CKYC: The Key to Streamlined KYC and Reduced Fraud Risk

The Reserve Bank of India (RBI) has recently introduced stringent KYC norms for cash payouts and pay-ins to bolster security and compliance within the financial ecosystem. These new regulations have far-reaching implications for banks, financial institutions, and customers alike. In this interview, Vishal Jain, CEO of Manipal Business Solutions (MBS), delves into the intricacies of the new KYC requirements, their impact on the industry, and how MBS's CKYC solution can help banks navigate these challenges.

Excerpts:

Could you elaborate on the specific details of the new KYC requirements for cash payouts and pay-ins? What are the key differences compared to the previous guidelines?

RBI has introduced new KYC requirements for cash payouts and pay-ins to enhance security and compliance. Payment aggregators(PAs) are required to conduct contact point verification (CPV) and verify bank accounts when settling funds for merchants. In the case of cash pay-ins for merchants, both banks and business correspondents are also required to verify one officially valid document (OVD) of the proprietor and the business for cash pay-in services. For cash payout services, remitting banks must obtain and maintain a record of the beneficiary's name and address.  Moreover, each transaction must undergo validation through an Additional Factor of Authentication (AFA), adding an extra security layer to prevent fraudulent activities. These regulations are more stringent than previous guidelines, with less detailed verification processes.

Previously, remitting banks only maintained the beneficiary account details, including the name, IFSC, and account number. Now, including the beneficiary's address will not add value unless it is validated by KYC documents. A significant difference from previous guidelines is the mandatory KYC for walk-in customers, which involves additional verification steps during bank cash transactions. However, the new guidelines that require obtaining the beneficiary's address from the issuer bank during the penny drop facility will make the process more authentic and impactful.

Additionally, the RBI has also stipulated that remitter details must be included in the IMPS/NEFT transaction messages, ensuring that all cash-based remittances are properly identified and conform to the provisions of the Income Tax Act. The enhanced verification framework is expected to support the growth of our flagship doorstep CPV solution-oriented business by ensuring thorough compliance and security.

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How will these stricter KYC norms impact the overall customer experience for money transfers? Will it lead to longer processing times or additional documentation requirements?

Stricter KYC norms may lead to longer processing times and additional documentation requirements. While some customers might experience delays in money transfers due to thorough verification processes, these measures are intended to enhance security and reduce fraud. It will standardize and elevate the customer experience across various touchpoints. Since the walk-in customers will have to follow the thorough verification of identification and address proof for each transaction, it might cause longer wait times at service counters. However, most banks are well-equipped with technology to ensure these processes are carried out efficiently.

Additionally, the new KYC norms will require customers to bring valid identification and address proof for each transaction, adding a layer of complexity to the process. This means customers must be more diligent in carrying the necessary documents, which can lead to delays if they are unprepared. While these changes may initially seem cumbersome, they enhance security and trust in the money transfer process. Ultimately, this will benefit customers by reducing the risk of fraud and ensuring a more secure transaction environment.

Could you elaborate on the specific challenges that banks and financial institutions are facing in complying with the new RBI guidelines on KYC? How do these new norms differ from the previous regulations?

Since the new regulations will come into effect from 1st November 2024, most banks have started implementing advanced processes to ensure a seamless customer experience. Banks and financial institutions might face challenges such as increased operational costs and the need for more robust verification systems. Since the new norms demand more detailed documentation and verification processes, it can be resource-intensive, especially for CPV-based KYC requirements. However, banks can address these by upgrading their technological systems to maintain a robust KYC infrastructure. Additionally, banks must invest in training programs to ensure employees and partners are well-equipped to handle the enhanced KYC processes.

Another critical challenge that banks can face is effective customer communication. They must ensure that their customers are well-informed about the new requirements and the need for additional documentation. This can be achieved by clear and consistent messaging across various communication channels. The new regulations aim to strengthen the security framework but require significant adjustments from banks and financial institutions.

How does MBS's CKYC solution address the specific requirements of the new RBI guidelines? Can you provide concrete examples of how the solution helps banks streamline KYC processes and reduce compliance risks?

Our CKYC solution is tailored to meet the new RBI guidelines by automating the KYC process, significantly reducing manual intervention. This automation ensures consistent compliance with the latest regulations, minimizing the risk of human error. For instance, the solution incorporates automatic document verification, which cross-references submitted documents in real time to ensure accuracy and speed up the verification process. Additionally, the solution includes a Contact Point Verification (CPV) feature, which automates the verification of customer contact details, further streamlining the onboarding process for banks and financial institutions.

With a fully automated system that includes built-in data management, intelligent data extraction, and API-based search and download of KYC records, our CKYC solution ensures that customer records are CKYCR compliant. These features not only help banks manage large volumes of KYC applications more efficiently but also reduce compliance risks by ensuring adherence to the RBI’s guidelines. This robust framework enables banks to maintain strong compliance while scaling their operations. As a result, the CKYC solution not only enhances security but also contributes to operational efficiency.

How does MBS leverage technology, such as AI and machine learning, to enhance the efficiency and accuracy of KYC verification? Can you share some specific use cases?

We leverage AI and ML technologies to enhance the efficiency and accuracy of KYC verification. For instance, our CKYC solution offers automated document verification that employs ML algorithms to swiftly and accurately validate identity documents, reducing manual errors and processing time. Also, our real-time fraud detection mechanism employs AI to continuously monitor transactions and identify anomalies that may indicate fraudulent activity. It provides immediate alerts for further investigation and reduces the instances of frauds. Moreover, the predictive analytics we offer through our solution further uses new-age technologies to analyze historical data for detecting patterns and predicting potential risks. This, in turn, enables our clients to take proactive measures to prevent fraud.

How do you see these new KYC measures impacting the overall fraud landscape in the banking and financial sector?

The new KYC measures are expected to reduce fraudulent transactions and improve detection significantly. While making it difficult for fraudsters to use fake identities, stricter verification methods will also increase the instances of detecting fraud activities. By mandating verified cell phone numbers, self-certified documents, and additional authentication factors, these measures ensure safer and more secure transactions at money transfer touchpoints. Bypassing the stringent KYC verification will further deter potential fraudsters. It will ensure that only verified merchants can conduct transactions.  Furthermore, including remitter details in transaction messages and compliance with the Income Tax Act is a well-thought-out step for boosting transparency and trust among all parties involved.

Can you quantify the reduction in fraudulent transactions since the implementation of MBS's CKYC solution?

Since implementing MBS's CKYC solution, we have observed a substantial decline in fraudulent transactions. While precise figures may vary depending on the metrics used, initial data suggests a reduction of approximately 30%. It is driven by our enhanced customer verification process and real-time monitoring capabilities of the CKYC solution, which has significantly improved our ability to detect and prevent fraudulent activities before they occur.