Why NBFCs Require A Holistic Approach To KYC Verification

KYC Verification: One size doesn’t fit all

Know Your Customer (KYC) procedures are a huge pain point for banks, NBFCs, insurers & several other businesses. These procedures are subject to rapid change, entail huge costs and precipitate huge losses for the businesses involved. 

The purpose of stringent and overarching KYC regulations is to deter money laundering & fraud, however not every case requires adherence to the same regulations. In the same vein, organizations implementing KYC verification solutions must account for a similar variance and tailor their solutions based on evaluated risk.

For example; A young and upcoming bank catering to smaller local businesses and younger individuals will have compliance requirements that differ from a global bank. These organizations will have a similar difference in requirements when it comes to KYC verification solutions.

In the same vein, NBFCs, which are less regulated compared to banks, have varying KYC verification requirements that align with their business models. NBFCs have more room to innovate and use technology to boost credit disbursement and reduce documentation, and the KYC identity verification solutions used must match these characteristics. 

The current trends point to online KYC identity verification as the perfect digital onboarding solution for NBFCs. Let’s examine why.


The Current State of NBFCs & KYC Verification 

The pandemic has not been kind to NBFCs. NBFCs possessed a total 16% share of credit disbursed in 2017, and even out-performed banks in new credit deployed. 

The picture is not as rosy in 2020. NBFCs have generally held the majority of the share in credit loans to retail and industry. However, retail loans have shrunk by 2.46% this year, and NBFCs have had to borrow ₹8.07 trillion from Indian bankers due to worsening asset quality. 

NBFCs need a way to turn things around and online KYC verification offers itself as a convenient option. 

What are the Problems with Current KYC Verification?

Traditional KYC verification is plagued by numerous problems. These include

  • Massive onboarding costs
  • Long turnaround times 
  • Errors due to manual verification
  • Frequently changing KYC regulations 
  • Loss of productivity due to paper-based documentation
  • Fines & losses due to non-compliance 
  • Fraudulent documentation & ID theft

All of these problems are due to a lack of automation and digitization in the KYC verification used by financial institutions (FIs). 

The costs and loss of productivity due to these KYC methods have an even more stark effect on NBFCs due to the lower amount of capital available to them. Additionally, the regulatory leeway afforded to NBFCs is crucial and must be harnessed to increase efficiency and reduce operational costs.

Online KYC Verification for NBFCs 

NBFCs must make use of cutting edge regulatory technology to expedite and automate the KYC verification process. Emerging technology such as AI-based KYC risk assessment and data validation, ML-enabled facial matching and fraud filters, and smart workflow-based KYC, allow NBFCs to reduce manual errors, turnaround time, and onboarding costs. Technology also ensures that FIs are safeguarded from cyber-fraud and customers from identity theft.  

Here are some of the benefits afforded after implementing a digital KYC verification process. 

  • Reduced costs & turnaround time: Digital KYC verification reduces the paper-work involved in the KYC verification process, and significantly reduces both the effort and time taken to verify a customer’s KYC information. These factors precipitate a massive reduction in onboarding costs for NBFCs.
  • Assured compliance: Compliance with regulations often amounts to a manual interpretation of regulations by officials, which equally often results in non-compliance and hefty compliance fines to go along with it. Digital KYC verification uses customizable workflow-based to concretize the interpretation of KYC and AML regulations and removes the possibility of non-compliance. Additionally, flexible KYC verification solutions allow NBFCs to quickly adapt their CDD procedures to changing regulations.  
  • Increased productivity: According to reports, by adopting digital ID verification processes, businesses can increase productivity by 20%. This is due to the reduced paperwork involved in digital documentation methods. 
  • Happier customers: According to the third consumer digital identity study, over 77% of customers prefer doing business with firms that use advanced verification processes. Additionally, available AI technology allows the implementation of smart and workflow-based verification procedures that allow customers to complete ID verification within 10 minutes. 
  • Reduced documentation & fraud: Online KYC verification removes paperwork from KYC completely, consequently reducing documentation costs and removing the possibility of manual errors. Digital KYC verification also allows NBFCs to use cutting edge ML techniques to deter fraud.

Role of Holistic KYC Identity Verification 

FIs are as different as their KYC requirements. It isn’t difficult to anticipate that FIs require a risk-based and holistic approach to KYC verification

Persons and entities evaluated to have lower risk can get by with a simplified Customer Due Diligence (CDD) process, but higher risk accounts are subject to a stricter set of CDD procedures. This state of affairs necessitates a flexible and holistic approach to KYC verification. 

NBFCs, in particular, due to their proclivity for innovation and speed, must make full use of their ability to quickly customize interest rates & other derivatives by adopting KYC verification solutions that are more risk-based and integrated into their method to identity authentication. 

This will allow comparatively de-regulated FIs such as NBFCs to capitalize on their core characteristics and consequently experience the aforementioned benefits. 

Award-winning KYC & Onboarding 

We, at SignDesk, create flexible and workflow-based KYC verification solutions that can be adapted to any CDD procedure, including video-based KYC identity verification procedures such as VCIP and VBIP

Our digital identity verification solution uses AI techniques for instant customer data validation and real-time document verification. OCR-based technology and ML-powered anti-fraud filters extract data from images and mitigate identity fraud. Our solutions are smart and workflow-based, allowing for easy customizations without third-party assistance. 

We serve 250+ clients, including 50+ major banks and NBFCs, many of whom have used our KYC verification and evidence creation services to reduce onboarding & operational costs by 90%, reduce turnaround time from months to 10 mins, and save 120 hours per customer. Our KYC verification solution has also been awarded the Global Banking and Finance Review’s Best Digital Onboarding Solution of 2020 in India. 

Are you curious about digitizing your documentation? Book a demo with us now!

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