Out with the old, in with the new: the effect of digitizing the KYC process

Smile’s API taps into employment data sources for KYC. Connecting online banks and lending applications directly to government institutions, HR systems, and gig economy platforms can make it convenient for borrowers to give access to their data and for loan operations specialists to fast-track loan application verification.

The financial world is undergoing a digital transformation. Banks and other financial institutions are increasingly adopting new technologies to streamline operations and provide customers with better services. One of the most significant changes in the digitization of Know Your Customer (KYC) processes.

Know-Your-Customer or KYC is one of the essential parts of a loan application. Banks and other financial institutions are exposed to credit risk and compliance issues without proper KYC.

But before there were online lending applications and platforms, loans were processed in bank branches face-to-face, using traditional KYC–collecting and verifying printed documents.

What is KYC?

Know-Your-Customer (KYC) is a vital part of loan application processes where the borrowers are asked for their personal information for identity verification. Loan companies are tasked with checking their background to see if they have been involved in legal and financial issues, like violating laws and regulations within the financial industry.

Background checks such as the one mentioned above show the value of KYC in a financial organization, like lending companies. It is a critical step to avoid credit risk and compliance issues. With the attempt at financial crimes globally, there are tighter regulations for BSFIs. Implementing appropriate KYC into loan applications ultimately protects financial companies from fraudulent exchanges.

The challenge with traditional KYC processes

In loan applications, borrowers must present printed copies of documents that loan operations specialists will verify and review. These documents will be the basis for banks and financial institutions on whether or not a borrower is qualified for a loan.

However, acquiring personal data from government offices and HR departments can take days or weeks, depending on the volume of requests. On top of this, there is other bank paperwork that borrowers must answer before finally applying for a loan, asking for their personal information and confirming that the documents they submit are valid and legitimate.

Depending on how many borrowers applied simultaneously, the process typically takes another few days or weeks to accomplish. Borrowers’ data are verified across the respective government offices and companies.

With that said, it is evident that the overall loan application process using traditional KYC is time-consuming for both borrowers and lenders.

Improve your KYC process with Smile API

Image without caption

With the digitalization of banks and other financial institutions comes the digitalization of loan applications. RegTech was introduced to the financial industry to address compliance and credit risk on online lending platforms, helping banks and other financial institutions with their digital KYC processes. It provides the data needed to ensure that the borrowers are not violating the Anti-Money Laundering Act.

RegTech, through APIs, makes it easier for the BSFIs’ risk and compliance department to go through applications and verify the legitimacy of those documents. As the online lending space grows, many different APIs are being developed, utilizing different kinds of data–more than the traditional KYC.

Image without caption

Smile’s API taps into employment data sources for KYC. Connecting online banks and lending applications directly to government institutions, HR systems, and gig economy platforms can make it convenient for borrowers to give access to their data and for loan operations specialists to fast-track loan application verification.

To learn more about how to integrate this API into your application, click here to book a call.