Biometrics are now used everywhere, from opening a new bank account to opening an app to buy coffee. How and when are biometrics used in a know your customer (KYC) process though?
Biometrics are progressively and increasingly being used by banks and financial services providers as part of their automated know your customer (KYC) onboarding journeys.
KYC forms part of a regulatory compliance process that helps protect organizations from fraud, money laundering, and corruption. The way KYC compliance processes are executed can vary hugely from organization to organization. The execution of KYC can range from heavily manual tasks completed by compliance teams to fully automated digital onboarding journeys using new technology, including biometrics.
Whichever method an organization uses for customer onboarding, most processes will include several steps to assess and verify a customer’s identity; understand their financial activities; and gauge the level of risk they might pose, for example the risk of money laundering.
Biometrics can make digital onboarding more efficient for organizations around identity verification, which also enables their customers to access products faster.
This blog explores 5 things you might want to know about the use of biometrics in KYC compliance.
Biometrics refers to the measurement and analysis of behavior and physical characteristics of individuals. Can we make that even easier to understand? It is the unique things about the way people look, act, and move that mean it is unmistakably them.
Biometrics might include things like -
They are primarily used for identification purposes or access control to different platforms and technology like a phone for instance. You have probably used biometrics today to open your home screen or pay for something online or in a store.
Biometric information can be held in databases, but increasingly data is gathered locally and used at the point it's needed (like when you need to open your phone). There is lots of technical information about cryptographically hashing data, but we will let you do your own research on that. The main thing is biometrics are the bits about an individual that are unique to them, which can be used to verify or authenticate their identity.
Organizations use biometrics in KYC compliance when onboarding new customers, forming part of the series of checks to verify that customer's ID.
Use of biometrics is increasing because they offer both security and reliability, unlike physical documents which might be faked or harder to review in a digital process.
Biometric data is at risk of being stolen or lost, that's true, but it is also easy for new customers to share. This creates convenience during onboarding and can make the process go more smoothly for consumers.
Many platforms using biometrics to carry out ID checks as part of a digital KYC process will use what's called a "liveness check". The platform will ask the customer to record themselves, that will create matched data, and then the platform will ask them to smile or blink so the face can't be "faked".
As well as being used at onboarding, biometrics are commonly used for mobile banking, with customers having integrated features on their banking App to complete transactions, and we've already mentioned they can be used to authorize payments when making purchases.
Banks in some countries like Japan, China, and India are also using biometric ATMs to identify customers and authorize withdrawals. Japan has reportedly installed >80,000 biometric ATMs throughout the country, which typically use fingerprint recognition, face scanning, finger vein scanning, or iris scanning.
A little less futuristic perhaps, but many banks have introduced biometrics into their branches to help customers complete financial transactions.
The rise in use of biometrics is a particularly important development for financial services firms and their customers in terms of convenience in a digital economy. As more financial activity takes place online, so compliance processes need to follow suit.
With digital-first and digital-only banks increasing in popularity, biometrics can enable customers to onboard fully. The compliance process is arguably more efficient, and the customer can act independently without needing to produce physical documents or visit a branch.
As we move deeper into the digital economy, using biometrics to build a digital identity infrastructure could increase access to products more widely.
Using biometrics for KYC brings both benefits and risks.
On the benefits side, as well as improving efficiency, biometrics increase inclusion. Individuals without a conventional proof of identity, like a passport, can still access financial services using their biometric data. This, in turn, increases financial transparency.
Biometrics could also support the inclusion of customers with dementia or other memory-related conditions for example, because they don't need to remember pin codes or login details.
On the downside, there is the threat of data being stolen (and once it's gone, it is nearly impossible to get back). Biometrics can also be a barrier for some people who aren’t comfortable with sharing their biometric information.
Consumers can be put off by the thought of sharing their most personal data online. Some feel it encroaches on privacy. There are also certain diseases that can cause damage to the iris and fingers, making eye or fingerprint scans impossible, and all fingerprints fade as we get older anyway. Factors like this mean use of biometrics isn’t foolproof, but technology is continuing to adapt and become more sophisticated.
Organizations need to consider the solution chosen to perform biometric checks to ensure security, and it's worth thinking about biometrics as one part of a larger KYC journey, which includes other checks.
The banking sector is increasingly using biometrics, but other sectors are adopting biometrics too because of the convenience use can bring to consumers.
Many institutions have hit the accelerator on digital transformation of their customer onboarding journeys, and biometrics are part of that change. Fingerprints, eyes, and smiles can now all be part of a KYC process.
The Bank of England along with HM Treasury recently published a paper on the “digital pound”, and the UK government has also discussed plans for a common digital identity framework that would allow access to services, increasing inclusion as well as helping to tackle fraud and other financial crime.
Digital identity frameworks are in fact being established throughout the world as we transition further into the digital economy, meaning the use of biometrics could increase.
However, concerns about how personal data is used and its ownership, as well as individual privacy online, mean that skepticism remains, which includes consumers themselves being convinced on the topic.
Moody’s Analytics Know Your Customer (KYC) is transforming risk and compliance, creating a world where risk is understood so decisions can be made with confidence.
Harnessing our innovative technology and industry expertise, Moody’s Analytics automates accurate screening and swift onboarding of customers and third-parties. We continue our support throughout the customer lifecycle by enabling the perpetual monitoring of counterparty risk across global business networks in near real-time.
If you would like to talk to us about automating your KYC processes, including how to integrate biometric check during customer onboarding, please get in touch – we would love to hear from you.