Four models for digitally onboarding bank customers with varying roles for biometrics
An analysis piece in the trade publication Regulation Asia looks at all of the so-called “know your customer” policies in the world and comes up with four primary models for effectively enforcing digital identification strategies.
Each model’s goal is to goad financial institutions into making sure they know who they are doing business with when onboarding a customer. Biometrics in the form of face recognition, liveness detection, video meetings and other methods play prominent, though varying, roles in each model.
The thought piece was written by Claus Christensen, chief executive of Know Your Customer Ltd., a Hong Kong vendor of software for rapid identification verification.
Know your customer — the concept — is better known as KYC, and it has grown out of a long-term desire by some Western nations to eliminate money laundering. After 9/11, KYC also took aim at terrorism by trying to stop global money flows to terrorists, terrorism groups and state sponsors of terrorism.
From a practical view, KYC is why opening a bank account can be so cumbersome. To limit their exposure to risk, many financial institutions in Europe, Asia and North America require several proofs of identification.
Ever cautious with their own money, global, national and even local financial institutions have reluctantly examined ways to make onboarding easier. At this point in history, the only way left to grease any skids is through digital onboarding.
Christensen first points to what he calls the Hong Kong identity authentication/verification model created in 2011. It foregoes requirements for guidance on what can be accepted as proof of identity — with the understanding that officials can step in to change procedures when deemed necessary.
A year ago, the Hong Kong Monetary Authority issued vaguely worded advice on “remote on-boarding of individual customers.” It says the already flexible document standard had to be combined with relevant technology including facial recognition and liveness detection.
The German model is centered on video verification, according to Christensen. Rules to make onboarding efficient issued in 2014 were updated in 2017 to allow identification and verification using live, two-way video with bank compliance staff.
In 2018, the Monetary Authority of Singapore told financial institutions that they should go this route so long as real-time conferencing is “comparable to face-to-face communication.” It would seem that Singapore is taking Hong Kong’s flexible approach and adding video.
The Reserve Bank of India this year decided video KYC can be an option in response to the difficulty of the crowded nation’s banks profitably reaching even a fraction of India’s myriad, distant towns and villages.
In another example of a blended approach, Christensen points to India’s digital ID model.
That nation launched its 1.21 billion-user digital KYC project called Aadhaar in 2009, and the author sees it as a “global eID archetype.” Highly centralized, Aadhaar presents a single interface, so to speak, for ID holders and financial institutions. It also presents a thrilling target for online malcontents, given that one flaw can win hackers a massive biometric treasure, as was reported and denied to have happened in 2019.
Christensen described his final strategy, the UK model, as enhanced vs. simplified due diligence.
England’s Joint Money Laundering Steering Group has issued guidance stating that low-risk customers be required to provide only basic due diligence when opening an account. Organizations can gather a person’s name, birth date and home address, and verifying information against official sources.
Enhanced due diligence, presumably for people and organizations of greater means and/or more-opaque operations, go deeper in terms of documents. But in terms of marshalling biometrics, the group again leaves the specifics to financial institutions.
It is an interesting time to break this out. People, businesses and governments around the world are faced with quarantines and six-foot social space bubbles. These models likely will get a great deal of attention over the next few months.