Fraud and KYC: five keys to implement from now on in 2021

Fraud and KYC: five keys to implement from now on in 2021
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June 9, 2021

It is estimated that 60% of consumers around the world now have a higher expectation of their online experience than before the pandemic, while 55% still consider security to be a top priority. This has happened while online shopping and virtual transactions have been crucial to staying afloat in this new normalcy.

A key indicator of this technological-finance revolution is that, according to the Global Identity and Fraud Report 2021, from the Irish firm Experian, 60% of consumers worldwide now use a digital wallet, compared to the 53% who did so before the pandemic. Similarly, in the field of security, 82% of companies now implement a customer recognition strategy, 26% more than before the pandemic began.

This is because millions of homes around the world have been confined, and transactions through fintech platforms have experienced a boom since 2020 that has made life easier for consumers in an increasingly digitized market. On the other hand, this has also pushed this market into attacker’s radars and their increasingly sophisticated fraud modalities. 

In fact, identity-related frauds have taken the lead in this scenario of digitalization, as they grew 3.36% globally last year, with the financial sector being one of the most affected, as warned by the Global Identity Fraud Report 2020 by Shufti Pro.

In this scenario, it is important that companies adopt strategies that allow them to mitigate the risks of being victims of fraud, by exposing their users' sensitive data, and at the same time strengthen their Know Your Customer (KYC) strategies. 

Here are five keys that companies should apply this year to boost their performance in this area with the help of specialists such as Preventor, the U.S. consulting firm with global experience that offers a cloud-based solution against financial crime.

1. Planning and structuring, the key to a KYC policy 

The first step to implement a successful KYC policy is to understand the true needs of the organization in terms of the objective it wishes to achieve, going beyond simple compliance with strict legal requirements regarding the accreditation of users' identities. 

The objectives should be to reduce fraud rates in the service offered, or to constantly track existing risks in order to implement measures based on data analysis. 

This is why before making significant investments you should solve critical questions such as the profile of your customers or the rules to be complied with depending on the target market where most of them are concentrated. 

2.KYC is not static, it requires constant monitoring

"The implementation of KYC policies requires constant monitoring that transcends the initial validation of users, since along the way organizations face daily challenges such as reviewing unusual activity in financial transactions or periodically cross-checking customer information with external sources to ensure reliability," says Jaime Ramirez, CEO of Preventor.


This process, as explained by BBVA API Market, is far from being "static" and requires a set of tools to generate the "least friction in the experience" to customers.  

3.Advanced solutions for sophisticated attacks 

Once the KYC policy is customized for your organization, it is time to think about the technological solutions that will respond to these specific needs. At this point, companies should be aware that economizing on technological investments can be very expensive in the long run and that any extra layer of security will be decisive in the fight against fraud. 

The adaptation of automatized and cloud-based tools helps to identify fraud attempts in real time, as well as to build a multi-layered shield to prevent increasingly sophisticated attacks. These include synthetic identity fraud, in which the attacker combines real information with false data to simulate a new identity, or deepfakes, a technique based on artificial intelligence to falsify the image of a person by superimposing the face of another one in a video to evade recognition systems. 

4.Self-development or partnership?

Build your own software or hire a KYC provider? This is the main question that fintechs and any financial institution must resolve depending on the costs they want to assume, since developing an identity verification system requires expertise and adaptability to changes that may arise in relation to regulations, which are often very strict. 

This decision is critical, since the way in which KYC processes are managed can affect customer loyalty, labor costs and, ultimately, revenues and profit margins in the long term.  For this reason, Preventor suggests opting for a partner that offers solidity based on proven success stories, accuracy in fraud identification with advanced tools and, above all, global experience to comply with the different regulations in financial systems. 

5.An agile industry demands adaptability now

America was home to around 10.605 new financial technology companies in 2021, positioning itself as the region with the highest number worldwide, emphasizing the great competition that exists in a sector that is constantly renewing and innovating, especially in areas related to fraud prevention.

This forces financial services to offer increasingly agile, efficient, adaptable and accurate experiences. If these platforms offer user-friendly mobile and web experiences, or have the ability to integrate new APIs to add new functionalities, they can make a real difference.

There is no doubt that the world will change in many ways after the pandemic, and the profile of consumers of technology-based financial services will not be the exception, considering the accelerated process of adoption of digital solutions that the world has gone through. 

User requirements are in line with these transformations, as according to Experian 74% of consumers chose physical biometrics as their preferred security method, setting a trend that will certainly challenge fintechs to improve their KYC policies throughout 2021, a year that will witness the consolidation of tools such as facial and voice recognition in a world increasingly mediated by cell phones.

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