Our world is becoming increasingly digital – digitalization has transformed industries, and today’s customers expect comprehensive online services across all areas of life. Beyond online shopping, consumers now expect to apply for insurance policies or open new bank accounts from the comfort of their homes. These demands necessitate seamless, fully digital onboarding experiences.
During onboarding, a new customer profile is created, enabling subsequent transactions – such as purchasing insurance – without requiring physical identification at a branch. The benefits of fully digital onboarding are clear: it is fast and convenient, accessible via a computer or mobile device. No waiting in long lines, no wasted time – whether purchasing a car, signing a loan agreement, or securing a new phone contract.
To legally offer these services, businesses must ensure that the contracting party is indeed the person using the profile. This verification typically occurs during the onboarding process. Personal data is verified as part of what is known as the Know Your Customer (KYC) principle. The KYC process ensures the identity of customers is confirmed before entering legally binding agreements.
A KYC process consists of various screenings that vary from company to company. Common components include:
ID verification
Ultimate Beneficial Owner (UBO) identification
Politically Exposed Person (PEP) and sanctions screenings
Anti-money laundering (AML) checks
In regulated sectors, KYC is sometimes referred to as the AML process (Anti-Money Laundering), as both are crucial elements in onboarding new customers.
KYC can be conducted offline (in person) or electronically (remote identification). Traditionally, POSTIDENT services were used, enabling identity verification at postal offices. Alternatively, electronic KYC (eKYC) allows remote identification online. The demand for convenient onboarding led to the development of eKYC, enabling full remote identification for legal transactions. In Germany, WebID Solutions pioneered video identification, allowing users to verify their identity via video calls. In 2014, following this innovation, BaFin (Federal Financial Supervisory Authority) introduced guidelines for video identification, which were updated in 2017 to further enhance security. This made Germany one of the first countries globally to permit video identification for online KYC processes.
Today, online customer onboarding is well established in Germany. As the digital market grows, the KYC industry has expanded, offering comprehensive KYC solutions. In this digital environment, eKYC has become critical to online onboarding. According to a PwC study, direct banks and private banks are KYC pioneers in Germany, among the first to adopt this approach.
Why Do Digital Products Require a KYC Process?
The KYC requirement is rooted in Article 8 of the 3rd EU Anti-Money Laundering Directive. KYC is mandatory for credit institutions and insurers, requiring customer verification to prevent money laundering. KYC also plays a key role in complying with various counter-terrorism and regulatory frameworks.
Certain laws prohibit business transactions with specific individuals or countries. For example, failure to comply with U.S. regulations can lead to severe penalties – from hefty fines and imprisonment for executives to the loss of operating licenses. Additionally, reputational risks due to inadequate KYC processes can negatively impact businesses. Regulated sectors are legally required to integrate KYC into their onboarding processes, and many companies voluntarily adopt KYC practices to combat fraud and criminal activity.
KYC is best described as an umbrella term for various due diligence and compliance checks that secure legal transactions. Even when not legally mandated, KYC is vital to protect businesses offering digital products and services from fraudulent activities.
How Does KYC Work?
KYC can be conducted in person at a branch or online through eKYC. The eKYC process digitizes traditional KYC practices, enabling remote identification. What once took weeks can now be completed in seconds at significantly lower costs.
During eKYC, users verify their identity through legally binding methods. Video identification and biometric tests are common, where users present identification documents and validate their identity via video conferencing.
To ensure that eKYC meets the same security standards as traditional KYC, companies must implement secure processes that comply with the 5th Anti-Money Laundering Directive (5AMLD) and eIDAS regulations.
Leading KYC Service Providers
Different providers offer varying eKYC solutions, and businesses must choose the right one strategically. Key factors include service availability, multilingual support, pricing models, app integration, and the type of verification data returned.
Key providers in Germany include:
IDnow (Munich) – Offers Identity-as-a-Service, enabling real-time identity verification for over 7 billion people across 193 countries.
WebID (Berlin) – Provides video identification, eID, online banking, and AI-driven identity checks, along with GTTP (Global Trust Technology Platform) for neutral identification processes.
POSTIDENT by Deutsche Post – Facilitates identity verification in branches or online via video chat, eID, or photo ID.
Need Assistance with KYC Implementation?
We are here to assist with implementing the right KYC process for your business. From initial analysis to full implementation, we act as your trusted partner. Contact our sales team to discuss your project, or leave us a message through our contact form.