Verification of Documents – A Highly Essential KYC Procedure For Banks

The twenty-first century has seen abrupt technological digitization and global interconnectedness. Every sector has significantly undergone globalization because of digital technologies; however, it has also elevated the risk of related crimes. The threat of cybercrime hovers over every digitally-powered organization. The finance sector is the most vulnerable to cyber financial crimes, i.e., using cyberspace to commit illicit financial practices such as money laundering. Preventing such crimes and streamlining organizations with relevant financial regulations is critical. Therefore, financial institutions, especially banks, must adopt security solutions like verification of documents during their know-your-customer procedure. 

Understanding the Document Verification Process

The document verification process refers to authenticating a customer’s identity documents during the onboarding procedure. It is vital for banks and other financial institutions because they are more exposed to the risk of crimes. A bank verifies its customer identity by collecting various identity proofs issued by the government, such as national identity cards, passports, tax statements and bills. The customer must provide all proof of identity documents with their original photograph to prove their ownership. It also guarantees an authentic verification of documents process and is vital for a seamless KYC procedure. Document ownership is crucial in mitigating the risks of identity theft, document forgery, impersonation, phishing, and spoofing, along with heinous financial crimes like money laundering and terrorist financing.

Significance of Document Attestation 

According to Business Wire, identity fraud resulted in a hefty loss of USD 43 billion in 2020. The pandemic and post-pandemic era saw soaring identity fraud and financial cybercrimes. Thus, it emerged as a major threat to banks and other financial organizations. This case in point highlights the significance of the verification of documents procedure for financial institutions. If a bank has not yet modernized its verification of documents process, it is exposed to fraud, identity theft, and money laundering. Moreover, this will lead to the bank failing in anti-money laundering compliance and facing heavy fines and other penalties. Therefore, modern document attestation methods are the need of the hour for banks to enhance their KYC procedure and elevate their customer onboarding mechanism. 

Manual vs Digital/Online Document Validation

Banks must abandon the conventional manual verification of documents techniques and transition towards digital or online realms. A manual document validation process has the following cons:

  • It proves costly because it requires more capital and human resources.
  • This process is red tape, meaning it needlessly consumes time or depends on the bureaucracy. 
  • It is exposed to human error, which leads to inefficient customer onboarding and regulatory compliance failures. 
  • Lastly, and most significantly, it results in a decline in customers’ trust in the bank while elevating its credibility.  

Contrarily, online or digital verification of documents is a much more efficient process, and banks must adopt automated solutions if they have not already. Its advantages are listed below.

  • Firstly, online document validation enhances the customer onboarding process due to automated solutions and is time and cost-efficient.
  • Secondly, online verification of documents assures the security of banks through fraud deterrence. It mitigates the possibility of financial fraud, such as identity theft. 
  • Thirdly and most significantly, it ensures compliance with regulatory standards. Banks and other financial institutions are bound to achieve anti-money laundering and counter-terrorist financing compliance. 
  • Lastly, automated verification of documents eliminates the effort of being physically present and is performed remotely in a few seconds. Using state-of-the-art fintech solutions like intelligent character recognition and ensuring customer security, documents are instantly verified. Therefore, it elevates the customers’ trust in your bank and increases the organization’s credibility.

    You may also read: Digital technologies 

How Are Document Frauds Detected? 

SaaS companies offer various solutions to detect document frauds and forgery that banks must integrate into their verification documents procedure. Artificial intelligence and machine learning-backed software have become the need of the hour for financial organizations to combat the challenge of fraud and money laundering. The software uses the following ways:

  • AI scans documents to check all the data specifications, like official stamps, seals, owner’s photographs, etc., to verify their legitimacy. 
  • The AI-based software searches for document deviations, such as changes in font, holograms, edited document content, etc.
  • Artificial intelligence-powered software uses facial recognition to compare the person’s face with the photographs in its database to confirm the identity. 

There are two types of documents fraudsters use to commit illicit activities. 

  1. Firstly, fake documents are the type of documents that are entirely fake. They are not issued by the government but produced by the fraudster himself. They lack official holograms, authentic signatures and stamps.  
  2. Modified or counterfeit documents are the ones that are legal and authentic. They are issued by government authorities but are modified or forged instead. For example, a forger changes important details such as the birth date, address, signatures or owner’s photograph. 

To Deduce…

Verification of documents holds great significance for financial institutes, especially banks. Automated document authentication methods must be integrated into a bank’s KYC procedure and are the only solution to guaranteed AML/CFT compliance. 

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