KYC Verification

Not only banks need KYC checks but also other companies, such as:

• iGaming and gambling establishments
• Mortgage companies
• Credit unions
• Travel businesses
• Art and luxury item dealers
• Telecommunication firms
• Healthcare businesses
• E-commerce companies
• Loan and investment companies

It depends on the financial institution or the regulated entity that needs to conduct the KYC verification process. Factors like the jurisdiction where the entity operates, the industry, or the company’s internal risk appetite form the measures that are required to be implemented for a compliant KYC process. 

In general, these are the main steps that a compliant KYC verification process must follow:

1. Identity verification. This step involves measures like submitting an ID or passport, completing biometric checks, and, sometimes, providing additional documents, such as proof of address (PoA). 
2. Customer due diligence (CDD). This includes investigating the customer for potential AML flags (after the initial verification step). CDD measures depend on a customer’s risk assessment, that’s why some individuals will need to provide more information, or they’ll be screened internally against extra databases. So, AML screening consists of measures like PEPs and sanctions checks.
3. Ongoing monitoring. This step ensures that the customer’s risk profile is accurate (since risk levels change, for example, a user can develop fraudulent tendencies or receive a PEP status, which requires more stringent due diligence and monitoring).

The goal of KYC verification is to prevent fraud and ensure security, such as making it impossible for fraudsters to bypass verification and open accounts with stolen credentials. Other important factors that financial institutions need to remember when building a proper KYC process include choosing a reliable KYC software provider (if you’re going with a third-party service and not building on your own), then complying with KYC/AML regulations and, lastly, integrating KYC with your existing structure and other AML measures. 

Apart from document verification, another popular KYC verification example is biometric or selfie verification. It requires users to capture and upload or record a selfie to confirm their identity. Using smartphones, tablets, or computers, users follow AI-guided steps to complete the process. This technology is powered by liveness detection, which helps prevent spoofing attempts, such as fake photos, prints, or masks used during KYC verification. 

This method verifies if the selfie is taken by a real person, using advanced algorithms that run in the background after submission. Selfie verification is known to be a good example because it’s difficult for fraudsters to bypass, especially coupled with another layer of verification, such as document or database verification.

By checking if the personal information matches, is legitimate, and belongs to the same person who’s completing the KYC verification process, companies can prevent various forms of fraud. 

For example:

• Financial fraud. KYC verification helps prevent fraud by blocking bad actors from impersonating customers with stolen IDs or creating fake accounts to conduct unauthorized purchases. This is common among various financial sectors, including fintech or e-commerce. 
• Identity theft. By asking to upload IDs or complete biometric checks, companies ensure that bad actors with stolen identities can’t access their networks and conduct crimes there. For example, loan fraud is common, which is based on stolen SSNs or overall identities to access bigger financial benefits.
• Money laundering. Combined with ongoing due diligence measures, such as transaction monitoring, KYC verification helps prevent and detect money laundering and individuals linked to suspicious transactions that need to be investigated further and reported to regulatory authorities.