Home BUSINESS E-Banking Insight: What Is Customer Due Diligence & How Does It Work?

E-Banking Insight: What Is Customer Due Diligence & How Does It Work?

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E-Banking Insight

Fintech – “Computer programs and other technology used to support or enable banking and financial services” – Oxford languages 

With the expansion of fintech companies, digital banking started using a filtering process to investigate prospective clients, this is where Customer Due Diligence stepped in. 

A recently updated list of digital banks reported 350 functioning banks at present. (The financial brand) 

The figure is only increasing. However, with this digitalization, banks have been facing cyber threats. Cases like identity theft and money laundering can damage these firms. KYC, AML, and CFT regulars have become massively crucial. So much so that,

S&P Global reports: 67% of corporate treasurers avoid working with banks that may lack KYC compliance.

Let’s explore how CDD is providing solutions to banks and the way it works. 

What is customer due diligence in KYC? 

What exactly is CDD?

Customer due diligence in kyc is a combination of verification processes that includes identifying a customer, authenticating the database, confirming the client profile as safe, and tracking their activities related to the business relationship. 

It plays an integral role in following the directives and demands of KYC and AML regulations. This allows enterprises to assess any risky profile while establishing customer identities. 

Types of customer due diligence 

Time to explore the types of CDD. There are mainly 3 types or levels of customer due diligence. The level of CDD is selected on the basis of the risk score of a profile. These are:

  1. Regular (CDD)

This is the standard operation for low to medium-risk profiles. This includes validation of data and verification checks. Activities are monitored in case it becomes high-risk in the future. 

  1. Simplified (SDD)

It is a simple verification of a low-risk and credible profile. In this, the basic identity information is authenticated. 

  1. Enhanced (EDD)

This is an in-depth investigation of high-risk profiles with several background checks, confirming related databases in detail and monitoring their past and present activity. This can include their spending, transactions, occupation, tax history, and location.

Why Customer Due Diligence for Banks Is Vital Today?

Here is a list of why customer due diligence for banks is saving Fintech from fraudsters at present! 

  • It helps with a safer remote onboarding process
  • Alert banks if a customer is involved in any suspicious activity related to money laundering or terrorism financing. 
  • With the increase in terrorist militant groups, a secure fintech system assists in combating terrorists. 
  • Can become a helping hand in catching identity thieves and criminals putting them behind bars. 
  • Avoid any heavy fines or penalties from the government in case of data loss or incompliance with legal mandates. 

Requirements Of Cdd bank For Accurate Verification

The damaging risk of money laundering and other illegal activities has resulted in the loss of millions of dollars. Banks are not an exception to this, on the contrary, they are the top targeted industry. As cybercriminals are evolving their techniques to breach data by misusing advanced tech, a sophisticated Cdd banking system is the need of the hour. 

The basic requirements that are essential to a KYC and AML-compliant operation are the following: 

1- Client Identification

  • It includes storing provided data of customers and establishing its profile for further analysis. It comprises Full Name, Date Of Birth, Present Address, Tax History, Property Ownership, License, Credit Card History, Bank Statement, and Income Slips. 

2- Document Verification

  • Then through AI automated software integration, the provided documents are verified as original. This step allows firms to categorize files as original or forged. This validation process against existing data helps determine the risk level of a customer in Cdd banks.  

3- Monitoring Activities 

  • Monitoring activities can range from tracking transactions to keeping an eye on customers’ locations. This assists banks to build a customer persona that consists of spending trends, behavior with income, and frequency of transactions. 

4- Relationship with business and purpose of establishing it.

  • Figuring out the true purpose of a client in establishing a business relationship with the bank. 

5- Compliance with KYC and AML regulations 

  • AML mandates openly emphasize a risk-based approach in a successful CDD. CDD Banking depends greatly on complying strictly to KYC and AML laws. In case of any loss of personal information, banks are fined with heavy penalties. 

Reports To Keep In Mind About  KYC Process In Banking 

  • Fintech services in the USA require $25.3 billion every year to manage AML compliance costs. (Lexis Nexis Solution)
  • In 2022, the total fintech firms of the Philipines accounted for 13% of the e-wallet sector (Statista) 
  • 90% of customers are expected to quit the bank onboarding process if it takes longer than 1 hour. (Signicat via Paypers) 

As it is evident, creating a seamless, accurate, and high-speed automated Kyc process in banking is needed for a better customer experience. 

Which CDD system is perfect for banks in 2023? Find out! 

Although the need for stricter regulations is a necessity against the looming threat of fraud, some Customer due diligence systems are lacking in being completely KYC/AML compliant. However, there is nothing to worry about as you can explore ‘Shufti Pro’ as one of the best options for digital banks. It is a fully automated, accurate, highly configurable, and global verification system with optimized Cdd systems for Fintech enterprises. With a 25% higher customer onboarding rate, online banks can cut their extra costs by trusting Shufti Pro to do it all

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