Integrating Customer Due Diligence Workflows: Challenges and Solutions for Developers

Customer due diligence (CDD) is a critical aspect of any digital business. It helps businesses check who their customers are and understand any risks linked to them. This process helps prevent fraud, money laundering, and other illicit activities while fostering trust and compliance with regulatory standards.

For developers, integrating CDD workflows into applications can be a daunting task. The complexity of regulatory requirements, the need for robust data security, and the challenge of maintaining a seamless user experience all need to be thoughtfully considered before implementation.

In this blog, you’ll learn about CDD workflows and the challenges you may face during implementation. We’ve included code samples and recommendations to help you address CDD workflows in your own environment.

Understanding CDD

CDD is the process of collecting and verifying customer information to ensure they are who they claim to be. This typically involves the following:

• Know Your Customer (KYC) regulations require businesses to verify the identities of their customers to ensure the customers are legitimate. This process involves gathering and validating information, including government-issued IDs, addresses, and other personal data. KYC helps prevent fraud by building trust in customer interactions.
• Anti-money laundering (AML) regulations focus on detecting and preventing illicit activities like money laundering and terrorist financing. Businesses must monitor customer transactions for any suspicious activities, report them to authorities, and ensure that they do not help in the flow of illegal funds.

Together, KYC and AML help organizations align with legal requirements and protect a financial system’s integrity. It goes without saying that noncompliance can result in heavy penalties, reputational damage, and legal consequences.

• Risk assessment is the process of evaluating the risk profile of customers based on their background and behavior.

Why Developers Should Care about CDD

For developers, integrating CDD workflows requires building systems that do the following:

• Handle sensitive data securely to protect user privacy.
• Scale effectively as the business grows.
• Maintain a smooth user experience despite the additional verification steps.
• Seamlessly integrate with existing applications and APIs.

When developers understand these workflows, they can ensure their systems comply with regulations and enhance user trust and satisfaction. Implementing robust and user-friendly CDD processes helps businesses build trust and loyalty with customers, which drives improved conversion rates. It also reduces fraud losses by identifying high-risk individuals during the onboarding process.

CDD Workflow Integration Challenges and Solutions

Integrating CDD workflows requires developers to balance regulatory compliance, data security, scalability, and user experience while ensuring seamless interoperability with existing systems. This balancing act comes with its own set of challenges.

Navigating Compliance Requirements

Developers working on CDD workflows often face a maze of international, national, and industry-specific regulations and compliance frameworks. For example, in the United States, the Patriot Act mandates rigorous customer identity verification, while in the European Union, the General Data Protection Regulation (GDPR) requires businesses to prioritize user privacy and data minimization. These regulations influence API parameters, like required customer data fields, verification thresholds, and data retention policies, which can vary by jurisdiction.

To address this, developers must design flexible systems capable of dynamically adapting to regulatory requirements. For instance, an API for verifying user identities could include configuration options for region-specific compliance rules. Additionally, implementing robust monitoring mechanisms allows updates to regulations to be promptly reflected in application behavior.

Data Management and Security

CDD workflows involve handling sensitive personally identifiable information (PII), such as government-issued IDs, addresses, and financial details. For developers, safeguarding this data is critical to prevent breaches and comply with privacy laws like the GDPR and the California Consumer Privacy Act (CCPA).

Developers can take several measures to secure PII:

• Encryption: Use strong encryption algorithms like AES-256 for data at rest and TLS for data in transit.
• Access controls: Implement role-based access controls (RBAC) to limit access to sensitive data based on user roles.
• Penetration testing: Regularly conduct penetration tests to identify and address vulnerabilities.
• Auditing and logging: Maintain detailed logs of access and modifications to sensitive data for auditing purposes.

For example, when storing government-issued IDs, developers can encrypt the files using server-side encryption keys and implement secure access protocols to ensure only authorized services or users can access the data.

Scalability Challenges

As businesses grow, CDD processes must scale to handle increasing customer data without performance degradation. For developers, this means building infrastructure that adapts to spikes in user activity, such as during promotional campaigns or seasonal peaks.

To achieve this, teams can do the following:

• Use cloud-based autoscaling for dynamic resource allocation.
• Use distributed databases to handle large-scale data storage and retrieval.
• Optimize verification algorithms to speed up processing times.

For instance, a fintech startup could integrate a queue-based architecture to handle bursts of identity verification requests, ensuring smooth processing without overwhelming the system.

User Experience Considerations

Cumbersome CDD processes can frustrate users, leading to higher abandonment rates. Studies show that two-thirds of customers abandon applications due to complex onboarding. Developers must streamline CDD workflows to minimize friction while maintaining compliance.

Security and compliance teams face challenges, including:

• Designing intuitive forms that guide users through data entry.
• Providing real-time feedback during verification (eg indicating missing fields or incorrect document uploads).
• Reducing the number of steps required for verification by leveraging technologies like optical character recognition (OCR) and biometric authentication.

For example, instead of requiring users to manually enter data from their ID, developers can integrate OCR to auto-populate fields, significantly reducing onboarding time and improving conversion rates.

Interoperability with Existing Systems

CDD workflows often need to integrate with customer relationship management (CRM) platforms, databases, and APIs. This helps them access accurate and current customer data. This integration keeps things consistent and reduces redundancy. However, it also creates challenges for developers, such as handling mismatched data formats or API rate limits.

To address these issues, developers can do the following:

• Implement middleware to normalize data formats across systems.
• Use caching strategies to minimize API calls and reduce latency.
• Build modular systems with standardized APIs to simplify integration and future updates.

A retail company can add CDD workflows to its CRM system. This change can turn incoming customer data into a consistent format. It will also ensure compatibility across platforms.

Streamline CDD with Prove

Prove makes it easier to integrate CDD workflows into your applications. With the Prove platform, which includes the Prove Pre-Fill® solution and the Prove Identity® solution, developers can streamline CDD while keeping things secure, compliant, and user-friendly.

The Benefits of Prove

Prove offers a suite of solutions that address the complexities of integrating CDD workflows. Let’s look at how Prove can overcome some of the challenges discussed previously.

Simplify Compliance

Compliance with regulations like KYC is often a major hurdle for developers integrating CDD workflows. Prove ensures compliance across jurisdictions by conducting robust checks. The Prove platform performs screening against global databases and watchlists, like the Office of Foreign Assets Control Specially Designated Nationals (OFAC SDN) list, UN Sanctions List, EU Financial Sanctions List, His Majesty’s Treasury (HMT), Department of Foreign Affairs and Trade (DFAT), Australian Transaction Reports and Analysis Centre (AUSTRAC), and more, helping businesses maintain regulatory compliance.

The compliance solutions of Prove boast over a 95 percent match rate, significantly reducing false positives and helping businesses process verifications without manual intervention. The platform continuously updates to reflect changes in laws across jurisdictions. Developers can integrate these updates automatically via Prove APIs, reducing the burden of manual compliance monitoring.

Enhance Data Security

Handling sensitive customer data requires robust security measures, and Prove excels in this area by implementing cutting-edge practices:

• Encryption standards: Prove secures data at rest using a robust encryption technique internally and in transit with TLS, ensuring end-to-end protection.
• Fraud detection and mitigation: The algorithms of Prove proactively identify potential fraud patterns, safeguarding applications from threats while maintaining data integrity.
• Penetration testing: Regular security audits and pen testing ensure that vulnerabilities are identified and addressed promptly.

Prove helps protect users’ PII while meeting KYC, Customer Identification Program (CIP), and other regulatory requirements.

Ensure Scalability

As mentioned earlier, scaling CDD processes to meet demand without compromising performance is difficult. Prove’s cloud-native infrastructure handles over 30 billion authentication events annually. Advanced load-balancing mechanisms ensure consistent performance during peak usage periods (eg promotional campaigns or seasonal spikes).

Improve User Experience

Prove minimizes friction in the user journey with its innovative Phone-Centric Identity™ model, which streamlines identity verification through mobile numbers. Key aspects include the following:

• Pre-Fill technology: The Prove Pre-Fill® solution allows users to auto-populate forms using verified data fetched using phone number and SSN, resulting in up to 79 percent faster onboarding.

Integrate Seamlessly

Prove provides a developer-friendly ecosystem with comprehensive documentation, SDKs, and APIs to facilitate seamless integration into existing systems. Prove provides backend SDKs in Java, TypeScript, JavaScript, and Go, as well as client-side SDKs in TypeScript and JavaScript (for web), Java (for Android), and Swift (for iOS). Sandbox environments, test data sets, and detailed guides enable developers to validate integrations before deployment.

Prove simplifies the process of CDD by abstracting away the complexities of identity verification and background checks. Prove divides the identity verification process into four steps:

1. Start()

To start the flow, you simply need to pass the user’s phone number and, optionally, the last four digits of their SSN or date of birth (DOB):

Prove verifies the possession of the phone number through an SMS OTP or an Instant Link.

2. Validate()

In the Validate() step, Prove authenticates the possession and reputation checks and ensures the user is safe to onboard:

3. Challenge()

If the SSN or DOB was not passed into the Start() step, you need to call the Challenge() step with those details:

Prove uses the SSN and DOB to fetch information about the user and returns the data.

4. Complete()

To finish the flow, you need to call the Complete() step with the updated user details:

This ease of use helps developers integrate Prove CDD workflows quickly and efficiently, reducing development time and complexity.

These code snippets provide a straightforward way to integrate the Prove API into your Python applications. Each step ensures compliance, security, and efficiency in customer verification workflows. For more details, refer to the Prove official documentation.

Conclusion

Implementing CDD can be challenging for developers, but thankfully, Prove can help. By addressing compliance, security, scalability, user experience, and interoperability, Prove simplifies the CDD integration process.

With the powerful platform of Prove, you can build secure, compliant, and user-friendly applications that inspire trust and confidence. Start integrating CDD workflows today and ensure your systems are prepared for the challenges of tomorrow.