Navigating Compliance And Tech As Video KYC Adoption Grows

It was a valuable coincidence that the Reserve Bank of India (RBI) amended Know Your Customer (KYC) rules in January of this year to allow for remote video-based KYC checks for banks and other financial institutions. Only weeks later, remote working requirements hit as a result of the coronavirus pandemic, making video conferencing the new norm for businesses across all verticals.

While video KYC processes are in high-demand, Bishal Lachhiramka, co-founder & CEO of Ameyo, says it’s taken some getting used to. In a recent interview with PYMNTS, he spoke of the biggest challenges that banking, financial services and insurance (BFSI) organizations face when adopting this customer on-boarding and compliance technology, but why its benefits are likely to jump-start financial institutions’ technological sophistication in the back office.

According to Lachhiramka, India’s financial services market has a long history of KYC digitization.

“Banks and financial institutions had adopted eKYC long before the pandemic itself,” he said. But it was a Supreme Court ruling in 2018 that declared the use of Aadhar — a unique identification number — unconstitutional for electronic KYC processes. The decision meant corporates and FIs could only verify their customers via offline verification methods, passport, or official government documents.

The rules changed yet again earlier this year when the RBI added video-based KYC as a permissible KYC strategy.

“While [the] video-based KYC notification was issued in January 2020, before the pandemic, it is much-needed relief during these times of lockdown,” said Lachhiramka, adding that FIs’ interest in and adoption of video KYC tools has accelerated in recent weeks.

Technological, Security Hurdles

It can be challenging for an enterprise to adopt any new kind of technology that disrupts the status quo. But when the adoption of a tool threatens to compromise a bank’s compliance standing, the stakes are raised significantly.

Technological challenges are indeed among the most difficult for BFSIs, said Lachhiramka. Banks and other institutions must first invest in video conferencing platforms and data storage, and adjust internet bandwidth to support higher data volumes.

The migration of KYC due diligence to a video conference also introduces plenty of security concerns. Not only must FIs ensure that their conferencing platforms are secure, but they must also maintain the data and video recordings in a secure fashion as well. And while RBI has issued guidelines for implementing video KYC, Lachhiramka emphasized that the burden remains on the institution itself to maintain compliance.

It’s a new world for many businesses, both in the BFSI space and otherwise.

“Video conferencing is not the usual way of working for Indian enterprises,” he said, “and it is being forced upon us due to COVID-19.”

Accelerating Digital Transformations

While the adoption of new technology in a compliant and secure fashion can be a challenge, Lachhiramka said the RBI is encouraging financial institutions to embrace sophisticated technologies like artificial intelligence and facial identification tools to augment their video KYC solutions, highlighting the opportunity for technology to also enhance their KYC digitization efforts.

The benefits to video KYC are vast, he noted, and just as the BFSI space was interested in video KYC processes before the pandemic, with adoption on the rise, this remote on-boarding tactic is likely to remain in place well into the future.

“With video KYC, banks and corporates can on-board customers within three minutes while eliminating the need to physically send someone to the field to get this done — thus, reducing the cost by up to 90 percent,” he said.

In addition, video KYC can act as a “competitive differentiator” for FIs, strengthening the customer experience and lowering the rate of drop-offs, which occur when an on-boarding or KYC process is so burdensome, a potential customer abandons the process altogether.

The security concerns of video conferencing cannot be ignored, however. With fraudsters continuing to grow more sophisticated every day, the potential for KYC fraud can increase through the use of tools like deep-fake technology and video manipulation. Lachhiramka said he is confident, however, that as such criminal behavior grows more sophisticated, “so would the compliance checks.”

“One example is augmenting video with random gesture asks, and potentially a voice authentication,” he said, pointing to additional security and behavioral analytics technologies that could augment video KYC processes.

The BFSI arena will continue to invest in enhanced video KYC capabilities, he added, because while the pandemic may have accelerated adoption of this technology, a post-pandemic world won’t likely see the return of manual, in-person KYC checks.

“We see video KYC becoming the default mode for customer identification,” he said.