Address Verification - an integral part of KYC?

Updated

Financial crimes are increasing at an alarming pace. Globally, the annual money laundering amount is 2% to 5% of the global GDP, according to a UNODC (United Nations Office of Drugs and Crime) Report. This huge increase is a major point of concern for businesses and regulatory authorities. Therefore regulatory authorities have come up with strict compliance regimes to control all financial crimes. KYC compliance is one of the major compliances introduced by the regulatory authorities and is mandatory for banks and financial institutions.

Know Your Customer (KYC) is a part of Customer Due Diligence (CDD) regimes. KYC is the process carried out by businesses to identify the true identity of its customers, understand the risk associated with them and check their suitability as business partners. Due to the strict KYC/AML regulations, businesses need to verify their customers in order to check their authenticity and minimize any sort of risk involved. KYC is not limited to the verification of customers only, rather it is used to verify vendors, merchants, agents, partners, employees, etc.

KYC was initiated when the United States introduced the Banking Secrecy Act (BSA) in 1970. It was developed to control drug trafficking by monitoring and controlling black money transactions. Subsequent AML regulations were developed on the basis of BSA in 2001 and in the form of the USA Patriot Act in 2003. KYC was initially adopted by the financial sector due to the high financial risk associated with their operations. After that many other regulatory authorities started introducing KYC and AML Regulations on regional and international levels.

The technological advancement has led to the development of online KYC screening solutions that address the concerns of executives who are planning to integrate KYC compliance in their organization.

Types of KYC

There are different methods used by identity verification service providers to digitally verify identities nowadays depending on the type of business and its requirements. The commonly used ones are described below:

  • Online Facial Verification
  • Online Document Verification
  • Online Address Verification
  • Online 2 Factor Authentication
  • Online Consent Verification

Online Address Verification

Online Address Verification refers to the use of artificial intelligence technology to digitally verify addresses from the provided documents to minimize the risk and threat of fraudsters. It is an integral part of the KYC regime since it helps in authenticating and matching the address of individuals with the address on their documents. Fraudsters sometimes use a combination of fake and real information to create a brand new identity. The address verification system verifies whether the person actually is who he/she claims or be or not. If the information provided by the individual is a mismatch, the verification is rejected.

To avoid risks, all businesses need to conduct the complete due diligence of their clients whether they are financial organizations, e-commerce businesses, online marketplaces, and online gaming and gambling sites. A good example is that of Airbnb. Airbnb experienced an influx of fake hosts last year, increasing the instances of scams. Airbnb had not properly authenticated whether the hosts lived where they claimed to live or not. Hosts listed down superior properties as their own, which were later revealed to be much inferior to the ones claimed earlier. This greatly disappointed the guests who came to stay and led to customer decline for Airbnb.

The address verification process mainly involves three key steps. Firstly the individual is asked to upload a picture holding an identity document to match it against the image on the ID document. Then a secondary document containing a residential or business address is required to be uploaded to match the information. Finally, the address is analyzed and the results are provided to the back-office for further evaluation. The address is verified from the following documents:

  • ID Cards
  • Driving License
  • Passport
  • Bank Statement
  • Utility Bills

A physical address is one of the most important elements that makeup customer identity. It includes both residential as well as business address verification. Although the immediate benefits might not be crystal clear, it’s imperative to have a clean and up-to-date database of clients’ addresses to authenticate their identity and minimize the chances of any fraudulent practice.

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