With cybercriminals becoming ever-more sophisticated, and identity fraud reaching epidemic levels in the UK, the need for strict customer identification procedures has never been greater for banks and financial institutions.
Know Your Customer, or KYC as it is commonly known, is a mandatory framework currently in place to protect financial institutions from fraudulent activities, such as identity fraud and money laundering. KYC, reinforced by the fourth Anti-Money Laundering (AML4) directive , requires banks to verify a customer’s identity before an account can be set up in their name. This due diligence includes obtaining the customer’s name, an official headshot and an official document to confirm their identity, as well as a residential address and date of birth. By following the requirements, banks can be confident the customer is exactly who they say they are and have insight into vital customer information, including any potential risks associated with accepting them as a customer.
Inaccurately identifying customers not only leaves the bank vulnerable to fraudulent activity, but also causes serious regulatory headaches, often resulting in a hefty fine. In fact, according to research, global financial institutions were fined $26 billion for AML sanctions and KYC non-compliance since the 2008 financial crisis.
Whilst the KYC framework is designed to provide banks with accurate identification information, current paper-based forms of identification such as passports, driving licences or birth certificates can be easily forged, and are timely and expensive to gather.
Bringing KYC processes into the digital age
As banks continue to move away from traditional branches and face-to-face meetings to online channels of customer communication, financial institutions are under increasing pressure to find digital alternatives to fulfil the KYC process. Fingerprint biometric authentication, which is being increasingly accepted into today’s payments’ ecosystem, could be the much-needed solution to this problem. By integrating a thin and flexible biometric fingerprint sensor into existing ID and payment cards, identity authentication can be obtained at the touch of a finger. Thanks to such advances in fingerprint biometric technology, and the effective use of enrolment guides, this innovative method of identification can be set-up remotely without the need for consumers to visit a bank branch.
Due to its completely unique nature, the fingerprint is highly accurate and virtually impossible for fraudsters to replicate. When compared with other methods of biometric authentication the characteristics of a fingerprint is far more exclusive to an individual and therefore more effective in accurately identifying customers for this purpose.
Whilst accuracy is vital, the cost of compliance is an issue that is continuing to grow for financial institutions – according to research, the average bank spends £40m a year on KYC compliance. In order to keep up with regulations, banks are forced to employ and train thousands of extra employees to manage this process. Here too fingerprint biometrics can provide the perfect solution. Going through countless identification documents can take up a lot of time for an employee and it is inevitable that errors are made. By obtaining fingerprint biometric data, which is highly accurate and reliable, the need for human approval will be minimal, therefore boosting efficiency and effectively eliminating ‘human error’.
Balancing security with convenience
Fingerprint biometrics to facilitate identity technology is set to become a key enabler for improving not only security surrounding KYC requirements, but also reduce time investment from consumers and businesses alike. Finding multiple pieces of identification, for example, a birth certificate, passport, utility bill can often be challenging for customers to gather. Paper documents such as these can be lost, or hard to access when needed, and can actually become a barrier to financial inclusion.
As 1.1 billion people worldwide are currently without official identification, KYC requirements mean that a huge proportion of people are unable to provide the identity documents needed to comply with these policies. By introducing fingerprint biometrics as a method of identification, individuals in developing countries, where access to formal identification is scarce, or those who have simply misplaced their formal identification, will be able to prove who they are using their fingerprint alone.
There is no denying that as we continue to move toward an increasingly digital age, fraud will continue to grow in both aggressiveness and complexity. The only way for banks and financial institutions to stay ahead and protect consumers from fraudulent activity is to transition from traditional paper-based identification and embrace fingerprint biometrics as a new digital identity.