Banks and Financial Institutions Beware: CKYC Flagged as High Risk by RBI
- The Reserve Bank of India (RBI) has sent shockwaves through the financial industry with a recent circular designating customers onboarded through Centralised KYC (CKYC) registry as high-risk entities.
- This move has left many banks wary, leading them to reconsider their reliance on CKYC and shift focus to Biometric KYC procedures.
- Amidst these concerns, the very foundation of CKYC’s proposed status as the ultimate solution to KYC-related challenges appears to be crumbling.
The Role of CKYC Registry
- CKYC registry, overseen by the government body CERSAI, emerged as a centralized repository of KYC data, facilitating seamless onboarding processes for financial institutions.
- Banks and FIs submitted their customers’ KYC information to the registry, streamlining validation procedures for new customer acquisition.
Uncovering Vulnerabilities: CKYC’s Achilles’ Heel
- The RBI’s concerns regarding CKYC raise critical questions about the reliability and security of this centralized system.
- If banks, the primary custodians of KYC data, no longer trust CKYC and resort to using it as a mere formality, how can data quality within the registry be ensured?
- Moreover, the financial impact is significant, as KYC remains a major cost item for FIs. CKYC was meant to minimize costs, but this recent directive undermines that advantage.
Liveness Detection & Face Match Technologies: The Guardians of CKYC Integrity
- In an era where identity fraud poses an ever-increasing threat, the integration of liveness detection and face match technologies becomes paramount.
- Liveness detection thwarts fraudulent attempts by verifying the physical presence of individuals during the KYC process, eliminating static images and deceptive tactics.
- Face match technology serves as an indispensable shield, comparing customers’ facial features with their ID documents or previous registered images to ensure accurate identity verification.
- By harnessing the power of these advanced technologies, banks and FIs can fortify the integrity and trustworthiness of the CKYC registry.
The Resurgence of AI enabled Biometric KYC checks: Ensuring Data Quality and Fraud Prevention
- As banks cautiously navigate the RBI’s concerns, AI-enabled Biometric KYC emerges as a popular alternative, incorporating liveness detection and face match technologies.
- Biometric KYC offers a twofold advantage:
- Ensuring data quality within CKYC by enriching information through real-time interactions with customers.
- Mitigating identity fraud risks through robust verification processes that leverage liveness detection and face match technologies.
- Industry insiders assert that CKYC presents numerous opportunities for identity fraud, a risk that can be addressed and rectified through the adoption of biometric checks such as fingerprint scanning and face trace into the KYC procedures.
Embracing the Future of CKYC/KRA: Strengthening Security and Trust
- The RBI’s designation of CKYC as high risk has underscored the imperative need to integrate liveness detection and face match technologies into the KYC landscape.
- By embracing these technologies, financial institutions can unlock the potential for foolproof CKYC/KRA processes, safeguarding data integrity and thwarting identity fraud.
- Biometrics in KYC emerges as a powerful tool, allowing banks to enhance data quality, comply with regulatory directives, and ensure a seamless and secure customer onboarding experience.
- It is crucial for banks and FIs to recognize the significance of adopting these advanced verification measures to restore confidence in the CKYC/KRA system.
- The shift towards biometrics KYC not only addresses the concerns raised by the RBI but also provides an opportunity for FIs to enhance customer experience and streamline onboarding procedures.
- With Liveness detection included in the KYC process, the industry can leverage the power of real-time interactions, ensuring a human touch in the digital realm and building trust with customers.
- Additionally, Face Match KYC enables FIs to capture and verify a broader range of customer data including IDs like aadhaar, PAN, Voter ID and even Passports, creating a comprehensive profile that enhances risk assessment and compliance.
- The integration of liveness detection and face match technologies in KYC eliminates the vulnerabilities associated with static documents and increases the accuracy and reliability of identity verification.
- By leveraging these cutting-edge technologies, banks and FIs can establish a robust KYC ecosystem that not only complies with regulatory requirements but also protects customer data and mitigates the risk of identity fraud.
- It is time for the industry to embrace the future of KYC onboarding and eKYC, where liveness detection and face match technologies play a central role in ensuring foolproof CKYC/KRA processes.
- The power to secure customer identities, protect data integrity, and enhance trust lies in the hands of forward-thinking institutions that seize the opportunities presented by these transformative technologies.
IDcentral’s Digital KYC verification solution
Using AI-enabled Face Match and Passive Liveness Detection Technology, IDcentral’s eKYC verification solution provides an additional layer of Identity Verification for online user onboarding. Along with increased accuracy, IDcentral’s KYX solution cuts down on onboarding friction associated with traditional KYC and ID verification techniques.
c-KYC, or Centralised Know Your Customer, simplifies the customer verification process for financial institutions. It allows them to fetch customer details from a centralized data repository, eliminating the need for repeated document submissions. This system gained popularity due to its utility and customer convenience.
However, the Reserve Bank of India (RBI) recently declared customers onboarded through c-KYC as high-risk. This means that financial institutions need to monitor these customers more closely until their identities are verified through face-to-face interaction or real-time customer identification process (V-CIP). The RBI’s aim is to ensure robust customer authentication and risk mitigation.
This change has implications for financial institutions. They are concerned about the increased cost associated with customer authentication. While c-KYC offered a cost-effective solution, the new directive requires more expensive methods like real-time KYC or physical KYC. Financial institutions incur higher expenditures as a result of the real-time KYC process, which ranges in price from Rs 15 to Rs 30 per customer. Additionally, high-risk clients require re-KYC every six months, which adds to the ongoing costs for lenders.
The calibre of the data in the c-KYC repository is another issue. Fraud detection is difficult since papers that have been scanned are frequently unreadable or illegible. The search API for the repository depends on easily reproducible data, including PAN numbers and birthdates, which fraudsters might use against you. These issues emphasise the necessity for strict controls to guarantee data accuracy and stop identity fraud.
While major banks are reevaluating their use of c-KYC as a result of the regulatory changes, fintechs and many NBFCs continue to employ it. Banks are increasingly relying on real-time KYC as a result of the RBI’s designation of c-KYCed customers as high-risk. It will be interesting to monitor how the system develops in order to solve problems with data quality and increase trust in the accuracy of client information.
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Sumanth Kumar is a Marketing Associate at IDcentral (A Subex Company). With hands-on experience with all of IDcentral’s KYC and Onboarding Technology, he loves to create indispensable digital content about the trends in User Onboarding across multiple industries.