2021 saw a wave of new KYC- and AML-related regulations sweeping across the globe in response to the pandemic-driven digital transformation of services. With its mounting compliance pressures, 2022 will test identity providers’ ability to develop more sophisticated approaches. Already, monolithic architecture is losing popularity to the more advanced microservice architecture. However, modern institutions — financial and otherwise — are seeking an even more competitive approach. Enter composable architecture.
The growing popularity of the composable approach — driven by rapidly shifting regulations, specific market legislations, and businesses’ specific requirements — is dramatically altering the way KYC workflows are composed, with exciting implications both within and beyond the fintech space.
What is KYC and why is it so important?
Know Your Customer (KYC) refers to the set of procedures and standards that banks and financial institutions follow to prevent fraud, corruption, money laundering, terrorist financing, and other financial crimes. A KYC check is a standard due diligence process used to verify a customer’s identity before or while doing business with banks and other financial institutions.
KYC is important, firstly, because it is mandatory by law. Financial institutions are required to verify the legitimacy of a customer’s identity and identify their risk factors. In recent years, non-compliance with KYC regulations have led to record-breaking penalties in the finance sector.
Beyond legal and financial factors, KYC also has implications on an institution’s brand image. On the one hand, if a financial institution has robust and compliant KYC checks, the institution signals that it cares about protecting its customers and is trustworthy. On the other hand, if the financial institution has lax KYC requirements, then a bad actor can sign up as a customer and engage in illicit activities like money laundering or identity theft. Association with such activity means that the business may suffer significant reputational damage.
What is KYx?
KYx is an umbrella term used to refer to the process of verifying the identity and risk factors of individuals and businesses more generally, not limited to just that of a customer. This includes verifying an employee before hire, or a company or supplier before engaging in a business relationship. Here are some common examples:
KYC stands for Know Your Customer (or Know Your Client)
KYE stands for Know Your Employee
KYB stands for Know Your Business
KYA stands for Know Your Agent
What is a Composable KYx?
A Composable KYx is a KYx workflow that can be composed on demand and disassembled into bite-size technology components. These technology components, which can be thought of as building blocks or puzzle pieces, can be added or removed as required by a particular business. When you can do this seamlessly across different businesses then you have a composable KYC platform. A composable approach combines tried-and-tested workflows of technology components by use case, rather than relying on standard features and functionality in a one-size-fits-all offering.
In the diagram below, we have illustrated some of our most common KYx workflows: identity capture, ID capture, ID verification, identity proofing, and identity authentication. Each of these are an aggregator of IDmission’s identity services, with two exceptions. Background checks and screenings (illustrated by the pink puzzle pieces) list our third party options, while our delivery mechanisms (illustrated by the blue puzzle pieces) list our usability options.
Companies, even those outside the financial services industry, are attracted to the Composable KYx approach, because companies have the power to compose the desired customer experience by using the relevant technology components and ignoring the others, while ensuring regulatory compliance.
Over the upcoming weeks, as part of our Composable KYx Series, we will be taking a closer look at each of the key technology components, as well as featuring the new and exciting use cases of Composable KYx – ranging from eSports to alcohol dispensing – with real life examples from IDmission and our partners.
IDmission, a global leader in biometric and AI technology, reduces risk associated with false identities. We are the sole provider of a proprietary, end-to-end biometric solution for identity theft, through a comprehensive KYC platform and automatic ID document analysis across 200 countries and four categories of biometrics: face, fingerprint, iris, and voice. For more information, contact firstname.lastname@example.org.