1. What Is E-KYC?

KYC stands for "Know Your Customer". In the banking sector, KYC is the process where banks verify customers' identities when they open a new account. KYC laws have been in place since the early 1990s and require banks to have two elements to their KYC process: a Customer Identification Programme (CIP) and a Customer Due Diligence (CDD). CIP involves verifying a customer's identification number, address, and employment. CDD involves understanding a customer's background to assess their likelihood of committing criminal acts.

E-KYC stands for "Electronic Know Your Customer". E-KYC utilises new identity verification technology, like national digital identification systems, to move from a paper process to a digital process. As more people start relying on technology for everyday activities, banks around the world are trying out new ways to make the verification process easier for customers and more efficient for the banks.

2. Why Is E-KYC Important?

KYC helps protect everyone from money laundering, identity theft, terrorism financing, and other types of financial fraud. Working closely with large amounts of money comes with significant risk, and the KYC process helps reduce that risk for banks and their customers. A robust KYC system allows banks to understand their customers' banking habits and be on the lookout for any fraudulent activity.

The KYC process is imperative to the safety of the banking system. Moving the KYC system to an electronic format has significant benefits to the bank and its customers. First of all, E-KYC is much faster, sometimes even instantaneous. The banking system can coordinate with other national and international databases to verify information about a customer. A faster process is more attractive to customers who no longer have to wait days or even weeks to be verified for their account. Finally, instead of only monitoring customers when they first apply for an account, banks can use E-KYC fraud detection systems for continuous monitoring. Continuous monitoring prevents fraud by alerting customers to any questionable activity in their account which allows customers and banks to work together to address the issue.

3. How Do Banks Implement E-KYC?

Banks have a wide variety of tools available for their E-KYC systems. One option is to use cloud-based technology to pull data from worldwide sources quickly. Artificial intelligence can be used to tag, group, and compile data into easily searchable databases. Some banks also work with third-party companies to develop other digital verification programs. Different countries have different models for implementing E-KYC. Some countries rely heavily on a government-led system while other countries have a privatised system. KYC Australia relies on a partnership between both government and private industry.

4. What Are The Challenges of E-KYC?

While E-KYC does have significant benefits for banks and customers, building a solid E-KYC system also has many challenges. New technologies are always on the horizon which means that banks need to be able to both understand the new technologies and integrate those technologies into their existing system. One company might specialise in a certain type of technology but not another, so banks often have to manage relationships with multiple organisations to build a complete KYC system. On top of that, coordinating between private companies who manage the technology and government agencies who manage regulations can be cumbersome and time-consuming. Because the world is becoming increasingly globalised, there are more opportunities than ever for criminals from one country to commit financial crimes in another country. Finally, each country has different laws and regulations around E-KYC which makes it difficult to coordinate KYC on a global level. Despite these challenges, E-KYC is an important step toward the future of safer banking around the world.