Know Your Customer: How To Test Banking Applications

/ 21st December, 2022 / Best Practices
Know Your Customer: How To Test Banking Applications

KYC, also known as Know Your Customer, is an identification method used by most modern banks, credit unions, private lending companies, and other financial institutions for verifying clients and preventing various types of fraudulent behavior. For many companies and state institutions, it is important to perform background screening procedures of their clients before providing any services. It is also used in other fields, such as casino and gambling companies. However, this article will focus on the benefits to the financial industry. 

It’s important to mention that the KYC process is not optional. In the USA, it is part of federal law, thus, financial institutions must follow it. It started as a part of the 1970 bank secrecy act, however, was strictly implemented after the September 11 attack under the ‘Patriot act’. The European Union (EU) has not left behind and issued a number of strict regulations, including The Fourth, Fifth & Sixth Anti-Money Laundering Directive (AMLD4, 5 & 6), The Payments Services Directive (PSD2), and more. 

But what is the most effective customer identification procedure? What are the requirements for KYC? How can one test the product with real people and real personal documents? It’s time to dive deeper into the concept and clarify its importance for financial applications. 

The Most Important Advantages of KYC

Let’s explore the benefits of using the KYC verification procedure from two sides – for the banks and for their clients. First, it protects customers from identity theft. Second, it effectively fights financial fraud and money laundering, as well as financing terrorism activity. 

With an advanced KYC procedure, the clients of any financial institution can safely use their accounts with no risks of their money being stolen or blocked. KYC prevents the creation of fake accounts and eliminates the jeopardy of the wrong people getting access to the financial system.

As for the banks, using this program allows them to offer secure and higher-quality services. The reason is that the innovative KYC processes support financial institutions and government structures to effectively fight various types of fraud, terrorist financing, and other illegal operations performed by cybercriminals. 

Who Needs to Have KYC?

The number of financial-related institutions that use KYC continues to grow. Currently, it includes these types of institutions: 

  • Banks
  • Credit unions
  • Broker-dealers
  • Wealth management firms
  • Private lenders, and lending platforms

This approach is also used in thousands of finance tech applications, depending on the activities in which they engage. 

KYC Major Components 

  • Customer Identification Program (CIP) is one of the most important US requirements. It’s also known as IDV (Identity verification). The core principle is that financial institutions are required to verify the identity of customers who initiate the performance of any financial transactions. The CIP will verify the following basic information: Name, Date of birth, Address, and Identification number.
  • Customer Due Diligence Program (CDD) is the act of making obligatory background checks and other types of customer screening before performing any financial operations.
  • Enhanced Due Diligence (EDD) is performed when the consumer poses a higher risk
    than anticipated. The EDD includes Deeper criminal investigation and more thorough customer interaction monitoring.
  • Continuous Monitoring is about monitoring various data combinations and identifying significant material changes in a business partner’s behavior.

Challenges Financial Institutions Experience During Testing 

Just like every digital product or process, it is crucial to test the solution before launching it in the real markets and with real documents. When it comes to testing services performed by financial institutions, the risk is much higher and it is necessary to use only real people with real devices and documents from the target market. These advanced checks should become an inevitable part of the testing process. 

It is crucial to get KYC features tested by real people who actually live in the target market, use actual documents, and take selfie pictures of users (many services have such a requirement). However, most people who are part of the testers’ community have lots of safety concerns and are afraid of ID theft. As a result, it is incredibly difficult to find people who are willing to go through the KYC process for testing purposes.

Reasons Why Crowdsourced Testing Is Perfect for KYC Testing

  • Real people with actual verification documents. With real people, who test a financial digital product, it is easy to check the identity processes. Automation or virtual machines can’t substitute a human tester. 
  • Testers in more than 150 countries. Using the power of the crowd allows it to cover most global target markets of the company. It is easy to check the application’s performance and make an identity check in different locations (people in different countries often have various types of documents used for verification)
  • Flexibility. Crowdtesting gives companies an opportunity to use testing when needed and pause the QA process during the bug-fixing stage.
  • Ability to test the different levels of KYC with different testers (CIP, CDD, EDD, etc). 
  • Improve customer experience. Advanced checks of all KYC features allow the creation of a higher-quality product.  

What is more, crowd-testing also has a number of extra advantages: 

  • Fast – the company can initiate a start of a test cycle in a matter of a few short days in any desired location. 
  • Accurate – professional testers will provide accurate feedback on defects with screenshots, video recordings, and steps to reproduce the issue. 
  • Affordable – the prices for using the crowd testing services are always reasonable and cost-effective. 

KYC Process: What Should be Tested? 

  • Submission of documents
  • Identity verification
  • Checking verification
  • Advanced verification of financial conditions
  • Monitoring different types of transactions 
  • Validity of the entire flow (end-to-end process) 
  • Usability testing
  • Consumer trust level of the process (using a survey after the test)  

The Impact of KYC Processes On the Banking World

KYC procedures are obligatory for all modern financial institutions and the bank sector. Failure to meet the requirement of using KYC might lead businesses to fines and penalties, as well as lower consumer trust. But how can ‘Know Your Customer’ procedures impact the entire banking world?

  • It helps various financial institutions to receive proof of their clients’ identities. Creating fake accounts for illegal operations becomes hardly possible, making the banking system safer to use and more reliable for customers.
  • KYC effectively fights various types of fraudulent financial activities. This includes using fake or stolen documents and ID cards for applying for a loan and receiving money from fraudulent accounts. 
  • KYC enables banks and financial institutions to know and understand their customers and their financial dealings better, and manage their risks prudently.

How to Implement KYC with Crowd Testing

Crowdtesting allows checking all the features and functions of any digital product that uses know your customer programs. The biggest benefit of crowdtesting is the ability to get real users with real ID documents (all types, including social security cards, IDs, passports, driver’s licenses, etc.) to follow the KYC process and simulate real clients. Crowd Testing also allows identifying all the serious bugs and issues of your application by testing it by real users with real accounts and documents in many countries worldwide. 

It is worth mentioning that the advanced check of KYC functionality is performed by professional Quality Assurance (QA) engineers. Consequently, they can easily detect various gaps and flows in the usability and performance of your digital product. Moreover, with crowdtesting, it is easy to test any financial app under stress to make sure it works perfectly in different conditions and environments. 

Crowdtesting can complement the company’s in-house testing and provide detailed real-life results of how the digital product will perform in the real world. Currently, there are no alternatives to crowdtesting in the real-life testing niche. However, this solution remains flexible and affordable for a wide range of customers. 

Want to know more about crowdtesting services, offered by Ubertesters? Contact us at for more details.

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