The new KYC on the block: where technology and people sync
Face to face interactions sadly seems to be a thing of the past as financial services players embrace digital face to face relationships and transactions. COVID-19 has created the need for digital KYC onboarding systems to be implemented so that BAU may resume. Will this be another financial fad or will the banks of the future embrace digital onboarding as the new norm? Banks need to ask just how safe is e-KYC when there has been a significant increase in financial crime as a result of the pandemic and should we only relying on automation and digital practices to de-risk and prevent possible crime? Through NCRB Report, it is now in the public domain that financial crimes in India have risen 10 times from 2016 to 2018. As per Stastica2020, 2019 saw the highest number of bank fraud cases in India – standing at 6800 reported incidents.
Increase in financial Crime during the pandemic
Criminals have used the pandemic to their benefit causing an astounding increase in financial crime conducted. Scams ranged from ordering face masks to coronavirus related phishing emails, fraudulent KYC calls with messages, leading to citizen losing their valuable savings. Criminals have been reported to send out emails supposedly from well-established wallet companies, asking for personal details and transfers.
Adapting to new environments is a key skill for financial criminals and a post COVID world looks like banks more than ever will have to increase their AML and KYC platforms as fraud and cyber-attacks have risen during the pandemic and will continue to do so in a post-COVID-19 world. Cyber-attacks have also seen a significant increase during the pandemic.
Increased KYC/AML efforts will need to be implemented
Now more than ever inadequate customers due diligence can cause an influx of financial crime. KYC efforts will have to be increased to ensure that not only those who are eligible will get access to funds but that it will also be done effectively and efficiently especially with such high demands. Another key issue is the nature of remote vetting and CDD. Limited face to face interactions could affect information gathered and so additional caution needs to be implemented when conducting CDD remotely. This can also affect verification of key documents and information so financial institutions need to be more cautious of any forgery of any kind.
Post pandemic both private and public sectors will need to adopt stronger AML and KYC practices. Organisations need to be more vigilant and adopt stronger whistle blowing monitoring systems, ensure staff are constantly updated on the latest fraudulent activities and what to look out for, review their AML/KYC risk assessment and ensure three lines of defence as resilient as possible and can they provide reassurance from potential COVID-19 criminal attacks. What controls could be exposed and weak? What key risks could be associated with new coronavirus hacks? CDD processes will have to be even more vigilant where vetting is concerned, as a lack of face to face interaction and certified documentation could pose a risk for potential fraud.
India’s adoption of virtual KYC
It certainly seems that it will be the case for some international banks. This year the Reserve Bank of India permitted video KYC, to which many in Financial Services (especially FinTech’s) helped aid their customer onboarding systems, especially when lockdown measures started. Banks in India have launched their first video KYC facility for their full-service digital savings account. This means that customers will no longer have to physically go into banks and can open up savings accounts in the comfort of their own home. The e-KYC platform requires a mobile number, Aadhaar OTP, and PAN card details in the online form. It will be followed by a video KYC for verification . There has always been a staring need for a KYC Solution to be perused in a remote context especially in rural areas.
Video KYC is a massive step towards digitalisation, particularly in neo-banks, lending FinTechs, and prepaid wallet players, who have been demanding a seamless, paperless, and cost-effective solution for KYC for quite some time. But can we take out the human component completely and do regulators feel this is an appropriate implementation?
Regulation and the adoption of virtual KYC
The regulations need to see evidence that any newly adopted KYC onboarding solution proves to be more efficient than old legacy systems. They will need to have a clear understanding of the new solution used and how it can be beneficial but most of all secure. The big question remains – how safe is automating your regulatory risks and what impact could this have on the risk you may be placed on your new KYC methods? The fact remains that you still need a human component to ensure that any automation you have implemented aligns with your internal AML/KYC protocols, as well as the external demand regulators will expect to see.
Taking the risk out of your AML/KYC processes with a combination of people and technology
Organisations need partners who understand the vast benefits that technology can have for AML/KYC projects. An ideal solution would be to combine people’s detailed knowledge and expertise of the regulatory environment with leading technology designed to solve practical customer challenges to provide a scalable, high quality, low risk, cost-effective services.
The combination of people and technology has the power to shorten the timelines of managed services project requirements by up to 80%, allowing for faster delivery and cost efficiency whilst producing greater transparency and a more robust and higher quality output. A bank can make faster, more confident decisions about customer risk that are 100% auditable.
As India embraces the adoption of e-KYC and other digitalised AML/KYC methods, organisations must understand that the risk of financial crime is much higher during these times, so the three lines of defense need to be as strong as possible in warding off potential crime. The combination of people and technology allows for a much stronger AML/KYC proposition, as it embraces the digital but at the same time keeps the human at the forefront of a very human issue.
 Staff, Verdict. “Yes Bank Launches Digital Savings Account with Video KYC Facility.” Retail Banker International, 29 June 2020, www.verdict.co.uk/retail-banker-international/news/yes-bank-full-service-digital-savings-account-video-kyc-facility/. Accessed 10 July 2020.