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In-Depth Guide to KYC Automation in 2024

Cem Dilmegani
Updated on Dec 29
3 min read

Interest in Know Your Customer (KYC) is rising, especially intelligent automation in financial services and banking. This is because organizations now realize the importance of customer due diligence before customer onboarding: annual money laundering is 2-5% of the world GDP. So businesses must ensure they do not become unknowing participants in criminal activities.

KYC automation can help. Manual KYC is costly, inefficient, error-prone, and time-consuming. But KYC automation tools – RPA, OCR, ML, facial recognition technology (FRT), and web scrapers – can help you run automated KYC verification processes.

In this article, we will explore the importance of Know Your Customer procedure, the difference between KYC and AML, automated KYC tools, and more.

Why is KYC important today? 

Developed and implemented in the US during the 1990s – and heightened post 9/11 – the KYC procedure is important (and obligatory) because it minimizes B2B and B2C relationships with those involved in money laundering, terrorist financing, and other criminal endeavors. 

What is the KYC checklist? 

The steps include1:

  1. Identifying:
    • The company’s real and legal existence 
    • Business address 
    • Financial documents such as source of funds
    • Directors’ names and information 
  2. Cross-checking gathered information against lists of sanctioned individuals and governments (such as the US Department of State’s Sponsors of Terrorism List

Difference between KYC and AML

Anti-money laundering practices:

  • Verify customer identity
  • Monitor their financial transactions
  • Investigate their source of wealth and funds
  • Flag the suspicious ones (i.e. are they doing business with sanctioned countries, people, or entities? Are they ambiguities over the source and destination of fund transfers? etc.)

Most of AML’s principles fall under the KYC’s, but are more finance-related. KYC’s guidelines are broader and more general (i.e. is the person opening this bank account a real person? do they live at their given address? etc.).

Figure 1: KYC vs. AML

KYC automation tools

You can carry out automated KYC verification checks in two ways:

  • Build your own tailored workflows with software robots with developers
  • Leverage plug&play Know Your Customer software solutions

1. Building your workflow

The benefit of building your workflow is you wouldn’t need to pay for features you don’t need. And if you’re in an industry where KYC checklist isn’t rigorous, you could leverage the following tools for doing your due diligence:

1.1. RPA 

RPA, or robotic process automation, in KYC procedure, is useful for copy-pasting data between applications, comparing answers against the knowledge base, and following rule-based parameters. For instance, whenever a new application is submitted, RPA can automatically create a digital file by inputting data on digital forms. 

In the application assessment phase, RPA can follow IFTT rules to approve/reject a candidate (e.g. “If [applicant is on sanctioned lists X, Y, and/or Z], reject the applicant.”)

1.2. Web scrapers

Web scrapers are bots that can gather information on a topic en masse. These bots are suitable for gathering all publicly available information on applicants, companies, and/or both. 

1.3. Facial recognition technology 

Facial recognition technology is used to authenticate the being of an applicant. Especially during COVID when banks were unable to admit customers in person, their banking applications could scan an applicant’s face and compare it with the picture on their ID card to authenticate them during the onboarding process. 

1.4. ML 

ML algorithms can learn from repeated interactions with the data to predict the likelihood of history repeating itself.

For instance, if the algorithm’s flagging of an abnormally high amount of transactions in a short time span led to account closure and enhanced due diligence, it can send a preemptive alert to personnel the next time that another scenario is likely to repeat itself. 

1.5. OCR 

Optical character recognition reads human language and converts it into a machine-readable format. Especially for written documents, both the bank personnel and the applicants can scan their paper-based documents for the software to automatically extract the info and place them onto digital fields for further use. 

2. Leveraging end-to-end solutions

Fintech solutions usually come packed with KYC verification functionality. The advantage of these solutions is that they integrate easier with the vendor’s other fintech capabilities. They might also provide industry or jurisdiction-specific verification features.

Biggest Know Your Customer software providers, and their offerings, include:

  • Trulio: Identity, ID, business, and proof of address verification, in addition to ID AML watchlist services.
  • Acuant: Sanctions screening, risk scoring, transaction monitoring, and identity document authentication
  • Ondato: Identity verification, adverse media screening, IP and email risk screening
  • Comply Advantage: Offer API integration across ERP applications, advanced search functions, and transaction monitoring
  • Fenergo: Offer client risk assessment, adjustable business rules engines, and ESG and AML compliance monitoring

For more on AML

If you believe your business would benefit from adopting an AML solution, we have a data-driven list of vendors prepared.

We will help you choose the best solution tailored to your needs:

Find the Right Vendors
Access Cem's 2 decades of B2B tech experience as a tech consultant, enterprise leader, startup entrepreneur & industry analyst. Leverage insights informing top Fortune 500 every month.
Cem Dilmegani
Principal Analyst
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Cem Dilmegani
Principal Analyst

Cem has been the principal analyst at AIMultiple since 2017. AIMultiple informs hundreds of thousands of businesses (as per similarWeb) including 60% of Fortune 500 every month.

Cem's work has been cited by leading global publications including Business Insider, Forbes, Washington Post, global firms like Deloitte, HPE, NGOs like World Economic Forum and supranational organizations like European Commission. You can see more reputable companies and media that referenced AIMultiple.

Throughout his career, Cem served as a tech consultant, tech buyer and tech entrepreneur. He advised businesses on their enterprise software, automation, cloud, AI / ML and other technology related decisions at McKinsey & Company and Altman Solon for more than a decade. He also published a McKinsey report on digitalization.

He led technology strategy and procurement of a telco while reporting to the CEO. He has also led commercial growth of deep tech company Hypatos that reached a 7 digit annual recurring revenue and a 9 digit valuation from 0 within 2 years. Cem's work in Hypatos was covered by leading technology publications like TechCrunch and Business Insider.

Cem regularly speaks at international technology conferences. He graduated from Bogazici University as a computer engineer and holds an MBA from Columbia Business School.

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