KYC And Its Applications in the Governmental Sector

Innovation is the driving force of today’s digital world. With the progress of digitization, the risks of cybercrimes also rise. Therefore, innovative solutions are needed to ensure security is in place. Such a solution is Know Your Customer (KYC) verification.

What is KYC?

Know your Customer (KYC) is the process of performing an identity verification check on a person.

KYC verification is mainly used in the financial sector as a mandatory step for preventing fraudulent activities, money laundering and terrorist financing.

Although KYC has applications in other industries apart from the financial sector, it is still not as popular. For example, KYC can be used in verifying and onboarding customers in eCommerce, gambling, and airline industries, just to name a few.

Moreover, KYC can be used as Know Your Citizen in the governmental sector.

How does KYC work?

There are various providers of KYC software, however, they all work in a similar way. When the KYC check is activated, the individual on whom it is performed scans their identification document with their device’s camera. After the ID is fully scanned, the person has to confirm the accuracy of the scanned data and proceed with the next steps.

The second part of the KYC check is performed to confirm that the person who scans the identification document is its real owner. Here the individual is asked to take a video selfie on which they should either look directly in the camera or nod their heads.

The head movements are called liveness detection and are required in order to prevent fraudsters from using fake photos and videos.

Why is KYC important?

KYC helps with the prevention of illegal activities. While in the financial sector, this could be money laundering, terrorist financing and other illegal activities, in the governmental sector, KYC can help with the prevention of identity thefts and speed up the integration and inclusion of immigrants.

The main role that KYC plays is to ensure the correctness of people’s data and at the same time provide security for both the individual and the institution that performs the KYC check.

The global e-government trend

Governments all around the world are looking towards digitization of governmental services or creating a so-called e-government. This is becoming a global trend, as the world e-government development index reaches 0.6 out of 1, according to data provided by the UN e-government knowledgebase.

The e-government development index aims at providing an overview of the digitization of countries’ governmental services relative to one another. It comprises three main dimension of e-government – human capacity, provision of online services and telecommunication connectivity.

On the interactive map below, you can check each UN member state’s index by hovering with your mouse over the specific country.

Why do governments need to use KYC verification?

With the introduction of technologies, customers, or in this case citizens, have changed their needs and vision of how governmental services should be processed. People have widely seen the benefits of technologies and expect fast and secure service with respect to their privacy. Fortunately, KYC (Know Your Citizen) accomplishes exactly that.

KYC verification secures that the person behind the screen is exactly who they claim to be. In this way, providing accuracy of the information, preventing identity fraud, and saving both governmental employee’s and citizen’s time.

The main idea behind e-governments is that the focus shifts from the government towards the citizens. It is the basis of creating citizen-centric governments and goes hand-in-hand with KYC (Know Your Citizen) verification.

How can governments use KYC?

While e-governmental services save time, KYC provides security. Know Your Citizen verification can be applied in multiple governmental sectors but let’s have an example from the public administration.

Currently, to receive services, the citizen should go physically to the administration and deliver all the documentation that is required. At the counter, the person should also verify that they are the actual owner of the presented documentation by showing their IDs to the employee.

Most often, the citizen is even asked to leave a copy of their identification document at the counter. However, all of this can be avoided through digitization of services and KYC verification.

The areas that can benefit the most from the implementation of KYC verification include:

• Public administration – Implementing KYC verification in the public administration will improve customer service, speed up the processing of documentation, help with the faster inclusion of immigrants and provide a solution for stolen identities.

• Healthcare – The healthcare system can also benefit from the implementation of KYC checks. It will provide fast and easy access to the person’s health history.

• Border control – Identity verification is already happening at the borders. However, there is always space for improvements. KYC can help increase cross-border mobility including, both physical and financial.

• Tax refunds – Performing KYC checks by tax authorities is a must, as it will help with the prevention of tax frauds, money laundering and other illegal financial activities.

With the rise of e-governments and digital transformation come the risks of cybercrimes and fraudulent activities. KYC checks provide additional protection to avoid identity deceptions and secure the correctness of the provided data.

That’s why with the shift towards e-governments, Know Your Citizen verification is becoming an unavoidable part of the digital public sector establishing a secure and safe environment for both the citizens and the government.