Guide:
Best 10 KYC Solutions in 2024
KYC is becoming increasingly important for online companies. Once only legally required for financial institutions, KYC software must be deployed by a growing number of industries. Learn more about KYC solutions, top providers, key challenges and how to overcome them.
Author: Ekaterina Podgaiskaya
Last updated March 25
Contents
Introduction
In the fast-paced world of finance and technology, Know Your Customer (KYC) technology practice plays a pivotal role in maintaining the integrity and security of financial transactions and operating digital banking software systems. This guide provides an overview of KYC technology and what are the benefits of using it. You will also learn about the 10 most successful and outstanding KYC providers in 2023.
What is a KYC Technology?
KYC (Know Your Customer) technology is a set of processes and tools employed by financial institutions and businesses to verify the identity of their customers. It involves collecting and analyzing customer information to ensure that they are who they claim to be.
KYC processes typically include the collection of personal information, document verification (e.g., passports, driver's licenses), biometric authentication, and screening against global sanctions lists and watchlists. The goal of KYC technology is to establish a customer's identity and assess their risk profile accurately.
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The KYC framework contains four steps: customer identification program (CIP), customer due diligence (CDD), enhanced due diligence (EDD) and ongoing monitoring.
1. Customer Identification Program (CIP):
The Customer Identification Program is the initial step in KYC. It focuses on collecting and verifying customer information to establish their identity. Key aspects of CIP include:
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Gathering basic customer information, such as name, date of birth, address, and contact details.
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Requesting official identification documents, such as passports, driver's licenses, or national ID cards, to validate the customer's identity.
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Conducting basic background checks and screenings to ensure that the provided information is accurate and matches official records.
2. Customer Due Diligence (CDD):
Customer Due Diligence is the second step in the KYC process, following CIP. It involves a more comprehensive assessment of the customer's risk profile and financial activities. The main objectives of CDD are:
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Evaluating the customer's transaction history and patterns.
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Understanding the source of funds and wealth associated with the customer's accounts.
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Identifying any politically exposed persons (PEPs) or high-risk entities with whom the customer is associated.
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Categorizing the customer's risk level as low, medium, or high based on the gathered information.
3. Enhanced Due Diligence (EDD):
Enhanced Due Diligence is an additional step in the KYC process that is reserved for customers deemed to be high risk based on the results of CDD. EDD involves a more in-depth investigation into the customer's background, financial activities, and associations. Specific aspects of EDD include:
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Conducting a thorough review of the source of funds and business relationships.
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Understanding the source of funds and wealth associated with the customer's accounts.
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Identifying any politically exposed persons (PEPs) or high-risk entities with whom the customer is associated.
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Categorizing the customer's risk level as low, medium, or high based on the gathered information.
4. Ongoing Monitoring:
Ongoing Monitoring is the final step in the KYC process and is a continuous effort throughout the customer relationship. Its primary objectives are:
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Continuously monitoring customer accounts and transactions for any suspicious or unusual activities.
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Updating customer information and risk assessments on a regular basis to reflect any changes.
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Reporting and investigating any red flags or suspicious activities promptly.
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Ensuring ongoing compliance with regulatory requirements and making necessary adjustments to mitigate emerging risks.
These four steps collectively form a comprehensive KYC process that helps financial institutions and businesses verify the identities of their customers, assess their risk levels, and mitigate the potential for financial crimes such as money laundering and fraud.
The KYC framework is not a one-time process but rather a continuous cycle. It is essential for mitigating risks related to money laundering, fraud, terrorist financing, and other financial crimes. By following these three steps, financial institutions and businesses can maintain a comprehensive understanding of their customers, prevent illicit activities, and comply with regulatory requirements.
Role of KYC in the Fintech industry
KYC regulations have their roots in a history marked by uncontrolled financial misconduct. The initial directives were formulated back in 1970, caused by the adoption of the US Bank Secrecy Act (BSA), the main purpose of which is to combat money laundering. Subsequent significant additions followed later after the September 11, 2001 terrorist attacks and the global financial crisis of 2008.
The role of KYC is pivotal in various industries, particularly in the financial sector. Today KYC and related Anti-Money Laundering (AML) measures are essential for fintech firms as integral components of their compliance protocols. These companies must guarantee their adherence to both local and, where relevant, international rules governing the process of verifying customer identities.
KYC processes help prevent a range of problems and risks associated with identity fraud, money laundering, terrorist financing, and other financial crimes.
Here's an overview of the role of KYC and the problems it can prevent:
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Identity Verification: KYC ensures that financial institutions and businesses verify the identity of their customers. This helps prevent impersonation, identity theft, and the use of fraudulent identities for various purposes, including opening accounts and conducting transactions.
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Fraud Prevention: KYC measures play a crucial role in fraud prevention. By verifying customer identities and scrutinizing their financial activities, businesses can detect and prevent fraudulent transactions, such as unauthorized account access or fraudulent fund transfers.
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Money Laundering Prevention: KYC is a vital component of Anti-Money Laundering (AML) efforts. It helps identify and deter money laundering activities where illicit funds are disguised as legitimate assets. By scrutinizing customer transactions and behavior, suspicious activities can be flagged and reported to regulatory authorities.
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Compliance with Regulatory Requirements: Financial institutions are legally obligated to comply with KYC regulations imposed by local and international authorities. Failure to do so can result in severe penalties and damage to a business's reputation. KYC ensures compliance with these regulations.
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Risk Assessment: KYC helps assess the risk profile of customers. By categorizing customers as low, medium, or high risk, businesses can allocate resources and apply appropriate due diligence measures to mitigate risks effectively.
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Preventing Unauthorized Transactions: KYC helps ensure that transactions are conducted by authorized individuals. This reduces the risk of unauthorized access to accounts and financial assets.
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Data Security: KYC processes also contribute to data security by ensuring that sensitive customer information is handled with care and that it doesn't fall into the wrong hands.
In summary, KYC plays a vital role in safeguarding the integrity of financial systems, preventing financial crimes, protecting businesses from regulatory violations, and enhancing overall security and trust in the financial industry and beyond. It is a cornerstone of compliance and risk management, serving as a proactive measure to prevent a wide range of problems and risks.
Because there are no established guidelines for conducting a KYC verification, various emerging technologies can be utilized and frequently combined in a multi-faceted strategy: Real-time Video and Liveness Verification, Biometrics, Digital Footprint Analysis, AI and Machine Learning. Although blockchain technology is frequently linked to cryptocurrencies, there is a recent trend to harness it for the anonymous storage and sharing of KYC information.
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.
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KYC market and trends 2023
The KYC market is continuously evolving to address new challenges and regulatory requirements while leveraging emerging technologies.
According to the Report Ocean, the global E-KYC (electronic Know Your Customer) market size was US$ 1571.1 million in 2021. The global E-KYC market is predicted to grow to US$ 2791.5 million by 2030 by registering a compound annual growth rate (CAGR) of 21.5% during the forecast period from 2022 to 2030.
The E-KYC market is anticipated to grow as a result of factors such as terrorist financing operations and substantial financial losses in the banking, financial services, and insurance sectors.
2023 trends in KYC and Verification:
Increased Digital Identity Integration:
Expect broader adoption of digital identity verification, reducing user anonymity, especially in online services like dating apps and comments sections.
Web 3.0 and Blockchain-based IDs:
Anticipate advancements in Web 3.0 and blockchain-based digital identities, with solutions like Sumsub's product for blockchain identity implementation.
Evolving Crypto Regulations:
Keep an eye on evolving cryptocurrency regulations, such as Switzerland's requirement for identity verification in transactions exceeding $1005.
Verification Orchestration:
Orchestration enables tailored KYC processes for different customer types. Sumsub's Workflow Builder, a code-free solution, allows businesses to automate onboarding based on specific risk scenarios and customer characteristics.
Unified API:
Single integration to plug-and-play access to data sources, registries, IDVs and more.
Passive Biometry on the Rise:
Passive biometric authentication will become more prevalent, shifting towards an "always on" mode for identity confirmation.
Tightened Regulatory Requirements:
Regulators worldwide are likely to tighten rules, including broader adoption of the Travel Rule and stricter data protection measures.
Document-Free Verification:
Document-free verification will become more widespread, enabling users to confirm their identity through quick face authentication checks, similar to India's financial institutions.
All-in-One Verification Solutions:
Expect the emergence of all-in-one verification solutions combining KYC and transaction monitoring to streamline the onboarding process and strengthen compliance with regulations.
In 2023, it's crucial for businesses to invest in robust anti-fraud solutions capable of detecting advanced fraudulent activities amid evolving criminal tactics.
Benefits of KYC automation
Yet, with technological advancements reshaping the business landscape, the demand for KYC automation is on the rise. This innovative solution aims to revolutionize tedious onboarding processes and compliance obligations, turning them into streamlined and efficient operations
KYC automation employs software to examine and authenticate customer identity documents, including passports, driver's licenses, and utility bills. Additionally, it utilizes advanced data analytics and machine learning algorithms to promptly and effectively evaluate risks or potential red flags linked to individual customers.
As technology progresses, KYC processes can now be automated, offering numerous advantages to financial institutions. Here are the benefits of KYC process automation:
Cost and time savings:
Manual processes in verification and paperwork processes cause delays, frustrations, and high operational costs, leading to inefficiencies and security risks. Human errors and inflexible systems result in inaccuracies and delays. Automated verification systems streamline processes, providing real-time access and cost-efficient scalability. Enhanced security features minimize errors and fraud, ensuring a robust verification system that addresses the shortcomings of manual methods.
Geographical expansion:
Each country has its own set of complex regulations related to KYC, KYB, and AML procedures. Navigating these regulations efficiently while ensuring compliance can be a daunting task for businesses. Drag-and-drop builders offer the flexibility to adapt the verification flow to meet the unique regulatory landscape of each market. Additionally, they enable seamless integration with local KYC, KYB, and AML providers, streamlining the compliance process.
Data sources expansion:
Expanding data sources for KYC, KYB processes presents integration challenges, as businesses must gather all necessary information from diverse sources. Manual integration of these sources hampers scalability, making it difficult for businesses to efficiently manage and process data as they grow. Access to diverse data sources enhances accuracy and completeness. By leveraging single integration, businesses streamline integration, boost compliance, and scale operations effectively.
Enhanced customer experience:
KYC automation enables seamless and rapid onboarding and identity verification for customers, fostering a positive experience and bolstering satisfaction and loyalty.
As technology progresses, KYC automation is poised to become indispensable for banks seeking to streamline operations and enhance efficiency.
Best 10 KYC providers 2024
In 2024, the KYC landscape boasts a range of providers with diverse offerings. Here are the top 10 KYC providers worldwide to consider:
(UK) Shufti Pro is a SaaS company providing fully automated KYC and AML solutions like KYC to verify the end-users of a business, KYB to verify business, AML to perform background checks but this all can be achieved using one single API so our solution is easy enough for any business to integrate with their existing system using a simple to implementRESTful API. The company offers a multi-layered risk cover against digital identity fraud, money laundering and terrorist financing.
(Germany) Fractal is an identity verification platform, ranging from human uniqueness for sybil-resistance to KYC/AML for regulatory compliance. Fractal provides decentralized identity solutions for Web3 users and chains ensuring trustless systems and empowering users to exchange their data in a privacy-preserving way. It was founded in 2017 and is headquartered in Berlin.
(UK) Sumsub is the one verification platform to secure the whole user journey. With Sumsub’s customizable KYC, KYB, transaction monitoring and fraud prevention solutions, you can orchestrate your verification process, welcome more customers worldwide, meet compliance requirements, reduce costs and protect your business. Sumsub has over 2,000 clients across the fintech, crypto, transportation, trading and gaming industries. Sumsub’s methodology follows FATF recommendations, the international standard for AML/CTF rules and local regulatory requirements (FINMA, FCA, CySEC, MAS, BaFin).
(USA) IDology, Inc provides innovative technology solutions that verify an individual’s identity and/or age for organizations operating in a customer-not-present environment. The IDology platform serves as a collaborative hub for monitoring and stopping fraudulent activityacross the entire network while also driving revenue, decreasing costs and meeting compliance regulations. Founded in 2003, IDology offers a solution-driven approach to identity verification and fraud prevention, providing streamlined processes that ultimately help increase customer acquisition and improve the overall customer experience. IDology has developed an on-demand technology platform that allows customers to control the entire proofing process and provides the flexibility to make configuration changes that are deployed automatically – without having to rely on internal IT resources or IDology’s customer service – so customers can stay ahead of the fraud landscape while also maintaining compliance.
(USA) Mitek is a global leader in digital access, founded to bridge the physical and digital worlds. Mitek's advanced identity verification technologies and global platform make digital access faster and more secure than ever, providing companies new levels of control, deployment ease and operation, while protecting the entire customer journey. Trusted by 99% of U.S. banks for mobile check deposits and 7,500 of the world's largest organizations, Mitek helps companies reduce risk and meet regulatory requirements.
(Canada) Trulioo is a global identity verification company that provides secure access to hundreds of identity networks around the world to help meet compliance requirements, mitigate the risk of fraud, and increase trust and safety online. Thier flexible solution enables customizable rules configurations and workflows to satisfy the ever-changing needs of businesses and consumers worldwide through a single API.
iDenfy, an antifraud and compliance company from Lithuania, is recognized by G2 as a leader in identity verification, AML, and KYB (Know Your Business) solutions for the second consecutive year. The average score is 4.9 from a maximum of 5. The platform offers an identity verification solution with more than 3000 identity documents supported from 200 countries and territories. There is a direct integration for PEPs, sanctions, and adverse media checks with ongoing screening. Instead of charging per every identity session, the company chose a different route - clients pay only per approved customer, omitting denied verifications due to fraud, expiry, or bad image quality. With over 500 worldwide customers, including the Bank of Lithuania, iDenfy offers business verification with access to official credit bureaus for 160 countries and government-issued registry reports. Everything is integrated into a single platform with an option to generate reports required by auditors.
Pros: Wide range of integration, including all mobile SDKs, iFrame, WordPress, Zapier, Bubble, and others. KYC, AML, and KYB features in a single platform. Pay only per approved customer.
(UK) Sanction Scanner provides a platform for AML and KYC compliance, featuring customer screening against over 3000 sanction lists, watchlists, and PEP lists. The platform utilizes AI-driven algorithms to enhance the accuracy of screenings and reduce false positives. It includes an ongoing monitoring tool that enables customizable auto-scans for high-risk customers at set intervals, facilitating timely updates on risk profiles. The platform offers real-time alerts, ensuring that businesses are immediately notified of any changes in a customer's risk status, enabling prompt action to mitigate potential threats. Sanction Scanner offers a developer portal with detailed documentation, sample code, and SDKs for seamless API integration, allowing for the automation of AML control processes. Sanction Scanner features a user-friendly interface that simplifies the process of conducting AML and KYC checks, making it accessible for users of all technical levels.
(UK) Onfido makes it easy for people to access services by digitally verifying them using its Real Identity Platform. The platform allows businesses to tailor verification methods to individual user and market needs in a no-code, orchestration layer – combining the right mix of document and biometric verifications, trusted data sources, and passive fraud signals to meet their risk, friction and regulatory requirements. Onfido Atlas™ AI powers the platform’s fully automated, end-to-end identity verification. Developed in-house for over 10 years, it’s how Onfido ensures its analysis is fair, fast and accurate.
(USA) Jumio is an AI platform that enables users to establish their identity remotely to protect against fraud and other financial crime. The Jumio KYX Platform offers a range of identity proofing services to accurately establish, maintain and reassert trust from account opening to ongoing transaction monitoring. It leverages advanced technology including AI, biometrics, machine learning, liveness detection, and automation, Jumio helps organizations fight fraud, onboard good customers faster, and meet regulatory compliance including KYC, AML, and GDPR. Jumio has verified more than 300 million identities issued by over 200 countries and territories from real-time web and mobile transactions. The identity verification company's solutions are used by leading companies in the financial services, sharing economy, digital currency, retail, travel, and online gaming sectors. In 2016, Daniel Mattes and Robert Prigge headquartered Jumio in Palo Alto, California.
(UK) SEON is a fraud prevention startup developing a fraud detection software to detect fraud in real-time through transactional data analysis. Its software uses machine learning and human intelligence algorithms to collect information about transactions and customers associated, integrates with a device fingerprinting module, and combines email verification and IP address analysis features to detect and report transactional and behavioral fraud patterns. It also allows businesses to detect and eliminate fraudulent activities and maintain data security. Founded in 2017, the company is based in Budapest, Hungary with commercial headquarters in London, UK.
(Estonia) Veriff is a global identity verification service company founded and headquartered in Tallinn, Estonia. The company offers services for online businesses to mitigate fraud attempts and assisting regulatory compliance. The partner of choice for businesses who need to rapidly and effortlessly verify online users from anywhere in the world, Veriff delivers the widest possible identity document coverage. By supporting government issued IDs from more than 230 countries and territories and with our intelligent decision engine which analyzes thousands of technological and behavioral variables Veriff enables trust from the first hello.
How to choose a KYC provider? Checklist of critical features
When selecting a KYC provider, consider the following factors:
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Compliance Expertise:
Look for a KYC provider with a strong understanding of the regulatory landscape in your industry and region. They should be up-to-date with the latest KYC and AML regulations.
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Flexibility and Customization:
Your KYC provider should offer flexibility in tailoring their services to your specific needs. This includes the ability to customize workflows, risk assessments, and integration with your existing systems.
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Pay-as-you-go pricing:
Ideally, you want your KYC software prices to scale along with your usage. There’s no point in spending thousands of dollars a month if you have a very low volume of applications.
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Global Coverage:
If your business operates internationally, choose a provider with global coverage. They should be able to perform KYC checks for customers from various countries and jurisdictions.
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Technology Stack:
Assess the provider's technology stack. Are they utilizing advanced technologies such as AI and machine learning for enhanced verification and risk assessment?
Checklist of critical features
When evaluating KYC providers, it's important to ensure that they offer a comprehensive set of features to meet your business needs. Here are some critical features in KYC solutions:
1. Identity Verification:
Automated functionalities for confirming the identity of customers, including authentication of identity documents and biometric verification.
3. Customer Onboarding:
Capabilities for collecting and validating customer details and documentation during the initial onboarding process.
5. Document Management:
Systems designed for the storage and organization of customer documents, such as identity records, onboarding forms, and risk assessments.
7. Integration with Other Systems and Data Sources:
The capacity to seamlessly connect with other software systems, such as customer relationship management (CRM) platforms and enterprise resource planning (ERP) systems data sources, registries, IDVs and more, to facilitate data flow and enhance operational efficiency.
2. Risk Evaluation:
Tools for assessing customer-related risks, which may involve screening against sanctions lists, politically exposed person (PEP) databases, and various risk data sources.
4. Ongoing Customer Due Diligence:
Features for conducting regular assessments of customer relationships to ensure adherence to regulatory requirements over time.
6. Reporting:
Functionality for generating reports concerning customer data, transactions, and compliance with regulatory standards.
8. Anti-money laundering (AML) features:
KYC software is often bundled with AML features. This may include looking at lists of Politically Exposed Persons (PEPs) or monitoring transactions over a certain threshold.
Choosing the right KYC provider is a critical decision for businesses aiming to maintain compliance, enhance security, and build trust with customers. Research the provider's reputation in the industry and seek references or case studies from their existing clients.Take your time to assess your options thoroughly and select a provider that aligns with your specific requirements and goals.
How to tackle key KYC challenges?
KYC is a critical process for businesses and financial institutions to verify the identity of their customers. however, numerous companies are wasting a lot of financial resources and extensive labor hours when establishing AML and KYC procedures due to the ineffectiveness of their processes.
Among the key challenges that KYC processes come with are:
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High onboarding costs are one of the significant challenges associated with KYC processes. This challenge primarily refers to the substantial expenses incurred by businesses and financial institutions when bringing new customers onboard while ensuring compliance with KYC requirements.
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Stringent regulatory requirements. Keeping up with constantly evolving and increasingly strict regulatory requirements can be a significant challenge. Different countries and regions may have their own KYC standards, making it complex for organizations operating globally.
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Customer onboarding delays. KYC procedures can often lead to delays in customer onboarding, which can frustrate customers and lead to lost business opportunities. Striking a balance between thorough verification and speedy onboarding is challenging.
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Data privacy and security. Safeguarding customer data is paramount, and ensuring compliance with data protection laws (e.g., GDPR) while collecting and storing sensitive information adds complexity to KYC processes.
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Customer Experience. Balancing the need for comprehensive verification with a smooth and user-friendly experience for customers is a constant challenge. Lengthy or cumbersome KYC processes can lead to customer dissatisfaction.
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Cross-Border KYC. Conducting KYC for customers who operate across multiple countries or regions can be complex due to varying regulatory requirements and the need to coordinate with multiple authorities.
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Technology integration. Implementing and integrating KYC solutions into existing systems and processes can be challenging. Legacy systems may not easily support modern digital KYC processes.
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False positives. Automated KYC systems may generate false positives, flagging legitimate customers as suspicious. Managing and reducing false positives without compromising security is a challenge.
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Documentation variability. Customers may provide different types of documents for verification, and these documents can vary widely in format and quality. Handling this variability can be challenging.
