Know Your Customer (KYC) and Digital Customer Interaction

 In Liveoak

Know your customer (KYC) is a term used by financial institutions to define the process of verifying customer identity. KYC is in place to prevent terrorism, fraud and money laundering here in the United States and abroad.

While there are several components that make up KYC regulations, our team here at Liveoak is focused on the customer interaction and identification piece, which is necessary for customer onboarding, opening bank, brokerage and other accounts in regulated industries, account enrollment and transaction authentication.

Given that Liveoak’s primary goal is to provide a virtual experience that replicates a productive, face­-to­-face meeting with a customer, KYC is an important piece in our digital engagement puzzle.

What exactly does U.S. Federal law require for KYC compliance? Financial institutions must obtain, verify and record information that identifies each person (individuals and businesses) who opens an account. The customer must provide their name, address, date of birth and other information that will help identity verification. The customer will also be asked to show their driver’s license or other identifying documents to confirm identity.

When opening an investment account, FINRA has a more robust Know Your Customer rule and the SEC requires that an attempt be made to acquire additional information such as telephone number, tax identification number, employment status, annual income, net worth and investment objectives. The minimum information requirement to open a brokerage account is name, date of birth, address and tax identification number (social security #).

The challenge that we face with digital KYC verification is: how do we recreate the physical (in person) customer verification process in a remote (digital) environment?

Let’s start with the example of a banking customer physically walking in to a bank to open a new account or to complete banking tasks. The bank representative sits behind a computer, asks questions and types the answers in to the onscreen application.  The bank representative asks the customer to verify the information through signature and asks for photo identification. Because the bank representative and customer are meeting in person, the representative can check the customer I.D. and visually confirm the match.

Next, we look at the task of accomplishing customer identity verification in a virtual or digital environment. For the customer information piece of KYC, Liveoak has developed a workflow specifically built for banking and financial institutions that ensures accuracy and compliance. For the I.D. verification piece of KYC, we deploy technology that allows remote representatives to verify photo identification by comparing digital images of the I.D. and photos/video of the applicant.

For the information recording piece (audit trail), Liveoak has baked in the ability to securely capture data and record key strokes, document uploads, photos and videos captured from each customer session and pass the data directly to our banking and FI customers through our Complete Audit™.

You might wonder WHY a financial institution would go to these lengths to accommodate remote account openings given the federal KYC requirements and fraud potential. The answer is this: financial institutions are focused on providing their customers with convenience and multiple access points so they can keep up with the digital demands of customers today.

A secondary benefit is that 20% of financial service provider’s compliance staff will be spent on KYC­ing and not on their bread and butter activities. Developing a digital KYC solution could mean increased productivity and profitability for financial institutions and businesses that are subject to compliance.

The concept of Digital Identification (Digital ID) is a current topic in the banking and FI industry. The promise of Digital ID is that it will enable banks to satisfy KYC regulations while minimizing the hassle that customers face with KYC and identity verification. To develop Digital IDs, banks will need to extract a new set of customer information, build a unique database and make changes to their front-end and back-end IT infrastructure. In order for the concept of Digital ID to be effective, it will require widespread adoption.

For additional information and discussion, please contact us.

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