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Emerging Methods of KYC

Updated: Dec 11, 2023

The importance and true cost of KYC

It’s been about two decades since Know Your Customer (KYC) regulations were introduced around the world, requiring companies offering financial services to ensure their clients are who they claim to be.

Since then, the regulations have become more onerous, huge sums of money have been spent on building compliance departments tasked with the enormous task of trying to identify their clients when identity theft and fraudulent documents are rife. Financial services companies are also expected to monitor their clients’ financial behaviour patterns and report suspicious transactions to regulatory bodies.

KYC started as a manual in-person process where customers had to submit the required documents to the bank or intermediary in person to confirm their identify before being able to transact with the financial services company. But innovation has been fast-paced in an industry where FinTechs are testing the boundaries of innovation and whose business propositions rely on onboarding clients in a way that is a seamless and pleasant experience if they want to encourage them to interact further with the product.

Thanks to technological advances, Neobanks and other FinTech companies now have various options that allow them to automate and streamline the process – although it can still be an expensive exercise considering the hidden costs and possible penalties of not satisfying regulatory requirements.

Designing better onboarding experiences

Ease-of-use is at the top of the list for most customers contemplating using a FinTech application and surveys show that lengthy onboarding questions are a complete turnoff for prospective users. Thus, customer acquisition relies on a smooth digital onboarding process and should be considered as part of the art of creating a standout user experience.

Tiered KYC is now considered best practice because it allows new customers to access the product without having to fulfil the complete KYC process. That allows them to engage with and experience the product sooner. Then based on the usage and transaction volumes, the client can be asked for extra pieces of verification documents as and when needed.

“While regulators are strict with their identity verification policies, FinTechs don’t have to put pressure on their customers accordingly. There is often a lot of room for them to arrange the identity verification process in a less onerous way while keeping it safe and accurate.”

Key components of a good identity verification experience include:

  • Tiered onboarding. While identity checks are mandatory before you can provide financial services to clients, they are not required if you are giving customers access for the first time so that they can browse the available offers, understand the experience and, finally, decide it is a product they would like to use.

  • Balanced KYC compliance. Identity Verification, Due Diligence and Anti Money Laundering (AML) requirements are often broad and can be treated as frameworks. Product teams need to set up procedures and policies that spell out the way to mitigate risks while keeping the customer experience top of mind.

  • Of value to the customer. It is not only the company that needs to do the KYC checks. The clients also benefit from this process if well-built and well-communicated with them. Identity, for example, is a key to establishing account security and once verified they can take comfort in knowing no one else will be able to access their account.

KYC methods overview

1. In-person KYC

Originally KYC needed to be satisfied by in-person verification (IPC), with the customer physically meeting a company representative and handing over all the necessary paperwork to verify their identity. It is still mandatory in several countries and for certain financial services. But nowadays it can be done by video verification. The customer submits their original ID and proof of residence electronically and then participates in an online videoconference during which the financial services company representative can verify the person’s identity.

Most core banking platforms are already equipped with the tools and processes to handle this kind of verification. At Velmie, for example, we provide a multi-level KYC system that can be configured to handle different types of clients in multiple locations. It also offers Role-Based Access Control (RBAC) to set up identity verification teams and staff users who are allowed access the information. That means you don’t need to set up complicated algorithms and integrations and can start onboarding new clients from day one.

2. Automated eKYC

eKYC moved the identity verification process online and allowed financial services to automate processes, reduce costs and dramatically improve the customer experience by making it more convenient and less onerous.

Advances in digitisation have allowed FinTechs to use AI and machine learning to verify that the documents that have been electronically submitted to provide proof of identification are those of the customer. There are thousands of vendors currently providing automated verification via Optical Character Recognition (OCR) technology and machine learning (ML) algorithms matching the photos on the required documents with live selfie videos of the customers. Velmie partners with services like Jumio and Globalpass so that our clients can automate their KYC/AML checks.

While this approach is considered as an industry standard now, it worth looking at the other emerging KYC methods. We cover some of the most promising and innovative ones below.

3. KYC with open banking

The advent of open banking was a major win for FinTechs because it gave them access to banks’ customer data and allowed KYC to become a network rather than requiring them to start from scratch gathering customer information. It allows FinTechs to reuse verification data obtained from other institutions and thus confirm the identities of their clients far more easily, securely and cost effectively, without having to go through the expensive and time-consuming process of gathering and interpreting the data themselves.

Open banking, and the regulations surrounding it, has proved particularly useful for FinTechs that offer payments or international remittance services because it allows cross-border transactions to be approved without the client needing to be present in the same country as the FinTech product provider. Customers also no longer need to validate their identity physically or on video call.

Private banking, business payment providers and other companies participating in financial transactions also benefit from open banking because it substantially reduces the costs, complexity, and time-consuming nature of the in-person or eKYC verification processes.

Instead, identity verification with open banking data allows customers to onboard with just one click. It also provides additional data that may be useful for risk scoring and making other decisions that rely on reliable customer financial data.

4. NFC\biometric documents

Near Field Communication (NFC) chips installed in mobile phones are becoming a standard in many geographies. The current level of adoption allows financial services players, including FinTechs, to build biometric identity verification solutions in a cost-effective way. Biometric identification, using eyes, fingerprints, or facial recognition, is also fraud-proof because physical features cannot be reproduced, and it allows businesses to verify and onboard customer in no time and at lower operational costs than traditional forms of identification.

NFC-enabled phones with biometric sensors promises to play a vital role in improving financial inclusion globally. The World Bank estimates that more than 1 billion people don’t have any form of identification that will facilitate KYC verification. Biometric identification solves this problem because cell phone penetration across lower income regions, where the unbanked predominate, is high and, together with NFC, allows for biometric identification technology to be shared digitally using their phones.

5. Phone number

One of the more novel approaches to handling KYC and improving onboarding experiences for customers is using phone-centric identity verification. Prove is one of the companies providing mobile identity technology that leverages and analyzes phone signals to verify a customer’s identity and gauges the likelihood of them engaging in suspicious transactions.

Phone number-based verification provides high-depth and high-consistency data that can go back many years because individuals usually have had their phones for many years. Data that Prove’s\ solution tracks includes phone line tenure, phone behavior, such as calls, texts,, logins and browsing behavior, phone line change events, phone number changes, including phone number account takeovers, such as SIM swaps, and how often these change events occur.


These days there are a variety of forms and methods of identity verification that companies can implement into their products. New methods of the identity verification are constantly appearing on the market, and we can expect other ground-breaking to emerge in the coming year.

Given the fast pace of technology advancement, KYC may even become a ubiquitously low-cost or free service in the future. Some players are already offering their KYC solutions for free to their customers.

Many are betting on the important role blockchain distributed ledger technology and shared KYC consent-driven data sharing will play. Blockchain is built in such a way that it ensures the transparency and immutability of data. Only those who have permission can access and change the shared customer data stored on the blockchain and there is a permanent and anonymous record of all activity that has ever taken place.

Last, but not least, FinTech companies shouldn’t consider KYC as solely a regulatory requirement that needs to be implemented strictly and in accordance with the letter of the law to avoid falling foul of AML regulations. Instead, the data gathered for the purposes of identity verification can be used to gain a competitive advantage by setting up personalized offers and experiences for customers based on the rich personal data sets collected during the KYC process.


About the author

Paul Shumsky, CMO

Paul Shumsky is the Chief Marketing Officer (CMO) at Velmie, a leading fintech and banking technology solutions provider. With a passion for driving innovation and customer-centric strategies, Paul brings over two decades of expertise in the realm of marketing and technology.

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