The Role of Technology in Knowing Your Customer (AML/KYC)

There is no denying that technology has changed nearly every facet of everyday life, including how we travel, the way we interact with one another, and how we conduct business. In the business world, one of the key components that technology has transformed is Know Your Customer (KYC), which is one part of a larger category called Customer Due Diligence.
KYC has roots in the financial industry and is intended to protect against financial scams. A KYC check refers to the compulsory process of identifying and verifying a client’s identity both in the initial transaction (e.g. opening an account) and periodically thereafter to ensure that the client is in fact who they say they are. KYC Compliance Check platforms enhance business security, build customer trust, and ensure compliance. Various forms of technology are working to streamline and optimize this process to better protect consumers. Let’s take a look at a few of them.
Artificial Intelligence
KYC screening tools that are powered through artificial intelligence (AI) are a faster and more effective substitute for manual KYC tools. In a test of AI’s capabilities in the KYC space, the application of AI accelerated the processing of KYC documents and reduced the amount of manual resources needed for the organization. Specifically, the company lowered its KYC document processing time from 18 minutes to less than one minute. Similarly, companies like IBM have been doing research into AI for years. The application of AI in KYC and anti-money laundering (AML) has been integral in helping such agencies fight financial crime.
Due to these impressive and promising results, software project management teams are working in close collaboration with KYC experts in an effort to make AI more prominent in KYC operations.
Blockchain Technology
A blockchain is a type of database that collects information together in groups (aka blocks) that hold sets of data. Blocks have limited storage capacities so, when they are filled, they are chained onto the previous block in a chronological order. This forms a data chain referred to as the “blockchain.” You may have heard the term used in the context of cryptocurrency; for example, blockchain is used by Bitcoin to ensure that no single person has power or control over the currency.
What role does blockchain technology play in KYC? According to Refinitiv, blockchain features “several inherent characteristics” that make it theoretically beneficial technology to leverage in KYC management. Some of these characteristics include improved privacy, immutability of records, a shared ledger (providing stronger access to accurate industry information) and higher levels of transparency.
Cloud-Based API Technology
Cloud-based application programming interface (API) technology has the unique capability to deliver specialized industry data and intelligence directly to compliance experts. This information is exceedingly valuable in helping these experts make informed and strategic decisions about risk in their KYC operations.
Clearly, technology is playing a massive role in the way companies handle KYC compliance. From artificial intelligence to blockchain technology to cloud-based API systems, the value that technologies contribute to the KYC sphere is beyond measure. With that being said, there is ultimately no substituting the nuance and perspective that a human being brings to these processes. That is why technology is better used as a complement to human judgment in the KYC realm, rather than an outright substitute.