Know Your Customer or KYC is a very popular process in the financial service industry today. Institutions are mandated by law to perform KYC before transacting with customers. This includes actions like loan application, account opening, insurance issuance, collections, and even trading of securities. KYC is performed to fish out possible fraud and manage risks associated with those transactions. However, different types of KYC verification are used depending on the specific type of situation.
In this article, we would discuss the most commonly known and used types of KYC to help you understand their relevance and importance in compliance.
What are the 5 most common types of KYC?
Although there are several types of Know Your Customer (KYC) checks, five stand out and are the most popularly used for customer due diligence procedures. They include:
1. Paper-Based KYC
Currently, the most common type of KYC, paper-based KYC is an in-person form of verification. In this type, the customers provide physical copies of their documents, which are verified by the organisation. Examples of such documents are Proof of address (POA) and Proof of Identity (POI). The process requires a physical connection with customers and collecting their documents to complete. Although less popular, it is still used in key processes today like credit or loan applications.
What are the advantages of Paper-Based KYC?
The advantages of Paper-Based KYC include:
- Requiring a customer’s physical presence makes it very effective for identity confirmation
- Less prone to errors
- Cheap to set up and execute
- Familiarity with the process makes it customer and institution friendly
What are the disadvantages of Paper-Based KYC?
The disadvantages of Paper-Based KYC include:
- It is old and archaic
- Customers can fool KYC processes if there are no proper means to verify the documents presented
- It is slow and time-consuming
2. Offline KYC
Offline KYC is often misinterpreted to mean the same as physical KYC. However, they are not the same. In offline KYC, the organisation makes use of an offline database to verify the customers’ identity without the use of biometrics. For example, they may have a PDF-based authentication file that is used as a cross-reference for documents provided by the customer.
The means of KYC verification is usually offline or local, and not connected to a universal database that possibly contains more information.
What are the advantages of Offline KYC?
The advantages of Offline KYC include:
- It is easily assessable to institutions
- It is fast and effective
- Little or no cost
- It is easy to setup
What are the disadvantages of Offline KYC?
The disadvantages of Offline KYC include:
- The local database could easily be compromised
- Limited access to information could make KYC difficult for individuals from certain demographics
3. Digital KYC
Rapidly becoming the most preferred means of identification, digital KYC is strictly carried out online. It involves capturing a live photo of the customer and other valid documents which are then verified digitally. For example, a customer could fill out the KYC form online (businesses can use vForms to create one easily), then scan and upload their documents while providing other details. Intelligent software is then used to verify the documents and other data provided by the customer for authenticity.
What are the advantages of Digital KYC?
The advantages of Digital KYC include:
- It is very easy to use
- Digital KYC saves time and cost on manual processes
- It automates otherwise stressful KYC steps
- Eliminates the use of papers and other analogue methods
- Digital KYC creates an awesome customer journey
- Seamless onboarding experience for customers
What are the disadvantages of Digital KYC?
The disadvantages of Digital KYC include:
- It could be expensive to set up the first time
- Digital KYC requires businesses to purchase support equipment for a seamless operation
4. Biometric KYC
This is a form of digital KYC which involves the use of biometric technologies to complete Know Your Customer Procedures. Using biometrics makes KYC even more efficient and easy to complete. However, it is more often used after basic KYC has been carried out, where the customers' details and biometrics have been captured.
Biometric KYC is used in subsequent verification like when a customer wants to carry out a transaction on his or her mobile phone. Biometrics is also a very common type of online identity verification.
What are the advantages of Biometric KYC?
The advantages of Biometric KYC include:
- It creates a seamless customer experience
- High security
- Easy to set up and use
What are the disadvantages of Biometric KYC?
The disadvantages of Biometric KYC include:
- It is very expensive
- The customer database could be breached, causing lots of problems for the organisation
5. Video KYC
This is also a form of digital KYC that is entirely paperless and does not require the customers' presence. Instead, the process is initiated by the customer providing relevant documents and performing video verification through an app or web portal. The video verification can be done with their mobile phone cameras.
The data collected could be manually verified or digitally verified using AI-powered software. For the best experience, most organisations opt for AI-powered software like Youverify OS to analyze and verify the data provided by the customer in seconds. This saves both time and cost.
What are the advantages of Video KYC?
- The advantages of Video KYC include:
- Seamless customer onboarding
- The use of technology creates a near error-free process
- Rapid onboarding time
- It saves operational cost
What are the disadvantages of Video KYC?
The disadvantages of Video KYC include:
- It requires heavy investment technology to set up if you aren’t working with third-party experts
An excellent alternative is to contact identity verification companies like Youverify. The Youverify OS can seamlessly integrate with your existing KYC software and perform the complete KYC process from start to finish, simply giving you the result.
How many types of KYC are there?
There are 5 types of KYC, which are:
- Paper-Based KYC
- Offline KYC
- Digital KYC
- Biometric KYC
- Video KYC
Which Type of KYC is best for my business?
This solely depends on your type of business. A good rule of thumb is to adopt a KYC process equivalent to the level of sensitive data your business deals with. For example, an eCommerce business could easily fly with a basic digital KYC, however, highly sensitive financial institutions like intentional banks are better served with both digital, biometric, and or video KYC. This is because a single bridge could result in heavy financial losses as they deal with high-profile clients, attracting lawsuits and tinting their brand name.
Achieving KYC With Youverify OS (YV OS)
YV OS is Youverify’s flagship product that allows businesses to perform digital KYC in a matter of seconds.
Here is a video description of how it works:
You can now onboard customers and complete KYC using just their mobile phone numbers. Keep in mind that it has to be the phone number linked to their bank account and NIN. By collecting their phone numbers, our “Advanced Search” can help you retrieve other relevant information like their NIN, BVN, and full data.
The implication is that businesses and organisations can now onboard customers with just their phone numbers and complete KYC with full compliance. This greatly transcends the current use of customers' phone numbers for only user authentication like OTP.
Advanced Search is available on our flagship product, YV OS, and only available to customers in compliance with Nigeria Data Protection Regulation (NDPR).