Efficient Identity Verification: The Importance of Reusable KYC and Secure Digital Identity

KYC as a process is overdue for an overhaul. Some KYC processes are mired in procedural loops and redundant practices. KYC processes, like paper-based or digital processes involving mere data entry sans tangible data verification or security best practices, allow fraud to happen. The lack of a concrete and foolproof system for KYC has allowed fraud to happen from various fronts. Several cases have shown the unholy collusion between the user and agent to carry out fraud and gain services. Fraud is corrosive and causes extensive damage. Often, it isn't limited to corrupted user databases but also financial losses and regulatory penalties.

The damages and fines businesses face over fraudulent practices and regulatory penalties point towards redundancies in KYC procedures. With the increase in successful attempts by frauds to breach customer data and avail services, the evolution and reinforcement of the KYC process are much needed. While the KYC process is a minuscule part of more extensive business operations, its importance is massive and cannot be substituted. Yet lack of awareness or the absence of immediate percussion has left the KYC process in its current state.

Various factors influence KYC as a procedure to be effective. While strict regulatory protocols and customer due diligence help form a solid basis for an error-free KYC, the following factors call for an overhaul and a better approach toward effective KYC.

In this era of instant gratification, in terms of KYC, let's call it automatic gratification, customers see filling out forms as tiresome and exhausting. And in the case of paper forms, their storage and the ever-growing need for digitization of such records make them even more redundant. Even with the fact that in an attempt to save time, paper forms and even digital KYC forms tend to be filled partially and leave room for errors or missing information.

Change in customer approach towards KYC: While customers understand the need for a safe and accurate KYC, their focus remains on completing the primary task. 

The human involvement in the KYC process should be limited to assisting and rectifying errors amidst the process than a completely hands-on approach. This would help reinforce the KYC process by limiting human intervention to assistance and supervision. For instance, in aviation, though, a school of thought is that a pilot should have more control of the aircraft; instead, automation of several controls has helped pilots focus on other substantial things, whether passenger or military aircraft. Similarly, limited human involvement with more supervisory and assisting roles would help make the KYC process secure and error-free.

Digitization as a stand-alone factor in securing the KYC process is not the best effective way. A centralized and reusable identity would be the best way to secure KYC and make it impervious to fraud. Several issues that exist with repetitive KYC processes could be eliminated by making a central and encrypted reusable identity. CKYC is one such initiative by the government of India, but the process is paper-based; unless digitalized and digitized with Aadhar-like encryption and governed by federal law, CKYC is less effective than the concept it is based on. An instrument like CKYC, amalgamated with the digitized KYC process, effectively reduces fraudulent practices as a centralized repository allows to cull out fraudsters and blacklist them. In contrast, digitally secure processes would ensure an airtight, fraud-free, and swift KYC process. Under a federal body, privacy concerns are addressed effectively as the law of the land binds it. Handling individual data through digital KYC can ensure it is not more than an encrypted sequence of numbers. Thus KYC, when carried out digitally along with digitized CKYC, would be the perfect solution to all problems and issues associated with KYC.

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November 20, 2023