How AI is being used in KYC checks

Technology has changed many business processes, and companies have embraced the changes in order to stay up-to-date with industry-specific technologies and remain competitive. The financial sector is one such industry that has embraced technology by incorporating AI into its Know Your Customer (KYC) processes. This is a process that is used by businesses to verify the identity of their customers. These KYC checks are necessary for a number of reasons, such as preventing fraud, stopping money laundering, and other financially related crimes. KYC checks used to be time-consuming as the identity verification process required a lot of resources, including human capital, but that has changed with the introduction of artificial intelligence (AI) to the KYC process. 

This article explores how AI is being used in KYC checks and the benefits it brings to the financial industry.

Organizations and Industries Using AI-Powered KYC Processes 

There are many different organizations and industries that use AI to carry out KYC processes. The following are some of the key users:

Banks and Financial Institutions: KYC is important for banks and financial institutions, as they have to verify the identity of their customers and assess their risk profile to prevent fraud and financial crimes. Since money is their core business, they need to carry out KYC processes to reduce the risk of losing money and resources through bad debts or any other activities. 

Gaming and Gambling Platforms: These typically use KYC to follow regulations and make sure that customers are who they claim to be, mostly because of age restrictions imposed on the industry. This helps maintain the integrity of the industry. However, not everyone is comfortable with going through KYC processes, especially on gambling platforms, for various reasons. In the gambling industry, in particular, players can choose to wager on sites without KYC to keep their private information secure. ValueWalk’s Kane Pepi explains that these sites allow gamblers to play online without providing KYC documents (source: https://www.valuewalk.com/cryptocurrency/no-kyc-casinos/). So, while some gaming and gambling platforms do ask for KYC details, others can bypass this step and players can choose which sites they prefer to play on. 

Telecommunications and Mobile Network Operators: This industry uses KYC for many reasons, such as helping ensure that mobile devices and services are not used for criminal activities like this electricity bill scam.

Educational Institutions and Universities: These institutions require KYC in order to prevent fraudulent activities related to financial aid, scholarships, and grants, among other things.

Cryptocurrency Exchanges and Wallets: KYC compliance for cryptocurrency exchanges helps to build confidence among investors as it keeps scams and money laundering to a minimum. Some real money online casino platforms prefer to use strictly KYC-verified crypto wallets to ensure secure and regulated transactions.

AI and KYC Checks

There are a number of ways in which AI is being used in KYC, and below are some of them.

Screening Customer Profiles

AI can access a large number of databases at a time and assess the probability of a customer becoming a risk. After running their profile against data from third-party databases such as credit bureaus and public records databases, AI categorizes customers into low risk, medium risk, high risk, or very high risk. Public records can be property records, court records, or any other records that can be accessed by anyone without the need for authorization. From the information it collects from various sources, AI creates a risk profile for each customer, taking into account things like credit history and score, sanctions and blacklist matches, and any bad records from media coverage. 

Screening Customer Transactions

AI collects transaction data from various sources, including payment systems, banking platforms, and cryptocurrency exchanges, and uses machine learning algorithms to weed out irregular transactions that move away from the normal bracket. These can be large transactions exceeding a certain pegged amount, multiple transactions within a short space of time, and transactions between someone and a business or individual from a high-risk country. 

User Authentication

When a customer logs into their account or tries to access a secure portal, AI algorithms verify the input details against the stored information in the database. If the given information or details are correct, AI validates the credentials and grants the user access to their account or secure portal. The system continues to monitor the user's activity to detect any potential security threats. This monitoring process has previously raised ethical concerns, but it is sometimes inevitable. Additionally, individuals can opt out of AI if they do not want their information, such as images, to be used by large companies like Google to train AI.

Document Uploading and Verification

When users upload digital copies of their documents, AI extracts relevant information, such as names, dates of birth, identification numbers, and expiration dates, from the uploaded documents using OCR (optical character recognition) technology. After validation, the data is then automatically filled into the respective fields in the KYC system. 

Live Face Verification

This KYC security feature ensures that the person uploading identity documents is indeed the same person as in the documents. After uploading documents such as a passport or driver's license, the system prompts the user to take a live selfie or record a short video, which will be compared to the photo on the uploaded document by an AI algorithm. The algorithm will look for similarities in facial features, and after confirming a match, the verification process will be complete. However, if it is not a success, the system will either ask the user to provide additional information or flag the account to be reviewed further. 

Benefits of AI-Powered KYC Checks

Below are some of the benefits of using AI-powered KYC checks:

• AI algorithms can pick up sophisticated signs of forgery or tampering that might be missed by human eyes.

• It is difficult for fraudsters to fake their identities since AI uses biometric data, which is unique to each individual.

• AI uses patterns picked up from historical data to predict potential risks, which allows organizations to take countermeasures.

Conclusion

AI has transformed KYC checks by introducing advanced technologies that improve accuracy and the speed with which transactions are processed, among other things. However, there are people who do not want to go through KYC processes because of security concerns, as they do not know how their information will be used. Overall, AI has improved many business processes, including KYC, through machine learning, and more positive changes are expected in the future.

This article was originally published on the MintDice Blog.