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The Fundamentals of Verifying Know Your Customer Information

KYC, or know your customer, is an essential part of the customer onboarding process. Modern businesses need to make sure they’re complying with the latest KYC regulations. But what is KYC verification, exactly? How has it changed for the modern landscape? Is KYC the same in 2021 as it was in 2020?

These are all good questions to be asking, since it’s extremely important to stay on top of these regulations. Businesses need to make sure they’re doing everything they can to stay in line with KYC, not only for their own security but for the security of their customers as well. In this blog, we’ll provide you with a clear definition of know your customer, discuss which industries need it most and suggest the most advanced KYC software possible to keep your business on track.

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When a company gets to know their customer, they need to do the following things:

  • Establish and verify the customer’s identity through some form of authentication
  • Obtain CIP, or customer identification program, information. This information can include name, date of birth and address.
  • Establish due diligence and monitoring. In the financial sector, part of KYC is determining whether a customer is at risk of money laundering, terroism funding or a number of other illicit activities. If their risk profile is higher, then higher levels of monitoring are required.

Knowing your customer means ensuring that you’re dealing with a real person and knowing the inherent risks of dealing with that individual. The typical methods of KYC are slow, inefficient and frustrating for all parties involved. Modern companies need modern KYC solutions. If you need a KYC program in 2021, you need to make sure you’re doing everything you can to keep your systems relevant.

Security and Compliance

Many industries, both financial and non-financial, must adhere to KYC compliance at some level. But KYC doesn’t just end after you’ve verified that your customer is who they say they are. In order to maintain optimum security and follow compliance regulations, ongoing actions are often needed. Here’s how that works.

Low-Risk Customers: If you’ve finished the CIP process, authenticated a customer and determined they are low risk, then you can just continue to follow basic compliance. This means making sure you update their information as necessary and you keep track of their risk status. Once a customer is determined to be low risk, they’re ready for onboarding.

High-Risk Customers: High-risk customers will require an extra level of due diligence, and more information will need to be collected. These clients are people whose business or occupation puts them at higher risk for financial crimes. They’ll require a more comprehensive investigation of their identity, their transactions and more.

With the right tools and resources, it can be a lot easier to handle and keep track of these higher risk customers. You don’t want to leave these factors up to chance, so it’s essential to use a dynamic KYC solution that has you covered on all fronts.


Keep in mind that once you identify a customer as high risk, you need to continue to monitor them in order to adhere to KYC. This means you need to monitor them and also re-screen them in order to reassess their risk factor. Not only do you need to re-screen your high-risk customers, you also need to re-screen all of your low-risk customers regularly. They’re able to change their risk status as well, and if you miss their status changing, you risk being in violation of KYC compliance.

Re-screening all of your customers on an ongoing basis isn’t an easy feat. But with the right authentication solution, you can automatically re-screen your customers and never be in the dark about risks.

Identity Verification Processes

Now that we understand how KYC works, let’s talk about the different identity verification processes available for non-financial and financial services.

There is a wide variety of customer authentication processes out there, but these are some of the most common.

Knowledge Based Authentication (KBA): Knowledge based authentication is extremely common — but also very flawed. With knowledge based authentication, questions are pulled from public records or customer-provided data. The customer then answers these questions to prove their identity. This method is prone to data breaches and hacks, however.

Certificate Based Authentication (CBA): Certificate based authentication requires clients to send documents that prove their identity. Things like bank statements, driver’s licenses and passports can be used. This process can sometimes be slow and inconvenient for customers.

Biometric Based Authentication (BBA): This is authentication that uses your physical biology — and very rarely behavioral signifiers — to verify your identity. Things like facial scanners, voice identification, retina or iris scans and fingerprint scanners are commonplace for this type of authentication. You wouldn’t think so, but these biometric signatures can also be prone to data collection and hacks. Since the information is gathered in a database, it can still be leaked. And the last thing you want hackers to have is biometric data, since you can’t change it.

ID Based Authentication: ID based authentication involves providing your full name and phone number in order to verify your identity. This is a fast, user-friendly and secure way to authenticate, since it requires you to prove your identity in real time. Although ID based authentication seems very simple, it’s also one of the best ways to verify your customers, and it provides your customers with one of the most seamless experiences.

Although these aren’t the only ways to authenticate your customers, they’re definitely some of the best known and most widely used. Which authentication process your company uses is going to depend on what works best for your customer base, but in general it’s best to choose something that goes well with your customer onboarding process and provides you with all of the tools you need to be as efficient and secure as possible.

Applications for Authentication Solutions

Authentication solutions are necessary now more than ever. In order for businesses to keep up, they need authentication solutions that provide them with seamless, user-friendly and reliable authentication. If your industry requires KYC, you can’t afford to be doing things manually.

If you truly want to ensure you meet KYC compliance, ensure you provide a good experience for your customers and ensure you’re keeping their data safe, then you need a secure and reliable authentication solution. With the right authentication solution, you can take all of the pain and tediousness of the traditional way of doing things. This is better for both you and your customers.

These are some of the industries that can benefit most

Banking and Investment

The financial sector is the reason that KYC exists in the first place. In order to reduce their own risk, banks and investment firms needed a way to understand the risks of taking on certain customers. Banks and financial services can’t afford anything less than the most efficient, secure KYC solutions out there. These solutions allow you to provide your customers with frictionless service while also maintaining high levels of security.

With an authentication solution, banks and investment companies can get a comprehensive picture of their clients, assess their level of risk and monitor their activities based on this assessment. With user authentication software, all of these processes can be made simple, automated and secure.

Online Retail Sales

Ecommerce is another industry that can benefit from KYC solutions. With KYC compliance, you can avoid credit card fraud, payment fraud and more. It’s becoming increasingly important for online retail to have effective KYC so they can avoid pitfalls like this.

An authentication solution that is user friendly and efficient is essential. Online retailers depend on their customers making the decision to buy and not having many roadblocks to go through with the transaction. Don’t add obstacles for your customers by having difficult-to-use KYC that isn’t as effective as other approaches. When there are good solutions out there, there’s no reason to use methods that cause issues for your customers.

With automated and quick KYC, frustration and abandoned carts can be avoided.

Insurance Companies

There are a number of issues that could happen if insurance companies don’t have proper KYC regulations in place. Without a KYC solution, insurance companies risk insurance fraud, money laundering through claims, cases of stolen identity, fake accounts and applications and more.

Fraudulent accounts and claims can lead to your company having to deal with tons of compliance issues, paying fines and managine the fallout. With the right KYC solution, you can avoid this happening.

With a KYC solution, insurance companies can verify their customers, assess their risk and monitor activity much more easily. This ensures that they don’t spend money on fraudulent claims and that errors with compliance can be completely avoided.

Government Agencies

Government agencies are going to need to follow strict KYC regulations in order to keep their accounts safe, secure and verified. With the right KYC solution, you can ensure KYC compliance is met, no matter how strict the requirements. It will make it simple for you to get the account information verified without having to go through the typical, arduous process of manual verification.

Deploy Advanced KYC With Cognito

No matter what level of KYC you need, a customer verification platform like Cognito can help. Cognito includes advanced KYC tools, such as screening, re-screening, automated compliance, high-level security and much more.

Cognito is a modern solution for modern businesses. No matter how fast your business grows and no matter what your customer onboarding process looks like, Cognito can seamlessly integrate with and grow with your company. When you use Cognito, you’ll see how much more efficient, effective and secure your business processes can be.

Cognito eliminates the old legacy way of verifying customers. With Cognito’s advanced technology and platform, you can make KYC simple. Never have to deal with slow, manual KYC again. Ensure that your customers are authenticated and ensure their information is safe at the same time. Your customers will also have a much more seamless and pain-free experience.

In short, Cognito makes everything easier for both you and your customers. If you’re looking for a modern KYC solution, then Cognito can provide you with the tools you need.

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