Importance of KYC in Banking Industry

Posted by Amelia Matthers on August 21st, 2019

KYC (Know Your Customer) is a primary step of any financial institution. It is crucial for the banking industry to keep a track that the one who is entering into the boundary of the bank is trusted or not. For this purpose, identification and verification of a particular identity are very important. Banks hold all the critical information that could reveal the identity of the person who belonged to that bank. As the role of banks in the economic market of any industry is always critical, the birth of any malicious activity that could harm the economic industry incubate from the banks.

Greater than 60% of the respondents globally have faced an increase in banking fraud. This increase results in a great loss in the nation’s economy and yearly budget.

Before we get into the use cases of KYC in the banking industry, let’s have a quick glance over ‘What is KYC?’

KYC is a process in which a particular identity is investigated. This investigation is done using two fundamental terms: Identification and verification. A person is verified against his official documents which act as proof that the identity is trusted ducted air conditioning Sydney. 

The identity is identified under some regulations. The official documents support the need for verification of a person. This can be done online and manually when the bank account or is opened or any banking activity is requested. 

Why do banks need the KYC process?

KYC enables banks to allow trusted parties to enter their system. This keeps the banks away from money launderers and criminal activities. There are certain guidelines of KYC and AML Compliance on which banks, financial institutions, and intermediaries are enforced to map their system. The whole entities are crucial for the nation’s development and to secure them is extremely important. 

Today, many banks provide their customer facility of opening their accounts online. Although this facilitates the customers sitting at home and filling the form that is less time consuming and easy than the traditional banking system. But, on the other side, the banking administration has to perform a heuristic evaluation that takes care of authentication and verification of the identified requesting to be a part of a banking system. Banks have integrated AI (Artificial Intelligence) based software with their system through which they perform online identity verification. 

This helps banking institutions keep a record of trusted customers who have not been involved in money laundering or some similar criminal actions. A healthy financial system results not only in the growth of the business but also plays an important role in the development of the nation.

The banking industry secure their system taking into account all the KYC and AML Compliance requirements. KYC not only avoid identity theft and fraud-related crimes in banks but also serves their customers. Banks use all the information of the customer and provide them the plans based on their financial information that helps them manage and invest their money efficiently. Customers could be able to perform their transactions in a better way. This reduces the risks of any financial loss.