Digital Banking KYC

Know Your Digital Customer

Know Your Customer (KYC) rules protect your financial institution from fraudulent and illegal activities—and you’re required to comply. But in the digital world, where you may never meet your customer, this can become a barrier to customer satisfaction, or an opportunity for closer engagement.

Playing by the KYC Rules

KYC guidelines arose from the Patriot Act in 2001.  They require financial institutions to put in place controls that help them manage their risks, and protect them from being used in money laundering schemes.

Financial institutions have implemented multiple responses to KYC, including: Customer Identification Programs, transaction monitoring, name matching, OFAC checks, and behavior profiling controls. All these are designed to track personal, account and financial information, in order to establish the required "reasonable belief that it knows the true identity of each customer."

Uniquely Digital Challenges

More and more banks and credit unions seek to attract and retain customers by offering digital account opening and loan applications. Identity verification becomes a challenge, as fraudsters create synthetic identities that combine real and fabricated information.

Furthermore, security breaches at prominent credit bureaus, retailers, and financial institutions continue to compound the verification problem by exposing enormous amounts of personally identifiable information to malicious individuals and organizations. Fraudulent account onboarding is only one of the negative side effects of big breaches, but it’s one that makes customers hesitate to use otherwise-appealing digital services.

On the Horizon

The popularization of cryptocurrency, and the associated blockchain distributed ledger protocol, have triggered technology innovations to address identity concerns and challenges. Penny Crosman explored the application of blockchain to identity verification in a recent American Banker article. It’s worth a read.

I believe that blockchain, which is proliferating at a good clip in the cryptocurrency arena, will expand to other arenas such as identity verification and healthcare—it’s just a question of time, and of who will lead the way. Financial institutions should begin to explore the benefits this technology can offer.

Meanwhile, right this moment is not too soon to scrutinize your own challenges in maintaining regulatory compliance with your digital customers. How do you truly know them? How do you protect them, and your Institution? How can the level of security you offer be promoted as a benefit, even a competitive advantage—and well worth their attention?