How AI is changing KYC

The Asia-Pacific (APAC) markets are rapidly growing and opening up to new entrants that promise to transform the traditional banking model, and one of the greatest revolutions that they set in place is the implementation of Artificial Intelligence technologies. Virtual banks aim to offer more affordable and convenient banking services by leveraging digital platforms and cutting-edge technologies, to reach the unbanked and traditional underserved markets. But as virtual banks are poised to transform the banking sector, their arrival is also introducing new risks related to cybersecurity and identity fraud, according to a new report by Jumio. Jumio is a tech company based in Palo Alto, who provide end-to-end online identity verification and authentication solutions that leverage a wide variety of technologies while also providing a more fully compliant solution for regional regulators. In its report, titled ‘How eKYC is Streamlining Digital Banking: An Asia-Pacific Perspective’, the company delves into the need for companies in the financial services industry to adapt their risk management to the evolving landscape, modified by any technological advance, forcing financial institutions to adapt. Financial Institutions (FIs) are thus adopting different forms of AI technologies, such as modern digital know-your-customer (eKYC), anti-money laundering (AML) and identity verification technologies. According to the report, adopting such solutions will not only allow them to respond to the new risks arising from digital solutions, such as online identity fraud and account takeovers, but will also allow them to meet customers’ demand for a seamless onboarding experience. In April 2019, Experian, a leading information services company, released its 2019 Global Identity and Fraud Report which found that 50% of businesses in APAC had seen an increase in fraud losses over the past 12 months from account originations and account takeovers. 67% of businesses reported an increased concern for fraud losses since 2018. Similarly, the Jumio report notes that 78% of APAC banks claim that the introduction of real-time payments platforms in their country has resulted in increased fraud losses, with social engineering named by two in five banks as the top form of attack by fraudsters. These figures call for improvements in fraud detection technologies, such as additional identity and authentication technologies, the report says, as it clearly shows that the current ones are not adapted to the market. The need to adopt smart and efficient eKYC solutions is even more critical for virtual banks whose only operations are digital. These solutions allow them to provide customers with a seamless onboarding experience and reduce paper-based procedures and time spent on administration. They can also reduce the costs of and time spent on verification, making it more profitable for organisations. Integrating such solutions helps banks differentiate themselves and enables them to tap into different customer segments and markets, especially the unbanked sector. But while banks and fintechs must ensure that customers have a smooth digital onboarding experience, they must also ensure KYC and AML compliance with local and regional laws; a daunting, expensive and time-consuming task. Within APAC, there are forty different regulators with varying complex approaches to AML regulation and customer due diligence obligations. This regulatory landscape adds a layer of complexity, the report says. According to a FICO study dated June 2019, three out of five banks in APAC still do not have full digital account opening for new customers, with 28% citing the region’s changing regulations as the biggest challenge. While those challenges are occurring, more and more AI technologies are developing. AI programs are used for ID verification or AML through machine learning and deep learning technologies: big data sets are easily manageable and can be analysed directly by Artificial Neural Networks (ANNs). Natural Language Processing (NLP), allows for precise analysis to ensure that data is unison and consistent, otherwise it will be flagged as potentially fraudulent. More sophisticated technology allows for quicker and more efficient checks, changing the way KYC (now eKYC) is analysed and leading to better risk management. Hence, by adopting powerful digital identity verification solutions that leverage cutting-edge AI technologies, fintechs and financial institutions can cut down the costs of onboarding by reducing manual review and lowering customer abandonment. Additionally, these solutions are often accurate and less prone to human errors. Find out more about “How to choose KYC solutions” in one of our last news article here.