with KYC regulations. However, regulators around the world are imposing strict rules. As a result, more industries, including e-commerce platforms or luxury item sites, are also obliged to conduct KYC checks. To meet these requirements, many entities are adopting video KYC methods, allowing them to interact with customers in real-time while staying compliant with current regulations.
For example, the use of verification services is on the rise within the cryptocurrency market, driven by stricter regulations. Some decentralized exchanges, even though not regulated yet, are also implementing KYC practices to safeguard against losses arising from fraud. That’s why video KYC extends beyond the financial sector, reaching various remote-operating institutions such as schools, universities, and even social media platforms.
What Happens if You Don’t Do KYC as an Obliged Entity?
Financial institutions and other obliged entities that fail to comply with KYC requirements expose themselves to severe repercussions. In general, non-compliance elevates the risk of fraud and legal consequences, potentially resulting in major financial losses. Naturally, this makes attracting new customers a hassle, especially due to the lack of trust in the institution.
KYC Regulations Across the World
In the US, the Financial Crimes Enforcement Network (FinCEN) can impose fines and a maximum imprisonment of up to five years for any employee associated with a bank account that lacks proper KYC documentation. In the meantime, in the UK, the Financial Conduct Authority (FCA) can revoke a company’s authorization, impose fines, and initiate criminal prosecutions against institutions for false claims and other crimes, such as unauthorized business activities.
When it comes to Europe, for instance, since 2016, SEPBLAC, Spain’s Anti-Money Laundering (AML) supervisor, has mandated banks to perform real-time video verification to combat fraud. However, it’s important to note that KYC regulations differ from one country to another. Even within the EU, where directives like 5AML or 6AML are in place, the regulations aren’t exactly the same for all member countries.
What Components Make Up a Successful Video KYC Process?
Video KYC stands out as a vital tool because of its capacity to gather a richer set of visual and auditory information compared to a standard KYC check. However, certain factors must be considered when building a successful KYC process.
Factors that help companies implement a secure and efficient video KYC process include:
- Automation and technology. A secure video KYC relies on AI and biometrics. These technological advancements help companies expedite verification while minimizing the risk of human error. Companies should invest in third-party providers that carry these technologies to ensure precise and efficient customer information verification.
- Internal compliance policies and procedures. Financial institutions must develop clear and comprehensive policies and procedures for Video KYC to ensure regulatory compliance. These guidelines should address crucial aspects such as data storage, retention, and the handling of suspicious transactions or high-risk customers.
- Training staff for best practices. Businesses should be able to guarantee that their team grasps the significance of video KYC and knows how to conduct them efficiently while identifying and addressing potential red flags. Ongoing training is essential to keep them informed about the latest regulations and technological updates.
- Balanced security and user experience. The video KYC process should offer ease of use and maintain a secure environment for customers to submit sensitive information. If the company uses another provider, its solution should be adaptable to various devices and operating systems, incorporating end-to-end encryption to safeguard customer data.
Common Video KYC Approaches
Performing video KYC is a straightforward process that eliminates the need for lengthy and complicated procedures, such as physically visiting offices for verification. However, companies can use different video KYC tactics depending on their services, operations, regulatory compliance requirements, and various internal strategies.
Here are the two most popular video KYC approaches today:
#1 Video call
A video KYC call involves an interaction between a customer and a KYC specialist who handles the call. They’re responsible for asking questions and guiding the customer through specific actions. For example, to detect liveness, identify potential signs of spoofing, or assess the customer’s risk level. Typically, when a company incorporates a video call into its KYC flow, it is also the point at which a selfie and government-issued ID are captured.
This is a step-by-step explanation of how companies use the video call approach for video KYC:
Step 1: Document Submission
- Before the video call, the customer provides government-issued ID documents (for instance, a passport, driver’s license, or ID) through an online platform.
- Advanced technologies such as OCR and AI algorithms verify the authenticity of the documents and cross-check customer information with various databases.
Step 2: Video Call
- The customer engages in a video call with the company’s KYC officer, who’s responsible for handling the interview process.
- The officer verifies the customer’s identity by comparing their live image with the photo on their submitted identification document.
- During the video call, the KYC officer may ask additional questions to gather information and assess the customer’s risk profile.
Step 3: Risk Assessment
- After the video call, the company’s system conducts further background checks and risk assessments on the customer.
- If everything’s okay and the data matches, the successful completion of all checks leads to the approval of the customer’s account.
Step 4: Account Approval
- Upon approval, the customer receives the green light to start using the company’s services.
Despite the great benefits video calls bring, this type of video KYC can add unwanted friction. As a solution to this issue, companies only use such interviews for higher-risk customers requiring enhanced due diligence (EDD). For instance, when regulatory requirements specifically mandate the use of video calls or when potential fraud signals emerge during selfie uploads.
#2 Video Capture
The video capture approach allows companies to automatically capture video and audio as part of the onboarding process. This type of video KYC offers the advantage of apprehending more comprehensive information compared to the traditional KYC process, including details about the customer, their environment, and any individuals present, enhancing the company’s ability to detect and address various types of fraud.
The captured audio and video can be analyzed for liveness detection, authenticity, and signs of tampering or coercion. Some businesses record the entire KYC session, while others prefer capturing video only at specific points in the onboarding flow, such as during selfie verification. Similarly, if the selfie provided by the user does not match the face on the ID, it could indicate potential fraud. This flag would raise alerts, prompting the company to follow EDD processes.
This video KYC approach, whether used as software or through a live KYC specialist manual review, will depend on the business’s preferences and the capabilities of the product in use. However, unlike the mentioned video call approach, automated video capture eliminates the need for a live human being, improving the user experience and fully streamlining the KYC process.
What are the Benefits of Video KYC?
Video KYC is a convenient automated approach that helps financial institutions save time and manual effort while ensuring customers avoid unnecessary delays. With components like liveness detection, document verification, and selfie verification, Video KYC has revolutionized due diligence processes. The most beneficial factor about video KYC is its cost-effectiveness and efficiency, along with the provided flexibility, allowing users to complete verification anytime and anywhere.
Video KYC also provides businesses with a higher level of security. This approach detects spoofing and other fraudulent attempts to bypass KYC. That’s because creating realistic-looking videos with deepfakes is more challenging than generating a still image, especially when the video involves substantial motion. Video KYC is also more accurate in detecting situations where the user might be compelled to complete the account creation process on behalf of another individual.
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