4 minutes read
·
September 22, 2023

Why are companies looking for new ways to strengthen their KYC?

Fernando González Paulin
Fernando G. Paulin - CEO
Experto en la generación de valor a partir de datos con experiencia en el uso de inteligencia artificial en el sector financiero para resolver problemas complejos. Especializado en detección de fraude mediante el uso de datos.

With the rise of digitalization, is it truly safe to rely solely on the KYC process?

As digitalization continues to rise, more and more companies are seeking to streamline the account and/or service opening process for their customers.

To achieve this goal, companies need to get to know the customer who is applying for their services. This requires a process that allows for capturing the user's image, digitizing their document, and obtaining their information. This process is known as KYC (Know Your Customer). KYC is an essential process that financial institutions and other entities use to identify and verify the identity of their customers. This practice involves two essential steps: taking a photograph of the user's face (selfie) and a photograph of their official identification. Subsequently, these photographs are compared, and if the faces in the identification and selfie match, the user is validated.

What happens if the information contained in the identification does not match the applicant's face? In other words, if the information on the identification belongs to someone else but the face matches the selfie (identity theft), it is very likely that the KYC provider will accept this identity as valid. In addition to this reason, we will analyze others why relying solely on KYC protection may not be sufficient to stop fraud:

- It is very easy and inexpensive to buy a fake ID: These identifications can be convincing enough to pass basic KYC checks. Their sale starts at 10 Mexican pesos (~50c USD) and can be obtained on Facebook pages or in markets.

- Fraud cases are not always pursued: In many cases, identity fraud is not pursued with the required diligence, creating a favorable environment for fraudsters to operate and continue defrauding many companies.

- Companies lack collaboration to stop fraud: Without a joint approach and the sharing of information about potential frauds, companies work in isolation, which can facilitate the actions of fraudsters. If a fraudster attacked one company, they are likely to continue defrauding others with a fake ID. It is very important to collaborate to stop fraud.

- Documents are easy to forge: With technological advances, forging identity documents with high precision has become more accessible, making traditional KYC tasks more difficult and creating an easy environment for fraudsters.

- A central identity identification system is missing: While the INE (National Electoral Institute) has made its user identification system available to companies for a couple of years, adoption has been very low.

So, are your customers really who they say they are? Does the information on their identification really belong to that individual?

All of the above leads to identity fraud in Mexico being a business for fraudsters who work in an organized manner to continue attacking companies with capital at risk (insurers, fintech companies, lenders, etc.). If we combine how easy it is to obtain a fake identification with how easy it is to bypass KYC systems, then we can conclude that companies are at great risk when it comes to validating their customers. This is very concerning from many perspectives because it generates problems that affect us all:

1-. When an impostor impersonates an individual's identity and incurs a debt, the credit granting company and the victim of impersonation end up "paying the price.

2-. "Companies, to assume the risks of lending in Mexico, increase their interest rates.

3-. These rates generate debt for other acquirers of credit products (i.e., for the other customers of these companies).

4-. Higher rates mean more problems in repaying the debt.More problems in repaying debt mean a more fragile economy.

In conclusion, the KYC process has long been a central piece in efforts to protect the financial system and institutions from potential threats and fraud. Its relevance in the field of customer identity verification is undeniable. However, in today's dynamic and technologically advanced environment, relying solely on KYC is like putting a simple lock on a door while there are thieves equipped with sophisticated tools.

The growing ability of fraudsters, combined with easy access to tools and resources for committing fraud, highlights the need for a more robust defense. Institutions that limit themselves to KYC alone could quickly find themselves falling behind, vulnerable to increasingly sophisticated threats.

Therefore, it is essential for companies and financial institutions to adopt a holistic and collaborative approach in their fight against fraud. This approach should include advanced technologies, interinstitutional collaboration, and a mindset of continuous improvement. Solutions like those proposed by Trully, which combine collective intelligence, artificial intelligence, and big data, represent the next step in the evolution of financial security.

Interested in learning more about us? Interested in this article or have feedback? Write to us at: fernando@trully.ai

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