FIs cannot afford to be lax with KYC and AML procedures, and their handling of sensitive information means they are held to some of the highest KYC standards. Collecting and verifying data helps banks ensure that the people trying to open accounts are legitimate, and are neither blacklisted nor likely to be committing illegal activity.
When analyzing risks, FIs consider customers’ locations, occupations, statuses as politically exposed persons (PEPs) and more. That information helps maintain security, creating baselines of expected behavior that banks use to assess activity patterns.
The most secure form of KYC requires would-be customers to arrive in person at branches with identity documents and proof of address in hand. Not all of them have the time or transit access to do this, and relying on face-to-face KYC prevents customers from signing on with digital banks or those based outside their hometowns. FIs have thus been seeking out online verification methods that are rigorous enough to meet regulatory approval but quick enough for customers.
Many FIs are interested in the potential of video-based KYC, through which customer-provided videos of themselves are compared against the images on their ID documents. This month’s Deep Dive explores the benefits and risks involved with the technology, as well as the strategies emerging to handle the process more securely.
Prerecorded Versus Live Video
Video-based KYC enables customers worldwide to remotely onboard while providing greater security than methods that compare selfies to scans or photos of ID documents. Moving images – complete with audio – are more difficult to falsify than still pictures.
Several forms of video KYC exist today, each with its own benefits and drawbacks. Tata Mutual Funds launched such a method in April, requiring customers to click buttons during onboarding to record themselves displaying their ID documents, saying “hello” and stating their names and birthdates. The company then reviews the recorded videos for authenticity.
Recordings enable customers to produce videos without requiring Tata Mutual to designate staff to engage in real time, in turn generating speedy KYC processes that provide the convenience users seek and help FIs recruit and retain new members. Video KYC that does not involve live staff interaction may be easier to trick, however. Fraudsters could upload pre-recorded videos of other people, wear masks or use deepfakes to try to hide their true identities.
Crowdsourcing marketplace Freelancer.com has customers undergo live video conferences with staff for identity verification. Live video conferencing better ferrets out fraudsters, but requires companies to have staff ready to hop on calls whenever customers have time. Serving a global customer base makes coordinating such calls difficult, and could even necessitate having to pay for round-the-clock staffing, which may be outside some companies’ budgets.
Freelancer.com CEO Matt Barrie told PYMNTS that live video calls are among the most secure ways to confirm identities, but the platform can only spare enough staff to use this method when high levels of verification are needed.
A firm without the resources to staff frequent live video KYC might instead require customers to adjust their schedules to better align with their employees’ schedules. This creates frictions, and companies are well aware that customers are likely to try a competitor if onboarding experiences are slow and complicated. Businesses also must decide whether it is more efficient to assign specialists to handle each video call or designate other staff to participate in calls and then make recommendations to specialists who ultimately approve and process the verifications. The former can take up much of their employees’ time, but the latter can be slower.
Both pre-recorded and live video KYC methods encounter similar challenges. Successful video KYC requires customers to have reliable network connectivity and assumes customers will make videos of a high enough resolution that the agents conducting verification can clearly view facial details. Agents must make judgment calls when analyzing videos, which can add the element of human error. Some companies may instead turn to algorithms to help match faces in videos to those on ID documents, but doing so necessitates that the software is reliable and unbiased.
FIs looking to securely and conveniently serve far-flung customer bases need rigorous ways to remotely verify identities while ensuring onboarding is fast enough to dissuade churn. Video has emerged as an easily accessible tool in the age of widespread camera-equipped devices, and stands out as a more secure alternative to still images.
Video KYC is not without limitations, and FIs that find value in the technology must be aware of its shortcomings and consider how best to pair it with other solutions.