Onboarding Customers with Video KYC: A new practice in Fintech

Published: 28 October 2020
Author: Sarah Amundsson

Fintech – A brief overview

Financial Technology, commonly known as the FinTech, is a term referring to the adoption of the technologies by the financial institutions or entities, for having their financial services improved and secured. Its services benefit eventually both, the businesses and the customers.

FinTech has changed the financial industry for good and is expected to keep doing so by offering empowering solutions. In the year 2016, FinTech had a ‘never seen before’ demand. Owing to the many beneficial solutions for the financial institutions, FinTechs have been in demand since their very inception.

The financial institutions had made an investment of 9.4 billion US dollars in the near end of the year 2016. The Chinese fintech sector had seen an increase in revenue by 55.2 % from the period of 2016 to 2017. Also, the Chinese fintech is expected to have a revenue of 1.97 trillion Chinese Yuan by the year-end of 2020. As for the global fintech market, it is expected to grow at 6% annual growth rate (CAGR), with a revenue worth 26.5 trillion dollars till the year 2022.

Finetech industry by making most out of the technological practices secures the: mobile transactions, insurances, investments, cryptocurrencies, blockchains, and a lot more. The collaboration of financial industries and fintechs has become inevitable, because of the security it has to provide to the financial transactions and flows.

The fintech entities around the globe are worth billions of dollars. The most prominent of which are: Adyen, Avant, Qudian, and Ant Financial. The perception of the common man has been changed with respect to the cash transactions, after the introduction of services such as Square, Swipe, Venmo, and the WePay. Also, a renowned mobile cash app, PayPal, had a 17% year-on-year growth and global 286 million active accounts, in the second quarter of the year 2019.

Fintechs for the sake of making compliance with the KYC and AML regimes carry out digital identity verification. These verifications usually make use of the ID documents and the biometric authentications. However, these kinds of identity authentications methods have their own shortcomings. For this reason, many of the fintechs have started to give up on such verifications, and have instead started performing identity verifications by practicing ‘Video KYC’.

Video KYC – A brief overview

A digital identity verification process that authenticates online identities by the means of a real-time video interaction and documents verification. By using it, online frauds’ occurrence is reduced to a minimum, thereby only the genuine customers are onboarded.

It works by making the customer show the government-issued documents, while the video KYC is being carried out. In addition to this, just as some other KYC, the customer may be asked to answer a few questions.

In comparison to its peer KYC practices, it is more secured and therefore, helps fintechs in maintaining and attaining a rather clean customer base. Moreover, making compliance with the AML and KYC regimes becomes much easier.

Cooperative audit:

It is pertaining to mention that the accounts opened after a go from the video KYC, still require a ‘cooperative audit’ for getting functional. It involves authenticating the security of the system, using which the video KYC was performed. The authenticity of the video KYC application is also authenticated. After the authentication of the systems and the video KYC application has been made, the account then becomes operational and fully functional. This enables the banks in detecting and identifying any uncertainty. If there is a dubious factor involved somewhere in the whole video KYC process, the account opening application gets rejected immediately.

KYC’s benefits to Fintechs

Having a video KYC implemented in the business operations provides the following benefits:

a) Time-cost efficient: Video KYC does provide quicker identification results in comparison to the other KYC practices, but, along with this, it is also a cost-efficient KYC practice for the Fintech businesses.

b) Improved digital securities: It goes without saying that how accurate a video KYC is when it comes to making the digital identities secured. The authentication of the customer’s liveness and the verification of the documents being shown, all are performed in real-time.

c) Compliance to regulatory regimes: Fintechs by having the video KYC implemented can become compliant to the various regulatory regimes for KYC and AML.

KYC’s benefits to Customers

As it was mentioned earlier, fintech’s services not only benefit the financial institutions but their customers as well. The users of the financial institutions, which have the fintech solutions implemented, receive the following benefits:

a) Quick verification: As like the other online KYC practices, the customers using the video KYC, do not need to visit the banks for an in-person KYC. However, it takes an advantage over other online KYC practices, by deterring online frauds in a much-secured fashion.

b) Pleasant customer experience: The financial institutions with the fintech solutions have their customers experience a least-exhaustive verification process. Since the document’s information and identity authentication is performed in the real-time, the customers get saved from much hustle.

Important takeaways:

  • When the financial institutions make use of the technology, for the sake of securing their digital operations, the process or phenomena is referred to as ‘Fintech’. The financial institutions are becoming much secured and digitized by the innovative solutions provided by the fintechs.
  • Making online identity verifications with the help of an online KYC method as the video KYC helps not only the financial institutions but their customers as well.
  • It involves a real-time interaction between the user and a video KYC expert. The user is then asked to show some identity document, which is a government-issued document.
  • It may also require the users to answer a few questions asked by the KYC expert. Additionally, the users may have their body language be analysed as a part of fraud prevention procedure.
  • The video KYC when performed for the bank account openings, have an ‘audit’ performed at the system and the video KYC process itself. This is to make sure that the whole process had not any illegitimate means to make the online identity seem authentic.

Sarah Amundsson is a Senior Business Developer at Shufti Pro, an AI-powered identity verification service provider. As an expert in digital identity verification, she helps businesses deploy solutions globally to solve their problems for KYC, KYB and AML.

 


For the latest industry news, content and events, sign up to FINTECH Insights.