Automating & Simplifying the KYC Procedure for Financial Institutions
Automating the KYC Procedure for Financial Institutions for Fraud Mitigation


KYC verification is a vital part of the customer onboarding process for detecting and eliminating fraud. The threat of money laundering and financial fraud in the banking industry is growing at an alarming pace. KYC verification has become an important tool for both the regulatory and financial sectors to mitigate fraud and illegal activities. While it is crucial, complying with KYC regulations is a huge burden for banks, and not complying with KYC regulations can lead to huge fines. There are 3 main components of KYC verification that financial institutions have to follow.




3 Components of KYC Verification

Financial fraud is becoming a bigger threat year after year and to mitigate the risk of fraud, financial institutions need to comply with KYC regulations.

Every year, financial institutions across the world lose an average of $20 Billion due to financial fraud. Having strong KYC verification programs is the need of the hour, and following the 3 major components of KYC verification is vital for banks, financial institutions, and so on.

  • Customer Identification
Customer identification is the first and foremost part of the KYC verification process. Customer verification consists of the customer providing certain information to the bank or the financial institution. The information required for customer identification is:
    • Name
    • Date of Birth
    • Age
    • Address

This information is usually gathered through documents such as ID documents, driving licenses, and proof of address documents.

  • Customer Due Diligence

Customer due diligence is the process of ensuring that the customer is actually who they claim to be. The customer due diligence process consists of establishing proof of possession of identifying documents using online or online document verification software. The ID documents are collected and verified to ensure that customers are who they claim to be. Recently, financial institutions have started using video KYC procedures because the pandemic has made manual verification next to impossible. Banks need to have different due diligence procedures based on the risk level of individuals. Customers with low levels of financial risk have to go through a simplified Customer due diligence process (CDD), and for high-risk customers, the Enhanced due diligence process (EDD) is set in place. By using CDD and EDD, businesses can reduce fraud initially by conducting instant bank verification.

  • Monitoring & Reporting
To eliminate the risk of fraud, monitoring the activities opened after conducting the above 2 steps is crucial. With continuous monitoring and reporting, financial institutions can keep a track of suspicious activities. Regulatory bodies have asked financial institutions to keep track of all the suspicious activities happening on newly opened accounts. Any transaction above $10,000 is to be reported to FATF as it can be marked as a red flag for money laundering. According to regulatory bodies, banks and financial institutions have to maintain a record of:
    • Nature of transactions
    • Amount of transaction and the currency in which it was denominated
    • Date of transaction
    • Both parties of the transaction

3 Ways to Automate KYC Verification

All the 3 major steps of KYC verification are traditionally done using manual and paper-based authentication. Manual verification is slow, tedious, and extremely expensive, and the long process results in KYC customer drop-offs. According to reports, banks all over the globe spend over $500 million annually. Banks spend 90% on onboarding if they rely on manual methods instead of just automating the process. To reduce costs, businesses need an automated and digitized KYC verification process that can provide customers with a seamless onboarding experience. Here’s how to enhance the KYC verification process for businesses:

  • Automated Data Validation
Data validation is a vital step in customer due diligence and ensures that the customers are who they claim to be. Manual data verification consists of reviewing several paper-based documents and paper-based documents and cross-checking details with databases. Automating data validation through AI-powered data verification using standard databases allows the data validation process to be completed within minutes instead of the traditional onboarding process that takes up to 2 weeks. This cut down in time, can enhance the customer experience by at least 20%.
  • Real-Time Document Verification
Verifying the KYC documents of a customer is a vital part of customer due diligence, especially since 20% of all reported frauds are due to fraudulent documentation. Manually verifying all the documents is time-consuming and painstaking, sometimes a single document verification can take up to 30 days. By integrating real-time document verification solutions into the process can enhance real-time document verification.

  • DIRO Online Document Verification Software
DIRO’s online document verification software is essential to enhance the KYC onboarding process. DIRO can provide instantaneous online document verification for KYC documents backed by verifiable credentials. By integrating DIRO KYC Verification API to the website, financial institutions and banks can enhance their overall KYC verification process. DIRO can check over 7,000 types of documents from all over the globe and cross-reference the document data from the source to 100% eliminate the use of fake and stolen documents. By using DIRO’s solution, financial institutions can reduce the risk of fraud, make the KYC verification process better, and cut down the costs involved in compliance.
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