Know Your Customer (KYC) regulations require businesses to verify the identity of their customers. With digital transformation, many companies are adopting video-based electronic Know Your Customer (eKYC) solutions to onboard new customers remotely.
Video-based eKYC uses video conferencing and liveness detection to verify identities and perform customer due diligence. This enables companies to digitally onboard customers without physically seeing identification documents.
Video-based eKYC has advantages over traditional paper-based KYC, but also comes with some limitations. In this article, we’ll examine the pros and cons of using video-based eKYC for customer onboarding.
The Pros of Video-based eKYC
1. Convenience and speed
One of the biggest benefits of video-based eKYC is the convenience and speed it provides. Customers can get verified and open accounts instantly from their homes or offices. They don’t need to visit branches or mail physical documents.
Video KYC takes 5-10 minutes on average, compared to days or weeks for traditional KYC verification. This results in faster customer acquisitions and quicker time to revenue for businesses.
2. Reduced costs
Video-based eKYC eliminates the costs of handling physical documents. Companies save on paper, postage, archival, and labor costs. Video verification also reduces the need for in-person interactions and branch infrastructure.
According to McKinsey, video KYC can reduce compliance costs by up to 70%. These savings enable companies to onboard more customers profitably.
3. Enhanced customer experience
Video KYC provides a user-friendly onboarding experience. Customers can complete verification on their own time, without visiting branches during business hours.
The automated and instant nature of the video KYC solution for banks also meets customer expectations for digital-first experiences. This results in higher customer satisfaction and loyalty.
4. Improved security
Video-based eKYC integrates liveness detection, biometric authentication, and artificial intelligence to prevent fraud. Liveness tests use eyeball tracking, facial micro-expressions, and challenge questions to detect spoofed videos or images.
Backend AI systems analyze thousands of identity attributes to catch mismatches or alterations. This makes video KYC more secure than relying solely on physical documents.
5. Wider customer reach
Video-based eKYC enables companies to geographically expand their customer base. They can onboard clients across different cities, regions, or countries remotely.
Rural and last-mile customers can also access banking services without needing to travel to branches. Video KYC thereby promotes financial inclusion.
Video eKYC solutions allow organizations to easily scale up verifications as their business grows. Cloud platforms provide on-demand capacity to handle spikes in customer volumes effortlessly.
The automated nature of video KYC also creates predictable workflows compared to manual document checks. This makes the process more scalable across thousands of customers.
Video verification complies with KYC and AML regulations. By linking customer faces to ID proofs, video-based eKYC fulfills the legal requirement of verifying identities.
Some regulations also permit companies to retain just video recordings as audit trails instead of physical documents. Video KYC data can easily integrate with downstream compliance systems as well.
8. Usability across channels
Customers can complete video verification from websites, mobile apps, call centers, branches, and agent networks. This omnichannel experience provides flexibility and ensures a consistent onboarding procedure across touchpoints.
Multiple cameras on phones, tablets, or computers enable eKYC solutions across any channel. APIs connect these eKYC workflows with core banking systems.
The Cons of Video eKYC
1. Technological barriers
Although video eKYC is gaining adoption, some customers may lack compatible devices and internet connections. Verification on lower-end smartphones with choppy network coverage poses challenges.
Companies may need to invest in alternate channels or assist eKYC to serve such clients. This requires higher setup costs, complex integrations, and operating expenses.
2. Operational risks
Video eKYC relies on technology platforms, integrations, and internet connectivity. Technical glitches or downtime can interrupt verification and onboarding.
unless mitigated through adequate backups, redundancies, and disaster recovery systems. Failing to plan for such scenarios leads to poor customer experiences.
3. Impersonation risks
Sophisticated fraudsters can attempt to bypass liveness systems using photos/videos of legitimate customers. AI checks reduce this risk but may still be vulnerable to identifying deep fakes.
Combining video eKYC with other verification methods reduces the chances of impersonation. But, additional layers diminish the convenience and speediness of onboarding.
4. Poor customer awareness
First-time video KYC users may not understand the process and requirements. Lack of guidance on documents, lighting, backgrounds, and liveness tests can frustrate customers.
This may require upfront customer education across channels to ensure smooth adoption. Creative communication is vital to convey the ease and benefits of video eKYC.
5. Lower human oversight
While AI and automation enable video eKYC to scale, they reduce direct human supervision. There are fewer opportunities to visually inspect documents or behavioral cues compared to in-person verification.
Mitigating this requires stringent technology testing, simulation, and validation to catch edge cases. Compliance teams must continuously monitor verification results as well.
6. Data privacy concerns
Customers may hesitate to share personal data like government IDs and biometrics via video eKYC. Laws like GDPR also necessitate explicit consent and purpose limitation for collecting such data.
Addressing privacy concerns entails minimizing data collection, encryption, access controls, transparency, and opt-out options. This builds customer trust while ensuring legal compliance.
7. Regulatory uncertainty
Each country has specific KYC norms that keep evolving. For instance, India permitted video KYC only recently under certain conditions. Such fluid regulations create uncertainty over viable solutions.
This requires keeping track of the latest rules across target markets. Platform agility is also needed to quickly adapt verification workflows to regulatory changes.
8. Vendor dependence
Unless developed in-house, video eKYC requires dependence on third-party technology vendors. If the vendor fails to keep its platform updated or goes out of business, eKYC programs will suffer.
Maintaining internal eKYC capabilities as a backup and multi-vendor strategies mitigate risks of over-dependence. However, this diverts resources from core competencies.
Key Considerations for Video eKYC Success
User experience: Make onboarding seamless for clients across channels through UX design, clear instructions, assisted services, and customer education.
Fraud prevention: Layer video eKYC with liveness detection, biometrics, multi-factor authentication, behavioral analysis, and back-end AI checks to identify potential fraud.
Compliance: Engage legal and compliance teams from the start to ensure video eKYC and data practices adhere to KYC norms and privacy laws.
Auditability: Retain eKYC audit trails as permitted by regulations. Review sample verification data periodically to identify anomalies or errors.
Scalability: Right-size technology infrastructure and platforms to seamlessly scale up verifications during growth phases or seasonal spikes.
Business continuity: Build redundancies into the eKYC system and have backup verification channels in case of outages. Conduct disaster recovery testing periodically.
Data security: Follow best practices for encrypting personal data, access controls, network security, and physical data protection.
Testing and simulation: Validate video eKYC workflows extensively through bench-marking, scenario testing, and simulation before rolling them out to customers.
Vendor evaluation: Assess eKYC technology vendors based on platform capabilities, reliability, security, regulatory compliance, and service levels.
Customer feedback: Continuously gather first-hand customer feedback across onboarding stages to identify process improvements.
Video eKYC brings significant advantages like convenience, cost savings, and security to customer onboarding. However, businesses need to be mindful of limitations around technology, impersonation, and regulations when adopting video KYC.
Following best practices around UX, compliance, fraud prevention, business continuity, and vendor management is vital for gaining the full benefits of video eKYC while mitigating the risks.