Video KYC vs Traditional KYC: What's the Difference?

We know that customer verification processes aka Know Your Customer (KYC) processes have become essential for businesses and their customers against fraud, money laundering, and other illegal activities, particularly in the financial sector.

These processes ensure that institutions can accurately identify and verify their customers, thereby mitigating risks associated with fraud and compliance violations.

As technology evolves, so do the methods of customer verification. with the advent of digital technologies like eKYC and Video KYC. This innovative method promises to streamline the verification process, offering both convenience and enhanced security.

In this article, we'll explore the key differences between Video KYC and traditional KYC customer verification, and highlight the advantages, and challenges of each KYC process and the implications for the future of financial services.

What is Traditional KYC (Physical KYC)?

Traditional KYC customer verification, often referred to as in-person or physical KYC, has been the standard method employed by financial institutions for decades. These established methods are used by businesses, particularly in the financial sector to collect personal information and documentation, such as government-issued identification (Aadhar card, PAN card, Passport), proof of address (Electricity bill or Voter ID), and sometimes even financial history (Passbook, Bank Statement) to confirm the identity of their clients before initiating services.

Historically, this method has been the pillar of KYC (Know Your Customer) protocols, which were designed to reduce fraud and ensure compliance with regulatory requirements. However, as digital interactions have surged, limitations such as time consumption, inconvenience, and higher operational costs have initiated the search for more efficient alternatives like eKYC and Video KYC.

The Regular KYC Procedure

Document Collection: Customers are required to provide various identification documents, such as government-issued IDs, proof of address, and sometimes additional supporting documents like utility bills or bank statements.
In-Person Visit: The customer must visit a branch or designated location to present these documents in person. This step allows bank representatives to physically examine the documents and verify their authenticity.
Face-to-Face Interview: A bank employee questions the customer to gather additional information and assess the risk profile.
Document Verification: The collected documents are scrutinized for authenticity, often involving manual checks and comparisons against databases.
Data Entry: Customer information is manually entered into the bank's systems, a process prone to human error.
Approval Process: The compiled information undergoes review by relevant departments for final approval.

Challenges and Limitations of the Traditional Approach

Time-Consuming: The entire process can take days or weeks to complete, leading to delays in account opening or service activation.
Resource-Intensive: It requires significant human resources like verification agents and physical infrastructure to manage in-person verifications.
Geographical Limitations: Customers must be physically present, which can be inconvenient for most customers or impossible for those in remote areas or different countries.
Paperwork Burden: The dependency on physical documents increases the risk of loss, damage, or misusage of sensitive information.
Inconsistent Experience: The quality of verification can differ depending on the skills and training of individual bank employees.

Despite these challenges, traditional customer verification has been the popular KYC process due to its perceived reliability and the comfort of face-to-face interactions. But as we'll explore in the following sections, the emergence of Video KYC is offering a more efficient and technologically advanced alternative.

What is Video KYC?

Video KYC (Know Your Customer) is a digital approach to verifying customer identities through live video interactions, allowing financial institutions to authenticate customers remotely without the need for physical presence. This process is also called Digital KYC because its innovative method combines digital technology with the security of face-to-face interactions, making it very important in the digital banking landscape.

The Video KYC process involves a customer starting a video call with a trained agent, during which they present their identification documents like Aadhar, PAN, or Passport for verification. Then, Advanced technologies such as facial recognition and liveness detection are used to ensure that the individual is physically present and their identity matches with provided documents.

Additionally, Optical Character Recognition (OCR) technology is used to extract and verify information from these documents in real-time. This innovative approach allows customers to complete their KYC requirements remotely, using video conferencing technology and advanced authentication methods.

The Importance of Video KYC

Video KYC represents a significant leap forward in customer verification processes, leveraging digital technology to create a more efficient, accessible, and secure experience.

Key features of Video KYC include:

Remote Verification: Customers can complete the KYC process from anywhere with an internet connection and a device with a camera.
Real-time Document Scanning: Advanced OCR (Optical Character Recognition) technology enables instant document verification.
Facial Recognition: AI-powered facial recognition tools enhance identity verification accuracy.
Geo-tagging and Timestamp: These features add an extra layer of security to the verification process.
Recorded Sessions: Video KYC sessions are recorded for audit and compliance purposes.

The regulatory framework supporting Video KYC has evolved rapidly, with many countries now recognizing its validity. For instance, the Reserve Bank of India (RBI) issued guidelines in January 2020 allowing banks and other regulated entities to use Video KYC for customer onboarding.

Comparison between Video KYC vs Traditional KYC

While traditional customer verification methods have been the standard for decades, the emergence of Video KYC has introduced a more efficient and convenient alternative. Let's compare the two approaches:

Feature	Traditional Verification	Video KYC
Process	Involves in-person visits to branches or offices, where customers must physically show their identification documents	Allows customers to complete the verification process remotely through live video calls
Document Submission	Submit physical copies of their documents.	Enables digital document submission in front of the camera during the video call
Time Efficiency	Time-consuming and prone to delays due to manual processes and human error	Streamlines process through automation, allowing for faster customer onboarding and reduced waiting times
Customer Experience	Inconvenient for customers, requiring them to visit branches and wait in line	Offers convenience and tech-savvy experience that aligns with digital banking trends.
Security and Fraud Prevention	Relies on human expertise to detect forgeries and impersonation attempts.	Utilizes AI and machine learning to reduce fraud detection, including deepfake prevention techniques.
Geographical Limitations	Limited by physical branch locations, challenging for remote or international customers.	Eliminates geographical barriers, allowing banks to reach a wider customer base
Cost	High operational costs due to physical infrastructure, staff, and paper-based processes.	Significantly lower costs, with reduced need for physical branches and streamlined digital processes.

Advantages of Video KYC

Video KYC offers several convincing advantages that improve both customer experience and operational efficiency for financial institutions.

Enhanced Customer Onboarding: Faster processes lead to improved customer satisfaction and reduced dropoff rates during account opening.
Reduced Operational Costs: Banks can significantly cut expenses of physical infrastructure and manual processing.
Improved Accuracy: AI-powered systems reduce human errors in data entry and document verification.
Scalability: Video KYC allows financial institutions to handle higher volumes of verifications without increases in resources.
Data Security: Digital processes often provide better encryption and security measures for sensitive customer information.

These advantages make Video KYC important option for both financial institutions and customers, driving its increasing adoption across the global financial sector.

Challenges in Video KYC

While Video KYC offers numerous advantages, it also presents some challenges that financial institutions must address, like:

Technology Infrastructure: Building an in-house Video KYC structure requires robust IT systems and capable of handling video streaming, data processing, and secure storage.
Data Privacy and Security: With increased digital interactions, ensuring the protection of sensitive customer data becomes paramount.
Regulatory Compliance: As a relatively new technology, Video KYC must navigate evolving regulatory landscapes across different jurisdictions.
Digital Divide: Not all customers may have access to the internet or necessary technology. Might be possible that they feel uncomfortable with digital processes.

Implementation of Video KYC

To successfully implement Video KYC, financial institutions should consider the following best practices:

Selecting the Right Solution: Choose the right Video KYC infrastructure that aligns with your specific needs, regulatory requirements, and customer base.
Staff Training: Ensure that employees are well-trained in using the new infrastructure and can go through the process very effectively.
System Integration: Seamlessly integrate with existing customer onboarding and workflow management systems.
User Experience Design: Create a user-friendly interface that caters to customers with varying levels of technical proficiency.
Continuous Monitoring and Improvement: Regularly assess the performance of your video KYC system and make necessary adjustments based on feedback and emerging technologies.

Future of KYC: Trends and Predictions

The KYC landscape continues to evolve rapidly. Some key trends to watch include:

AI and Machine Learning: Advanced algorithms will further enhance fraud detection and automate complex verification processes.
Biometric Advancements: Innovations in biometric technology, such as behavioral biometrics, will provide even more secure authentication methods.
Blockchain and Decentralized Identity: Blockchain technology could revolutionize KYC by creating secure, decentralized identity verification systems.
Regulatory Technology (RegTech): The growth of RegTech solutions will help financial institutions navigate complex and changing KYC regulations more efficiently.

As we look to the future, the key for financial institutions will be to balance innovation with security and regulatory compliance, ensuring that digital KYC processes remain robust, efficient, and user-friendly in an increasingly digital world.

While traditional methods have served well for decades, the digital age demands more efficient, secure, and customer-friendly solutions. Staying up-to-date on emerging trends, banks, and other financial institutions, providers can successfully leverage Video KYC to streamline their operations and meet the evolving needs of their customers.