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How video-based digital KYC is boosting financial services

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digital KYC
BY: Shubhradeep Nandi
With the outbreak of COVID-19, digital transformation waves have hit the industries and led to the adoption of advanced technologies.

Most of the technologically advanced economies have already initiated implementation of digital financial services to boost their economy.

One of the well-known technologies that has become important to sustain this economic progress is the Video-Based KYC process.

BVN

A bank customer during Bank Verification Number (BVN) exercise – Image by Google

The world is facing a severe crisis of COVID-19 which is fast-tracking the use of this technology that ensures people to on-board to banking and financial platforms without stepping out of the house.

Money Laundering Acts in most of the countries are allowing organisations to electronically capture customer data in different ways.

This has led to the progressive adoption of Digital KYC. Digital KYC is a process allowing entities to undertake the KYC verification digitally, almost similar to its fraternal twin, E-KYC. Video KYC ensures entities conduct digital KYC verification via video call technology. Let’s look at the circumstances that propelled the use of Video KYC.

Background

Various Fintechs, banks, e-wallet and non-financial institutions all over the world were facing the obstacle of not being able to use the technology to its fullest capacity. They were denied access to the government database which acted as a stumbling block by restricting their ability to complete the KYC verification using the E-KYC services.

Partially, the KYC process was done electronically but for the verification, they relied on the network of agents to physically visit the customers’ location and verify all their details which was tiresome; increasing the costs and compliance burden.

The declaration by the authorities that the firms; banks as well as non-financial institutions can implement the Video KYC technology for KYC verification was seen as a boost to the financial services. Soon after the release of the guideline, most of the firms began onboarding the customers using Video-based KYC.

With its arrival, the expensive and daunting physical KYC (Know Your Customer) process was replaced with seamless Video KYC verification technology.

The FinTechs, banks, non-financial institutions and e-wallet firms witnessed a drastic fall in the customer acquisition cost.

The firms were able to cover the customers who were widespread across a geographical area thereby increasing the customer base.

For the FinTech startups and digital non-bank lenders, this decision came in as a relief reducing the woes and helping to cater to a gig economy. The process of E-KYC can be operated only by competent and specifically trained officials.

The growing number of FinTechs and non-banking firms is evidence that the Video KYC has fostered a digitalized financial environment. The current technology of Video-based Customer Identification process is upheaving the Digital Financial Services in numerous ways such as:

Using modern & emerging technology

Financial institutions use various technologies like Artificial Intelligence, face matching, cloud-based API, machine learning, face matching to ensure that the Video KYC process is completed with integrity and no false positives.

These technologies have sped up the slow, physical KYC verification process using tools to check the customer identity in seconds. The future of these technologies would be extended in other industries as well, making a completely digital economy.

Security

The issues of data privacy come into the picture whenever digitalization is involved. The data is the central essence of any technology to flourish.

After permitting the firms to capture data electronically in various ways, the regulators ensured that the customer data can only be handled and shared by the employee of the Regulated Entity. Such a decision further expanded the scope of conducting financial activities digitally.

Remote access

Another outstanding feature is that the whole process can be conducted remotely. The complete Video KYC process can be done at the convenience of the customer as well as the firm via video call. This reduced the cumbersome task of sending a representative to physically visit the customer for document verification.

Having such an advantage, the financial and non-financial institutions can cover remote customers with a low cost of acquisition.

Environment friendly and cheaper than traditional KYC

The most apparent feature of Video KYC is that it is paperless, further reducing the cost and making it cheaper than the traditional KYC process. Allowing customers to complete the verification process immediately over a video call, the expenses of a physical visit to customers’ location is eliminated.

The use of digital images of the documents or e-documents makes it cost-effective by saving on printing and scanning. It is a step towards a sustainable environment.

Real-time encrypted process

Video KYC facilitates a real-time verification of the customer documents via a video call to ensure there is no identity theft. It provides a secured and end-to-end encryption lessening the chances of cyberattacks.

The AI-enabled technology verifies the documents ensuring it to be a live interaction similar to the physical verification.

From the customers’ perspective, this is a simple, easy and quick onboarding process. The customer saves a lot of hassles as this process can be completed right from the comfort of home.

Promoting Financial Inclusion

The term Financial inclusion entered the market in the early 2000s. The idea behind it is creating and nurturing an environment where the customers are provided equal access to the financial services in a fair and secured manner.

The most marginalised person can gain access to loans, insurance in an instantaneous and safe manner.

Financial entails formalising the informal lending economy which has been made possible using Video KYC.

In financial inclusion utopia, Video-based KYC is arguably the most significant development in the field of KYC welcomed by the FinTechs and Regulated Entities. By the remote reach of Video-based KYC, every person can access the services of banks and other financial institutions uplifting thousands of individuals across the world.

Conclusion

Near future witnesses more real-time, secured, virtual and financially inclusive transactions which can be driven by Artificial Intelligence (AI), Blockchain, IoT (Internet of Things) and other frontier technology. Though the digital economy brings a lot of opportunities to the businesses, it also elicits challenges like rethinking their strategies for differentiating their offerings from others. As time passes, customer engagement will become more personalised and contextual calling for prompt services by the firms.