How to Automate KYC with OCR and AI?

Learn how automated KYC , powered by different AI technologies, allows businesses to provide frictionless onboarding experience.

 min. read
May 28, 2024
How to Automate KYC with OCR and AI?

As the world becomes increasingly digital, businesses are looking for ways to streamline their operations and reduce costs. One area that has seen a lot of advancement in recent years is customer identification and verification, or Know Your Customer (KYC). KYC is the process of verifying the identity of a customer or client, and it is a critical part of any business relationship. Traditionally, KYC has been a manual process involving collecting and verifying documents such as passports or ID cards.

However, this is time-consuming and can be expensive. KYC automation is a solution that uses technology to automate the KYC process. A data extraction tool is an essential component of any KYC automation solution. It helps to collect and organize the necessary data quickly and accurately. Here's everything you need to know about powering up your KYC automation with a data extraction tool.

In the business world, "know your customer" (KYC) refers to the process of verifying the identity of a customer or client. This verification can be done manually, through the use of physical documentation such as ID cards or passports. It can also be automated using digital data sources. KYC is typically used by financial institutions, such as banks and investment firms, to comply with financial regulations.

However, KYC can also be used by businesses in other industries as a way to build trust with their customers and improve security. Automated KYC systems can help businesses to quickly and easily verify the identities of their clients while also reducing the risk of fraud and identity theft.

Information Collection: The first stage of KYC automation can be done through a variety of means, such as scraping data from public sources or collecting customer data from internal databases. Once the required information has been collected, it is then fed into the KYC algorithm for processing.

Cross-Checking and Verification: In the second stage of KYC automation, the algorithm will carry out a series of checks to ensure that the data collected is accurate and up-to-date. This includes checking for discrepancies between different sources of data, as well as verifying customer identity documents such as proof of address, against government databases.

Monitoring: The final stage of KYC automation involves continuously tracking changes in customer data and flagging any unusual activity for further investigation. Financial institutions can reduce compliance risks and improve customer experience by automating the KYC process.

The traditional manual know-your-customer (KYC) process is error-prone, inefficient, and time-consuming. This is especially true for financial institutions that must onboard large numbers of new customers on a daily basis. Here are some challenges organizatons face.

Manual KYC Process Is Error-Prone

The process often involves collecting and verifying customer data from a variety of sources, which can be a cumbersome and repetitive task for employees. In addition, the manual KYC process is susceptible to errors, which can lead to compliance issues down the road. These errors also lead to slow processing of applications, which in turn may lead to disgruntled customers simply taking their business elsewhere.

KYC Process Can Be Quite Time-Consuming

Manual processes are often used to collect and verify customer data. This can involve reaching out to customers via phone or email, which can take a considerable amount of time. Also, the sheer volume of data that needs to be collected and verified can also add to the complexity and duration of the KYC process.

Manual KYC Is Costly

One of the main reasons for high costs is that they require a lot of manual labor. For example, someone needs to enter and verify customer data manually. Not only is this time-consuming, but it also opens up the possibility of human error. This can lead to regulatory fines, increasing the costs associated with manual processes. In addition, you also need to outsource information verification, which adds costs to the process. All of these factors contribute to the high cost of KYC.

Automate Identification Process With Data Extraction Tool

OCR has been widely adopted to extract texts from images; however, OCR alone can only convert images to machine-encoded texts that are searchable and editable. These texts aren’t organized or structured in a way that can be utilized by other software. By combining OCR with other technologies like machine learning (ML), natural language processing, image optimization, and more, Intelligent Document Processing (IDP) solution can extract data from different documents like ID cards, passports, etc., and return it in structured formats like JSON or CSV. To put it in a simpler way, clients only have to upload images of the IDs and IDP will then extract the relevant information and send it to the database for identity verification.

The created profile can then be used to automatically check against various databases and watchlists, further simplifying the KYC process. As a result, KYC automation is becoming an essential tool for financial institutions looking to streamline their compliance procedures.

Automate Identification Process With Data Extraction Tool

Data extraction tools powered by OCR and ML can automate the identification process, making validating an identity or address a lot easier. For example, a KYC automation tool can extract data from a driver's license or passport and validate it against a database. The KYC automation process often takes three steps with OCR And ML:

  1. The scanned document is sent to the OCR API to be converted into a text file.
  2. The ML model then reads and extracts the data from the text file.
  3. The extracted data is returned in a structured JSON format.

This process can save businesses a lot of time and money by automating the identification process. During the scanning process, two kinds of documents are commonly used:

1. Identity Documents

As part of the KYC process, businesses are required to verify the identities of their customers. This is typically done by requesting certain documents, such as driver's licenses, ID cards, or passports. With KYC automation and AI, you can automatically extract:

  • Full Names
  • MRZ number
  • Gender
  • Date of Birth
  • Nationality
  • Identity Number
  • Passport Number
  • Date of Issue
  • Date of Expiry

2. Proof of Residence

To complete the KYC process, businesses will need to review the customer's proof of residence and compare it to the information on their ID. By taking these measures, businesses can better protect themselves and their customers from fraud and other illegal activities. Organizations use a variety of documents as proof of residence, such as utility bills or bank statements. A valid proof of residence must have certain characteristics, such as:

  • The document must be recent, typically within the past three months
  • The name on the document must match the name on the ID being used
  • The document must show the current address; P.O. box addresses are not accepted
  • The document must be an original or certified copy, not a fax or scanned copy
  • The document must come from a recognized organization

Power up Cross-checking & Suitability Evaluation

After the data is extracted, it must then be compared to domestic or international databases. This process is essential to check for accuracy and to determine whether the client is suitable. RPA (Robotic Process Automation) can automate the cross-checking process and provide an evaluation of the client's suitability. This technology is increasingly being used in a variety of industries and has been shown to be highly effective.

Any business that deals with customer data needs to have a robust KYC (Know Your Customer) process in place. This is essential for both compliance and risk management reasons. Here are some of the top benefits of an automated KYC process.

Cost Reduction

By eliminating the need for manual data entry and verification, businesses can save a considerable amount of money. Additionally, there are no storage or processing costs associated with paper documents. Automated KYC solutions can also operate 24/7, which further reduces costs.

Increased Efficiency

Automated KYC programs can extract data and information and verify it in minutes, which means that customers can easily create digital identities and verify them without any downtime. Additionally, businesses can quickly assess new applications and identify any potential risks.

Better Customer Experience

Automated KYC solutions provide a much better customer experience than traditional manual processes. With manual processes, customers are often frustrated by long wait times and complex application procedures. With automated KYC, they can quickly and easily verify their identities without any hassle.

Improve Data Accuracy

OCR software that employs AI algorithms and ML capabilities can offer remarkable accuracy while extracting data. This better accuracy leads to minimal to no errors and rework, saving time and money in the process. By using these tools, OCR software can more effectively convert images of text into machine-readable text, making it an essential tool for businesses and individual users alike.

Maximize Employees' Value

By automating the KYC process, businesses can free up their workforce from manual processes and assign them to perform more challenging and engaging tasks that generate more value. Finally, by streamlining the KYC process, businesses can improve customer satisfaction by providing a smoother and more efficient experience.

There are many KYC automation tools available on the market, but all of them have to be powered by data extraction for maximum efficiency. By automating the data extraction process, you can speed up the KYC process and make it more efficient. Data extraction tools can help you quickly and easily extract the information you need from customer documents, such as ID cards, passports, and utility bills. This can help to improve your customer service and reduce costs.

With FormX, you can quickly and easily extract data from different documents with our pre-trained extractors, including IDs, passports, bank statements, and more. You can also build your own extractors without writing any codes. Simply upload samples images and label the fields that you want to extract.

Sign up for a free trial or contact us to see how you can expedite your KYC process with FormX.