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How KYC Helps To Prevent Online Fraud

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Businesses are adapting to the demands of 2.9 billion smartphone users displaying a ravenous appetite for digital services. Digital services are not without risk. With rapid business growth comes the responsibility of revamping KYC (Know Your Customer) protocols to prevent fraud, ensure regulatory compliance, and deliver client satisfaction.

Know your Customer/client or KYC is a guideline that mandates consumers to submit proofs of their identity, profession, and residence, among other parameters, enabling service providers, banks, and financial institutions to verify and authenticate users before authorizing user transactions.

Researchers and Tech experts in Passbase KYC verification solutions explain the elaborate verification procedure within the KYC architecture that protects financial institutions and consumers against fraud, corruption, money laundering, and terrorist financing.

The Basic KYC Protocols That Protect Consumers And Companies From Fraud

In onboarding retail and bank customers, the service provider sifts through the documentary proofs that the user submits. Here we give you the lowdown on how the KYC verification of documentary proofs and ID prevents fraud.

Stage 1: Verifying what only the customer knows

By verifying a password, A PIN, or a 4 to 6 digit OTP code, we ensure that only the right person is initiating the transaction.

Stage 2: Verifying what only the customer has

By verifying a Central or State government ID Card, Social security card, or driver’s license, we are confirming proofs that only the genuine client has.

Stage 3: Verifying what is unique to the customer

In the Biometric protocol, we map the facial features, fingerprints, or Iris scan that are features uniquely identifying a person.

All three stages of KYC verification reinforce each other to ensure that the service provider is onboarding the right client. Any subsequent transaction by this client carries the stamp of approval.

Even if a third party attempts to take advantage of ID theft or a stolen password, the other stages in the verification chain will deny access.

The intricacies of ID verification  

The regulatory level

The regulator, usually a Government entity, checks the documents supplied by the user, verifies the data, stores the information in a new database for future reference, and issues a permanent ID.

The transactional level

Consider that you want to open an account in a bank, avail a loan of a Non-bank financial institution, submit a claim to your insurers, or make an investment with a securities firm. You’ll be dealing with regulated entities bound by KYC protocols.

After verifying the user’s credentials, the firm registers a new account or matches user identity with a pre-existing database if it’s a regular account holder.

The system appears effortless but is vulnerable. Bad actors and criminal elements steal physical ID proofs and exploit weaknesses in the IT architecture and in instances where the verifier has not done due diligence.

Top Fraud Prevention Techniques Strengthening KYC Protocols

The increase in online frauds underlines the urgency of strengthening KYC verification. Institutions have not been idle. Governments, for example, have built layers of complexity in Government-issued IDs, in terms of layout, design, and markers, to prevent ID duplication by bad actors.

State-of-the-art cyber security requirements mandate robust and resilient techniques that detect and thwart ID theft, among other cyber-criminal acts.

Data Integrity Analytics

Every ID has data encoded in words and figures in a specific format within a Machine Readable Zone (MRZ). The MRZ data is cross-verifiable with information already present in the host database. For example, the MRZ in a passport would contain verifiable details regarding date of birth and passport number, among other data.

Visual ID authentication

A government ID would have specific design and layout frames. The service provider can scan the ID, detect its design template and compare with the database to locate any geometric inconsistency that could red flag a fraud.

Proof of ownership

A live camera recording or a selfie taken by the user and going through facial recognition techniques confirms that the person present is the same as the photo in the ID indicates.


By leveraging the power and punch of real-time AI and Machine Learning algorithms, Optical Character Recognition (OCR) data extraction technology, facial, Iris, and fingerprint matching technology, we empower the KYC verification process. We are creating a powerful fraud filter that detects and foils online crime.

A reputable and trustworthy digital identity system provider offers cutting-edge verification solutions that curtail onboarding expenses, reduce KYC drop-offs, and safeguard against cybercriminals.