This article is part of Kyckr’s Future of KYC Compliance series, which interviews leading industry professionals and thought leaders to learn more about the trends that will shape the future of KYC compliance.
The following is an interview we recently had with Eyal Barsky, CEO of OCR Solutions.
What's the current state of KYC compliance?
In one sentence, it’s an organised train wreck. Never before has the world reached this level of advanced technology along with remote authentication of a user. If you had called a bank just 10 years ago and asked to withdraw a large sum of money, but couldn’t come in to verify who you were in-person, the teller would have laughed at you. Today, remote verification is simply the norm. And if we didn’t have the capability to remotely verify already in place, the onset of the pandemic would have likely left our economy in shambles. Today, we not only have KYC in online banking, but it’s also available in trading platforms and especially within the new, unchartered territory of cryptocurrency. Investment platforms are especially going through the most exciting and toughest times to-date. Imagine having the burden of authenticating millions of users who invest billions of dollars daily. There is zero room for error, and one bad actor can wreak havoc on these platforms.
How has KYC compliance evolved over the past 5 years?
Being in the ID verification industry for over 16 years, it’s just amazing to see how everything has evolved. Reading an ID used to be done through a barcode on the back of the card and that was the extent of KYC at the time. I remember being at a show where a very geeky client (who was well ahead of their time) had asked me about reading an ID using a cell phone (we only had flip phones back then with limited processing speeds). After the conversation, I rolled my eyes, looked at my co-worker, and we both laughed. I couldn’t imagine back then that that would ever be possible. Today, we can take a picture of an ID or passport through a mobile device and create a user profile in a system within 3 seconds or less. Taking it a step further, we can now compare the image on the driver's license to a selfie taken from a mobile phone even if that person has aged since the picture was last taken. Our systems can also detect liveliness, one of the three pillars of KYC, which deciphers if there’s a real person on the other end and if they are who they say they are.
How has KYC compliance changed in the midst of COVID?
The global pandemic has posed a major global challenge for organisations obliged to perform KYC checks and monitoring. While many companies have been quick to digitise their KYC processes, many are still lagging behind, caught like a deer in headlights, and unaware of how to approach the problem. As a result, many financial centric companies have been hit hard on a variety of levels. It’s a domino effect as you can imagine, because if you can't securely identify a client, you are out of compliance and your business is at risk.
What are the top trends shaping the future of KYC compliance?
Ongoing Monitoring – There was a time when financial institutions reviewed customers on a periodic basis and assigned a risk rating to each one. This was a tedious and practically manual process that could take an average of 10 days per file. The future of KYC compliance needs to remain constant. Today, the expectation is higher and regulations are tightening on a nearly daily basis.
Simplified Digital Adoption – Currently, adoption lies in the hands of larger enterprises but the cost of KYC compliance is exceptionally high. Banks are able to allocate very large sums to secure their clients but this is simply something that small businesses cannot afford. As soon as adoption and numbers of clients grow, smaller players will have a market of providers in this niche industry.
Global Regulatory Pressure – This era is the wild west of technology– there are no rules and there are a lot of unchartered territories. Regulators know this and take it on as a challenge to develop new tools and processes so they can identify rulebreakers and outlaws. If they find a process that works, sadly, they will double down and increase regulations. This is an ever-evolving and historic behavior that we have all seen happen through the years.
What's the future of KYC compliance?
Artificial intelligence will be the key to more accurate risk insights and enable complete automation. The size of this market grows daily and even hourly. Analysts will have various tools for KYC investigations at the tip of their fingers and issues that arise will be brought to their attention in a matter of microseconds. New uses of AI will focus on reducing false positives, allowing institutions to speed up onboarding processes. AI will distill large volumes of information eliminating content irrelevant to financial crimes and introduce flexibility and adaptability. This will result in large enterprises, like banks, gaining a complete competitive advantage. This makes it critically important for financial institutions to find providers with the experience of understanding the regulatory environment.