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How to know your citizens (KYC) and prevent fraud

Autumn 2023 Cover story – by Barley Laing, UK Managing Director at Melissa

Barley Laing

The public sector has long been considered a soft target by fraudsters. This is backed up by data from the Cabinet Office which highlights that fraud and error in public spending are estimated to cost taxpayers up to £51.8 billion every year, which is greater than the UK’s annual defence budget.

The Bounce Back Loan Scheme is a case in point. Of the £47 billion worth of Bounce Back Loans, £17 billion is already expected to be lost with £4.9 billion of that figure attributed to fraud.

In the future, cybercrime is set to increase as the cost of living crisis continues and more public sector services head online.

The answer to prevent fraud is to know your citizens (KYC), to make certain they are who they say they are, and are legitimately entitled to the services offered. The processes put in place to deliver KYC have the added benefit of helping to deliver a single citizen view (SCV). This will enable the personalisation of communications, improvement to the delivery of services and overall user experience, and greater operational efficiency – all vital during a period of high inflation and reduced budgets.

How to effectively deliver KYC

The best place to start is to access verified user contact data. This means have processes in place to cleanse and standardise user data held in batch, as well as the moment new data is collected.

The ideal approach to confirm proof of address is to undertake address validation. Matching a name to an address is vital to the data hygiene process. Doing so highlights inaccurate addresses, whether because of a typo or a malformed address, which can be easily corrected. Also, it flags instances in which someone has provided an address that they are not associated with, potentially for fraudulent purposes.

KYC match rates will be significantly improvedby first correcting input contact data. Also, undertaking data quality activity prior to running KYC checks is financially beneficial and more efficient.

Data decays rapidly

Contact data decays quickly for a number of reasons, for example people moving home, death and divorce, and is the main reason why user contact data lacking regular intervention degrades at 25 per cent a year. Also, 20 per cent of addresses entered online contain errors; these include spelling mistakes, wrong house numbers, and incorrect postcodes, which are primarily caused by people mistyping their details into small keyboards on their mobile devices. It’s a key reason why 91 per cent of organisations have common data quality problems. 

The good news is that incorrect contact data can be avoided by having verification processes in place at the point of data capture. This usually involves simple and cost-effective changes to the data quality process that also help to deliver KYC and a SCV.

Prevent errors with autocomplete

Authentication by facial recognition concept. Biometric. Security system.

One of the most valuable pieces of technology to deliver clean data, ID verification and KYC, is an address autocomplete or lookup service. It delivers accurate address data in real-time at the onboarding stage by providing a properly formatted, correct address when the user starts to input theirs. It also enables convenience by reducing the number of keystrokes required, by up to 81 per cent, when typing an address. This speeds up the onboarding process and reduces the probability of the user not completing an application to access a service.

First point of contact verification can be extended to email and phone, so that these important contact data channels can also be verified in real-time. This ensures those in the public sector communicate effectively with users, not just on the first occasion, but on an ongoing basis. 

Match and dedupe

With the average database containing 8-10 per cent duplicate records data deduplication is important. Duplication occurs for a variety of reasons, such as when two departments merge their data and mistakes in contact data collection occur at different touchpoints. Not only does duplication add cost in terms of time and money, particularly with printed communications, but it can adversely impact on the sender’s reputation.

Preventing such waste necessitates the use of an advanced fuzzy matching tool to deduplicate data. By merging and purging the most challenging records it’s possible to create a ‘single user record’ and obtain an optimum SCV. Organising contact data this way will also maximise efficiency and reduce costs, because multiple outreach efforts will not be made to the same person. Also, the potential for fraud is reduced by establishing a unified record for each citizen.

Data suppression / cleaning

Data suppression, or cleaning, using the appropriate technology that highlights people who have moved or are no longer at the address on file, is a vital part of the KYC process. As well as removing incorrect addresses, these services can include deceased flagging to prevent the sending of mail and other communications to those who have passed away, which can cause distress to their friends and relatives. The answer is to implement suppression strategies that help public bodies to save money, protect their reputations, and avoid fraud.

SaaS drives data quality

Today, it’s never been easier or more cost-effective to manage data quality in real-time. It’s possible to source a scalable data cleaning software as a service (SaaS) platform that requires no coding, integration, or training. Simply switch on and benefit instantly – which is something we offer via our Unison platform. This technology cleanses and corrects names, addresses, email addresses, and telephone numbers worldwide. It matches records in real-time, ensuring no duplication, and provides data profiling to help source issues for further action. A single, intuitive interface provides the opportunity for data standardisation, validation, and enrichment, resulting in high-quality contact information across multiple databases.

SaaS electronic ID verification (eIDV)

Data hygiene practices on their own aren’t enough to deliver KYC and prevent fraud. Forward-thinking public sector organisations are already using identity verification services, such as SaaS electronic ID verification (eIDV). SaaS eIDV platforms are leading the way because they are easy to deploy, automated, scalable and support cross-checks against an individual’s contact data in real-time as they complete an application online, thereby ensuring the user experience isn’t negatively impacted.

The public sector must embrace automated eIDV in lieu of the manual ID checks that many still have in place, despite being more expensive, time-consuming, and subject to human error.

To work effectively, and for best practice, the eIDV service must have access to a worldwide dataset of billions of consumer records, including reputable third-party, sanctions, and politically exposed person (PEP) data, and offer adverse media checks to provide a full ID verification service. This data must come from reputable global streams, including government agencies, credit agencies, and utility records. Ideally, the service should, at the same time, enrich the data of those held on databases, highlighting and correcting any existing inaccuracies. Such an approach maintains effective governance by facilitating compliance with KYC and anti-money laundering (AML) regulations.

KYC in tandem with KYB

Along with KYC it’s important that the eIDV platform is able to deliver know your business (KYB) checks, to enable organisations to fully understand the risks posed by new and existing business customers and suppliers. Fraud is frequently committed by those using shell companies or umbrella structures that just don’t exist in reality, so undertaking KYB to validate an organisation can greatly diminish that type of fraud from occurring. Also, delivering KYB will help to prevent financial crime, such as money laundering and terror financing, which could result in significant reputational damage, quite apart from the monetary cost of the relationship. KYC and KYB is something we offer via our full service eIDV offering, available as SaaS or cloud API.

In summary

While undertaking KYC might not be a legal requirement for the public sector, delivering practices that support its provision, along with KYB, is vital. This involves sourcing and using relevant technology to safeguard contact data quality and ID verification.

Once those in the public sector put in place procedures to deliver KYC, they will not only have the ability to prevent fraud, but have access to insight that will deliver a better experience for users, as well as improve efficiencies at a very challenging time for their budgets.

For more information about Melissa and how our data quality and identity verification services can help you, please visit: www.melissa.com/uk, email: barley.laing@melissa.com or call: 020 7718 0070.

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