Are you in charge ofcustomer onboarding or compliance in your company, and spend hours checking the identity and background of every new customer? Are you now looking to industrialize this process? You’re not alone. Many sectors, such as banks, insurance companies and finance companies, are now automating KYC to resolve the limitations of its traditional version. Thanks to its automation, they can significantly reduce the time and costs associated with customer background checks, while improving their compliance with LCB-FT regulations.
Indeed,Artificial Intelligence (AI) is used to collect and analyze user data, enabling potential hazards to be identified more quickly and managed more effectively. According to a recent study, the use of AI in KYC can reduce the time needed to verify users by 90% (Source: “
How AI is Automating KYC for Financial Services
But what exactly is AI? What are the advantages of this technology for your company? And how can you ensure compliance with LCB-FT rules if you use it?
What is artificial intelligence? Definition and challenges
What is Artificial Intelligence (AI)?
Artificial intelligence (AI) is a field of computer science that aims to create machines capable of performing tasks that normally require human intelligence. The aim of AI is to enable machines to understand, learn, reason and adapt to their environment, just as a human being would.
AI is a constantly evolving field that uses technologies such as machine learning, optical character recognition (OCR), voice and facial recognition, computer vision and natural language processing to create intelligent systems. These technologies enable AI to process large quantities of data and find patterns and relationships in it.
Artificial intelligence applications
AI has many applications in different fields. In the medical field, AI can be used to help diagnose diseases and predict treatment outcomes. In finance, AI can be used to detect fraudulent attempts and predict market trends. In the logistics sector, its implementation helps optimize delivery routes and reduce costs.
In the banking sector, AI can be used to improve the procedure for entering into a remote relationship and regulatory compliance by automating the verification of the identity of people wishing to subscribe to a financial offer over the Internet, for example. AI can also be used to detect suspicious transactions and other fraudulent practices.
Exploring the limits of the traditional KYC process
KYC (Know Your Customer) is a crucial process for financial organizations, who need to ensure that their customers are not only who they say they are, but that they are also creditworthy. However, the traditional model can have limitations that can jeopardize the regulatory compliance and security of banking establishments.
What are the main challenges of the traditional KYC procedure?
The traditional procedure is based on the collection of personal information, which is then verified manually. It can be long and tedious, leading to delays in opening new accounts or subscribing to a new service. What’s more, manual verification can be prone to human error, leading to non-compliance with regulatory procedures and a threat to the security of financial institutions.
The traditional version can also be costly for financial institutions. The costs involved in collecting and reviewing users’ personal information can be high, which can have a direct impact on their margins.
What are the main risks associated with the traditional KYC process?
Traditional KYC can create security loopholes for financial institutions. The information collected may be stored in databases that may be vulnerable to computer attacks. What’s more, human error in the verification stages can increase the risk of fraudulent actions such as identity theft or terrorist financing.
It can also increase regulatory non-compliance. KYC guidelines are constantly evolving, and financial organizations need to make sure they stay up to date with the latest regulatory requirements. Errors in these steps can result in fines and regulatory sanctions for financial institutions.
Why make your KYC customer onboarding processes automatic? Examining the benefits of AI
How can AI improve the KYC process?
AI can help industrialize the stages of the user’s knowledge journey, thanks to machine learning algorithms and technologies such as optical character recognition (OCR) and facial recognition (Facematch). These advances enable better management of user data. Algorithms can be trained from the training data set (Machine Learning learning base) to recognize patterns and trends. AI models can then be implemented to predict the results of new data and identify potential threats.
AI can also be used to manage repetitive KYC tasks automatically, such as collecting and verifying users’ personal information online, or checking supporting documents (official documents, RIBs, etc.). This can reduce costs and improve efficiency.
What are the benefits of AI for the KYC process?
Here are just a few of its advantages:
- Increased efficiency: AI can analyze large, complex data quickly and efficiently, which can reduce the time needed to complete the KYC. It can also provide more precise indications and more convincing results.
- Cost reduction: AI can reduce the costs associated with data collection and inspection by analyzing it faster and more efficiently. It can also industrialize certain tasks that take a long time to complete manually.
- Improved accuracy: AI models can be trained on training data to better analyze the information collected. AI systems can also learn to recognize patterns in more complex sets and make decisions based on anomalies encountered.
- Risk reduction: AI can be used to identify and reduce potential threats during onboarding, such as identity, document or financial fraud. AI systems can be trained to recognize anomalies from typical patterns and report them.
- Regulatory compliance: AI can help financial companies, such as banks or fintechs, comply with KYC guidelines by identifying people who don’t meet regulatory requirements. AI models can be trained to recognize regulatory patterns, such as LCB-FT compliant controls, and take appropriate action.
- Improving customer relations: Artificial Intelligence solutions applied to online onboarding paths enable users to complete their subscription to banking products or services more quickly. This advantage helps to build customer loyalty and improve commercial relations with banks.
Is the use of AI for KYC processes regulatory? Issues analysis
With technological advances, the use of artificial intelligence (AI) to industrialize the customer knowledge process has become an attractive option for companies in the financial sector. However, its application raises important regulatory issues.
What are the regulatory issues involved in using AI for KYC procedures?
One of the main regulatory issues related to the use of AI in this scenario is linked to RGPD. Companies, especially those in the financial sector such as banks or insurance companies, must ensure that they are protected in accordance with the rules and laws in force. Regulators ensure that they comply with RGPD standards and take steps to avoid any risk of breach.
Another important regulatory issue is transparency and accountability. Professional organizations must be able to explain how AI was used for the “Know Your Customer” procedure and how decisions were made. Regulators also require them to be accountable for decisions made by AI, and to be able to explain them if necessary.
Finally, a major regulatory issue is linked to equity and non-discrimination. Companies must ensure that the use of AI for the KYC procedure does not lead to unfair discrimination against certain groups of people on the grounds of race, gender, sexual orientation or any other protected characteristic.
How might regulation affect the implementation of AI for the KYC process?
Regulations can have a significant impact on the implementation of AI for the KYC procedure. Professional entities, and particularly banking structures, must comply with current regulatory requirements to avoid sanctions and fines (up to 5 million euros!). They must also be able to justify the use of AI for the “Know Your Customer” process, and demonstrate that it is used responsibly and ethically.
In addition, regulators may require companies to provide full and regular reports on how they are using AI for KYC, and to demonstrate that it is being used in a fair and non-discriminatory way.
What is the added value of using AI for the KYC procedure in terms of compliance?
Using AI to industrialize the KYC procedure can add significant value in terms of compliance with procedures. This method can reduce human error and improve efficiency. AI can also help them identify risks more quickly. It enables real-time monitoring of user activities and the detection of changes in behavior that could indicate suspicious activity.
Using KYC automation with AI: use cases
What are the main use cases for KYC industrialization with AI?
Here is a non-exhaustive list of use cases:
- User profile verification: Automated KYC with AI makes it possible to verify user profiles quickly and efficiently, using tools such as optical character recognition (OCR) and facial recognition (Facematch).
- Verification of supporting documents: The solution enables you to check a multitude of documents. Here is an exhaustive list of items that can be checked by Netheos: national identity card, passport, residence permit, driving license, bank details, payslip, tax assessment, telecom bill, energy bill and schedule (electricity, gas and water), vehicle registration certificate, property tax.
- Transaction monitoring: KYC can be managed automatically with AI to monitor customer transactions and detect suspicious activity and high-risk transactions.
- Regulatory compliance: Financial organizations must comply with a number of LCB-FT regulations. Industrializing KYC with AI can help them comply with these regulations by automating the steps of user profile verification, document control and transaction monitoring.
Which Artificial Intelligence solutions can automate your KYC?
Remote identity verification
Organizations selling over the Internet face a major threat from identity fraud. Verifying the identity of remote users is therefore a major challenge for them, especially for institutions subject to regulatory obligations such as banks and insurance companies. To alleviate this problem, more and more companies are using automated systems that can verify the user’s identity remotely in just 5 steps.
Verification of supporting documents
The other, often complementary, solution aims to control and authenticate the proof documents provided by the applicant during online onboarding. Automating your voucher verification process has many benefits for your company: it saves you valuable time, reduces costs and helps you comply with the various standards in force. Administrative staff can then focus on higher value-added tasks, rather than repetitive ones. Automated document examination is generally a 4-step process, providing highly accurate detection of attempted document fraud.