Top 6 Benefits of KYC Verification to Combat Financial Fraud

Candice Spencer
Shufti Pro
Published in
4 min readMar 20


As the world becomes more digitised, scammers revise their methodologies to carry out malicious intents. These cybercriminal groups manipulate the systems of reputable organisations, including banking institutions, healthcare providers, and fintech firms, to get access to free services and financial rewards.

Fraud prevention measures comprise about 10% of the average spending in the online payments industry and FinTech. Because of this, regulatory agencies have passed legislation requiring to know your customer compliance to stop such occurrences. Thus, online KYC verification proves a great bet to safeguard businesses from identity and financial scams.

What are the 3 Components of Online KYC Verification?

The KYC solution consists of three primary components, all of which the banking industry must implement;

  • Customer Identification Program (CIP)

This feature makes it necessary for financial institutions, notably banks, to use rigorous methods to collect consumer data and discover the true identities of their clients.

  • Customer Due Diligence (CDD)

This process enables financial firms to obtain consumer information before enrolling them, protecting the companies from potential risks.

The financial institution collects the client’s official identification documents, like passports, ID cards, and driving licences to execute KYC banking. Additionally, it screens consumers extensively against sanctions, PEPs lists, and government databases of global financial crime.

  • Ongoing Monitoring

Banks must create risk management procedures to monitor consumer activity, particularly transactions. With this method, the sector can detect and eliminate possible threats to the systems in the future.

6 Advantages of an Effective Know-Your-Customer Process for Businesses

Know-your-customer (KYC) procedures are a great way to prevent fraud and bribery whilst protecting the company and its clientele. Understanding the process’s benefits can help businesses better recognise its purpose.

  • Fights Money Laundering

By asking customers to go through a KYC verification, businesses can block access to their services from anyone with bad intentions. Moreover, money launderers use loopholes in a security system to hide their activities and escape investigation.

Businesses with the potential to engage in money laundering should acknowledge their weaknesses and adopt a KYC compliance strategy. Moreover, criminals can benefit from the loopholes that may exist in the system of law firms. Thus, verifying customers’ identities is crucial in the fight against money laundering.

  • Prevents Fraud

The government can also benefit from a KYC procedure while searching for tax evaders. In tax evasion, criminals steal money that rightfully belongs to the state. Some wealthy individuals may occasionally use banks to hide their actual incomes. As a result, they evade taxes that governments demand from them. Moreover, the fraud detection and prevention (FDP) market is expected to grow from $19.5 billion in 2017 to over $63 billion by 2023.

By confirming and validating each customer’s identification, the KYC verification procedure helps mitigate fraudulent activity. Customers’ personal information is collected and stored in a database as part of essential documents and compliance checks.

  • Helps Lenders Manage Risks

The KYC verification process protects all businesses, including financial service providers. Firms must follow the know-your-customer regulations, especially when dealing with a vast amount of money.

If a business follows Know Your Customer guidelines, it might lessen the financial risks associated with doing business with customers. Some of the important aspects of know-your-consumer are:

  • Complete financial portfolio and background information
  • Income resources
  • Possibility for market participation
  • Offers Strong Protection for Customer Data

Businesses may ensure KYC compliance and safeguard sensitive client information by verifying customers’ identities. Moreover, companies that handle confidential information typically implement KYC verification procedures. Fraudsters can utilise patient data to steal healthcare insurance, avoid bills, get prescriptions, fake illnesses, or steal identities.

Medical fraud affects the U.S. economy by $68 billion annually, increasing waiting lists, stress, and suffering for patients and doctors.

  • Streamlines Processes

Risk assessment screening through KYC compliance must be done regularly to detect changes in user data, such as financial transactions. Moreover, monitoring unusual transactions, money laundering, client identity verification, and commercial relationship aim can help determine suspicious transactions.

Instant electronic identification enhances productivity, conversion rates, and income for financial institutions by decreasing the onboarding burden and fostering confidence.

  • Simplifies the Identification Process

Companies that practise robust monitoring and caution when dealing with customer data are best placed to prevent fraudulent transactions. Companies in the payment processing and healthcare provider industries must strengthen their Know-Your-Customer (KYC) processes. Moreover, third-party verifiers can be helpful tools in the fight against fraud in healthcare systems.

Final Thoughts

In conclusion, implementing KYC checks has become indispensable to fintech businesses. By adopting it, banks may protect their client’s personal information and financial transactions. In addition, modern technologies like AI and ML have also made KYC verification quicker and more accurate.

Tighter rules and increasing demand for enhanced security measures indicate a promising future for digital KYC verification. Thus, financial institutions must keep up with evolving technology and regulations to maintain a safe and effective KYC verification procedure for their clients.



Candice Spencer
Shufti Pro

Researcher, Fraud Preventer, Traveller, Reader, Writer, Thinker :)