In the modern financial industry, criminals are using more sophisticated measures to commit fraud and money laundering. This, in turn, puts greater pressure on financial institutions to create effective AML frameworks and utilise smart technology that mitigates risk and protects customers. NFC is a well-recognised technology most commonly associated with contactless payments, but using NFC verification in AML can greatly benefit processes.
In this blog, we’ll explore what NFC is and how NFC checks are used to help customer identification and verification procedures.
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NFC stands for Near Field Communication and is a form of technology that allows wireless communication between devices within a short range of each other. When two devices are placed next to each other (around a few cm or touching), data is transferred between the devices using radio frequencies. NFC technology is common in smartphones, smart cards, ID cards and devices like touch badges and passes.
It’s also present in many passports and ID cards and is designed to allow swift, secure communication. The extremely close proximity needed to transfer data helps to increase security and reduces the chance of data interception, which is more common with things like Wifi or Bluetooth connections.
NFC systems have three different modes that allow alternate types of communication.
Reader/Writer - Devices that read data from NFC tags. This includes using smart phones scanning documents, IDs or smart cards.
Peer to Peer - Two devices that exchange data directly, like sharing contacts and images to a new phone.
Card emulation mode - This is used for smartphones that have contactless cards installed, allowing users to pay via digital wallets when tapped on traditional card readers.
These various NFC systems are used throughout everyday life, but they play a different role when it comes to AML.
Part of AML checks is to complete customer verification checks, and NFC can play an important part in accessing accurate data securely. NFC can benefit AML processes in a number of ways, including:
One of the hardest parts of AML verification is identifying the authenticity of customers during KYC checks. Documents that have NFC enabled, like electronic passports, ID cards and personal information that’s encrypted and safely stored.
With NFC, you can instantly read data directly from the chip, verify document authenticity and also compare images on identity documents with live customer images.
Using NFC helps to identify the authenticity of documents more easily and quickly, and can also reduce the risk of identity theft and prevent fraud. The data encrypted in ePassports and IDs is approved by the government and official bodies, meaning that there is a higher level of trust.
Fraudsters and criminals are becoming more sophisticated in order to commit their crimes and often attempt to use stolen or forged identities. With NFC technology in place, it makes it easier to identify false documents.
NFC documents have authenticated chips which help to confirm whether a document is genuine, cloned or has been tampered with. NFC is difficult to alter without breaking encryption, which offers an extra layer of protection against financial criminals and also gives authorities an indication of when documents have been tampered with.
Manual onboarding and Customer Due Diligence checks can be a lengthy process and also increase the chance of errors. NFC can help make the process more onboarding process more efficient. Customer data can be easily read from chips with no need for manual data entry. Information can be verified in seconds and manual errors are significantly reduced.
In industries where speed and accuracy are essential, like banking and fintech, NFC tech is essential to ensuring effective operations and retaining trust.
AML regulations are set for all financial institutions, and all businesses must prove they have effective AML and KYC processes. Using NFC verification in AML systems helps your company stay compliant with risk-based approaches and modern technology.
Enabling NFC ensures compliance with CDD and KYC rules and also aligns with FATF guidance regarding digital transactions and identity.
Using NFC verification leaves a trail of evidence that can be used during inspections to prove regulatory compliance.
The biggest risk with manual document reviews is the potential for human error, which can compromise your AML defences. Things like incorrect data and missed red flags can allow criminals to slip through the system, but NFC removes this risk. With machine-readable data on ID documents like passports, all customer information is standardised and processed instantly.
With greater data accuracy comes enhanced security, with better ongoing monitoring accuracy, reduced false positives and missed redflags as well as consistent record keeping, which is essential for audits and compliance reviews.
In recent years, the onboarding process has become more remote, leading to a need for greater technology that verifies identities without a customer being present. NFC allows for accurate, fast identity verification. When used in conjunction with liveness technology like SmartDoc, customers can scan their ID documents at home, removing the need for in-person visits. This greatly speeds up the onboarding process and helps increase operational efficiency.
Despite the initial cost of setting up NFC technology, the savings it offers in the long run are a huge benefit for any business that needs AML services. The automation involved in using NFC helps to reduce labour costs of hiring manual onboarding staff. This software also reduces the chance of financial penalties from failed compliance or additional costs of rectifying errors and digging for customer data.
NFC isn’t just a smart technology; it’s a key part of enhancing AML procedures. By using NFC verification in AML, your processes will be more secure and strengthened, leading to a reduced risk of fraud and financial crime.
In order to keep ahead of criminals, you need intelligent tools that offer real-time data and risk management. At Smart Search, our all-inclusive AML solution uses modern technology, including NFC and smart automation, to ensure streamlined and secure processes.
Discover more about our AML solution by contacting our experts, or request a free demo to see how we can enhance your processes.