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Digitization has transformed the way people meet, greet, and transact. However, it has increased the risks of cyber threats and data privacy breaches. As per reports, India ranks third in terms of the number of data breaches globally. The number of user accounts impacted has quadrupled since 2020. This is primarily due to the accelerated digitization since the pandemic.

Financial Services Sector is most prone to Cybercrime

As per the Indian Computer Emergency Response Team (CERT-In), over 2.9 lakh cyber security incidents related to digital banking were reported in 2020. These include website hacking, network scanning and probing, viruses, and phishing attacks.

Fintech companies are on the radar of cybercriminals since they produce huge volumes of data. The rise in popularity of NBFCs and e-commerce has witnessed a significant spike in digital payments. The sector has sensitive customer data like Aadhaar, PAN, demographics, and transactional details stored on cloud servers, raising the associated risk impact of KYC leaks, cyber threats, frauds, and data privacy breaches. This valuable data can be used to commit frauds or sold for ransomware attacks.

There are also reports of fake loans disbursed in the customers names without their knowledge and consent by fintech apps. This negatively impacts their Cibil score as credit reports have listed loans as defaults they never availed for.

Many financial institutions are not cloud-native, and still struggle with building secure cloud infrastructure. The vulnerable sector needs a robust digital infrastructure and solutions to ensure data security and protect customers creditworthiness.

Data security through AI-enabled digital KYC

Back in the day, Know Your Customer (KYC) was a tedious process of signing and verifying documents that required multiple face-to-face meetings between customers and financial institutions agents/ employees. Fast forward to today, fintechs have created a revolution and introduced a new era of the digital KYC process and creating exceptional user experiences.

RBI approved the video KYC process in January 2020. The seamless online process authenticates the customer identity through smartphones, tablets, or laptops via a live video interface. In this process, a representative from the financial institution is online at the other end to undertake the first step of due diligence of customers before onboarding. The entire process has become cost and time-efficient for both parties. V-KYC agents are 15-20x more effective than an in-field agent in completing KYC processes, and building digitized and auditable records for future reference.

Though VKYC is inherently secured, it is essential to implement additional layers of security. RBIs guidelines have mandated financial institutions host the technological infrastructure in their in-house premises to adhere to the baseline cybersecurity framework. Also, industry experts suggest refraining from using third-party apps for recording the process.

RBI has revised the KYC norms and extended VKYC to small and medium enterprises (SMEs), and allowed limited KYC accounts to be converted to full KYC accounts through video KYC. This is a great initiative to scale up data security measures for large populations.

Regulatory authorities like the RBI, SEBI, IRDAI, and PFRDA have directed financial institutions to opt for plug-and-play video KYC solutions. The recommendation also suggests using AI-enabled digital KYC solutions to enhance integrity.

New-age video KYC

The platform-agnostic solutions are flexible enough to be integrated with the existing systems. The go-live for some of these solutions is as low as 2 weeks for a bank, which allows banks to innovate at rapid speed. They offer features like two-way video calling and one-way recording, concurrent auditing, location based geo-tagging for compliance, intelligent routing for managing agent productivity. The AI-enabled image processing softwares are used for facial recognition by comparing user images across various documents like photo id proofs, selfies, and studio photographs.

For additional security checks, each customer is validate through a liveliness check with customized live-action commands, records are confirmed against USs Office of Foreign Assets Control and other sanctions lists.

Way forward

Every single reported fraud sets the ecosystem back sometimes, in the form of archaic processes, or higher cost of service for other customers, and an overall let down of customers confidence. Digital lenders need to balance user experience and fraud checks to minimize losses and reputation risks by regularly examining their IT and risk management systems.

India is one of the first countries to introduce the video KYC option for the financial services sector; AI-enabled technology evolves each day to strengthen the security of fintech platforms, and creates opportunities for banks to go for improved experiences at reduced risk.

Views expressed above are the author's own.

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Read more:
How Video KYC has strengthened the security of fintech platforms - Times of India