Identity fraud costs businesses billions of dollars in losses. Businesses are upgrading their onboarding toolkits to include Video KYC (VKYC) strategies as a weapon to stop identity theft, money laundering, terrorist financing, and other financial crimes.
Video KYC is becoming more and more popular today because of its ability to prevent fraud, reduce onboarding costs, and speed up the authentication process. The market for VKYC is being driven by the escalating demand from businesses and their customers to simplify and secure the KYC process.
In this article, we help you understand everything you need to know about the world of VKYC.
- What is Video KYC
- Types of Video KYC
- Evolution of Video KYC
- RBI Directives for Video KYC
- Need for Video KYC
- How Video KYC work?
- Video KYC Process
- How do businesses benefit from Video KYC?
- How to choose the best Video KYC solution for your business?
What is Video KYC?
VKYC is a recent innovation in face-to-face biometric identification. It enables businesses to perform customer identification via video call with support from an authorized KYC agent.
The customer must upload the verification documents digitally for identification and join the video call. By recording an individual’s facial features, VKYC lets Financial Institutions (FIs) and businesses prevent fraud and identity theft more efficiently. This video-based verification is faster, cost-effective, and more secure than other forms of KYC. To know more about other types of KYC and why it is a mandatory process, click here.
Types of Video KYC
Every financial institution has its own VKYC version depending on the regulatory body. However, there are three major types of VKYCs (listed below).
- RBI notified VCIP (Video-based Customer Identification Procedure) for NBFCs and banks
- IRDAI notified VBIP (Video-based Identification Process) for insurers
- SEBI instituted VIPV (Video-In-Person Verification) for registered intermediaries
Evolution of VKYC
KYC first originated in ancient China, but it was first enacted in US as the FDIA (Federal Deposit Insurance Act) in the 1940s. After a global awakening over money laundering in the late 1980s, the Financial Action Task Force (FATF) was founded to set international rules and regulations to combat financial offenses.
India adopted its first KYC regulations and the Prevention of Money Laundering Act in 2002, and soon after that country joined the FATF. The initial KYC verification processes were wholly based on paper, including a mammoth list of compliance requirements, and were immensely expensive for businesses.
In 2012, following the launch of the online verification system for Aadhaar numbers by UIDAI, eKYC (Electronic KYC) was offered as a quicker and more affordable method of KYC verification. But businesses still faced several KYC challenges in balancing experience with security, risk profiling, and transparency. In 2018, the Supreme Court declared that private organizations, except banks, cannot use eKYC for verification due to widespread privacy concerns.
Finally, the Reserve Bank of India (RBI) unveiled its VCIP, which led to the development of Video KYC as a new, digital full-KYC method.
RBI Directives on Video KYC
The Reserve Bank of India announced changes to the KYC requirements in January 2020. This amendment enabled all banks, NBFCs, and fintech start-ups to complete the KYC procedure remotely utilizing video technology, with the following requirements.
- Approval of customers must be ensured before the V-CIP (Video Based Customer Identification Process).
- Live photos of customers must be geo-tagged to ensure that they are residing within India.
- Video KYC applications must be developed by regulated entities and they must be available at touch points of customers.
- Video process can be initiated from the lender domain and must be stored securely and safely by the lending entity.
- An application can be accessed only via time OTP, live OTP, or log-in password and ID.
- Documents needed to complete the verification can be captured on video.
- Only banks are allowed to deploy OTP-based Aadhaar e-KYC authentication or offline Aadhaar verification.
- Non-banking entities are allowed to use only offline Aadhaar verification.
- If a customer does not desire to use Aadhaar for verification, then other valid documents which offer the necessary details must be offered.
- Documents that are uploaded on the Digi-Locker government platform can be used.
Why Businesses Opt for VKYC?
Remember the days when customers visited a bank for KYC? Or when bank agents came to visit homes and offices to confirm verification. It was quite a tedious process.
They had to submit the necessary documents, get someone’s reference, go through the laborious process of filling out the lengthy forms of application, and had to submit the ID proof copies to get the work done. The typical KYC process was a drag with loads of time-consuming paperwork. As conventional KYC procedures worked on outdated technology, they were susceptible to security risks such as smishing, identity fraud, phishing, and fake verifications.
All the above-mentioned discrepancies cost businesses several billion in customer complaints, churn, and security attacks. So financial institutions and other businesses began opting for video KYC to reduce the volume of customer complaints, secure onboarding, and enhance customer experience.
Defense against Fraud
Security is one of the top issues for businesses. And VKYC solutions are quite effective at deferring identity fraud. Customer identification via video acts as a defense against several fraud attacks listed below.
Fraudsters employ false or stolen identities in this type of attack to deceive and outperform automated verification systems. VKYC integrates both humans and AI to identify spoof attacks in real-time, which includes Facial Liveness & Matching tech along with ID checks.
Scammers use a combination of legitimate and stolen information, including social security numbers (SSNs), to create appealing fake profiles, making this type of fraud difficult to detect. Using VKYC technology, this form of identity theft can be readily prevented.
Nowadays, fraudsters are stealthy enough to create fake videos that can surpass identity checks and get unauthorized access. Only a secure video KYC solution can solve this type of attack.
How Video KYC Works?
Video KYC uses a face-to-face video call as the interface for conducting identity verification. Without going to banks, the process can be completed from your comfort zone with a good connectivity smartphone.
Here are the simple steps involved in video KYC.
Step 1: User signs into the VKYC platform
Step 2: Then, the user provides KYC documents
Step 3: After providing the documents, the user joins the video call along with the agent from the requesting entity
Step 4: Then Q&A session is done between the agent and the user
Step 5: After that, document validations (for those uploaded in Step 1) along with facial checks are performed by the agent
Step 6: Finally, Video KYC process is completed
VKYC comprises two key processes.
- KYC Validation
- Liveness Check
KYC validation is a process that is mandated by regulators to help banks/Requesting Entities (REs) validate their client identities and assess any potential threats to FIs. KYC validation aids in the prevention of financial threats such as identity theft, money laundering, financial fraud, and the financing of terrorism. The validation can be performed using the following methods based on the organization and/or regulatory needs.
- Aadhaar OTP-based e-KYC
- Aadhaar XML Validation (offline KYC)
- PAN verification using NSDL API and/or PAN OCR extraction
- C-KYC validation
- Digi Locker services
Liveness check is a crucial layer of security to protect against spoofing attacks. Making use of a liveness detector ensures that the data is coming from a real person and not a bot.
We verify the liveness of our customers via 1) Video Calls and 2) Selfie-based Liveness Checks.
In a video call, we perform the liveness check of a customer both on the customer side and the agent side.
- Both the agent and customer join the video call
- Customer must answer the set of queries that are being shown on the screen
- All details of the customer are validated on a single screen
- Then, the liveness check is performed using passive liveness (explained below)
Selfie-based Liveness Check
Our selfie-based liveness check is performed in two ways.
- Active Liveness Check (Gesture-based Liveness Check)
- Passive Liveness Check (No gesture is required, and a simple selfie is enough)
Active Liveness Check
Active Liveness Check is performed in four steps.
- The first step is to ask a customer to invoke the camera
- Then the customer is requested to blink her/his eyes
- Further, the customer is requested to rotate right/left or both
- Lastly, the Active Liveness Check is completed using ML algorithms
Passive Liveness Check
Passive Liveness Check is performed in three steps.
- First is to ask a customer to invoke the camera
- Then, the customer is prompted to take a selfie with a clear light and background
- Finally, the Passive Liveness Check is completed using ML algorithms
How do businesses benefit from VKYC?
Financial businesses can save a lot of time and money by digitizing and integrating video into the KYC verification process during onboarding. It can enable end-to-end customer involvement for a streamlined onboarding process, improved experience, as well as quicker KYC completion at a lower cost.
VKYC eliminates the paperwork, streamlines the complete verification process, and delivers results in real-time. The pointers below show how VKYC benefits businesses.
- Reduces in-person verification
- Seamless onboarding experience
- Instant data capture and process with a smartphone
- Remote verification
- Improved customer commitment and satisfaction
- No hardware purchasing costs
- Cutting-edge technology use
- Shorter TATs
How to choose the best VKYC solution for your business?
VKYC solution is a crucial investment for businesses. Non-compliance have cost companies billions of dollars in fines from regulators.
While choosing a new-age VKYC you need to ensure that the solution is platform-agnostic and flexible enough to be linked with the existing KYC systems. Services including location-based geo-tagging for compliance, intelligent routing to manage agent productivity, and simultaneous auditing and video conferencing are imperative for process and cost efficiency. Each customer must be verified by a liveliness check with personalized live-action commands for extra security checks.
At M2P, we stand out with some of the best features for video KYC.
- On-premise and cloud model
- OCR extraction
- Solutions as per RBI compliance
- Customizable Q/A option
- AUA/KUA integration
- C-KYC integration
- PAN NSDL API integration
- Video call scheduling
- Verification of auditors
- Solution Compatible with mobile phone browser
We also offer Video KYC on microservices/APIs to customers if there is a separate team for developing front-end applications.
Want to know more about our VKYC solution? Write to us at firstname.lastname@example.org.