Although it may seem insignificant to most people, the phrase “know your customer” (KYC) has a very significant meaning in business. Criminals and fraudsters are misusing the systems of legitimate bodies and are leaving no stone unturned to fulfill their malicious plans. Hence, KYC verification has become a ray of hope to keep all the fraudsters at bay.
What Does KYC Verification Mean?
Know Your Customer or “client KYC verification” is the process of verifying any client’s identity to prevent the risk of any fraudulent activity such as illegal funds and transactions. Despite its importance for delicate processes in all industries, it has particular significance for financing and banking, as well as the related sectors including real estate, insurance, and trading.
AML vs KYC Verification
Anti Money Laundering is a more holistic and broader practice as compared to KYC. AML is the set of policies that are used by a company to provide protection against criminal activities such as human trafficking, money laundering, terrorism financing, criminal infiltration, and many more. KYC, on the other hand, is a crucial part of AML. KYC compliance helps financial institutions verify the identity of their customers by checking their credentials before granting them access to services. By implementing KYC policies, companies learn more about their customers and financial dealings. This as a result enables them to mitigate and manage any risks more effectively.
The 3 Pillars of KYC Verification
KYC might seem like an easy task but it is actually not. Here are the three pillars of KYC compliance online.
1- Customer Identification Program
The CIP or “Customer Identification Program” is the first pillar of the KYC compliance policy. It verifies the identity of a customer through personal information which includes their name, address, date of birth, or other documents.
2- Customer Due Diligence
The CDD or “Customer Due Diligence” is the second pillar of the KYC compliance policy. In this process, the credentials from customers are gathered to check their identity and assess their risk profile.
3- Continuous Monitoring
Continuous monitoring is the third pillar of KYC compliance policy. Checking a customer just once does not ensure security. Understanding their account activity and monitoring it is important to find irregularities and get rid of the risks as they emerge.
Know Your Customer Checklist
All Banks and financial institutions follow different customer verification practices, some need an online identity verification while others require physical submission, consequently, the documents needed for identity verification purposes are different. However, the necessary documentation required for the KYC checklist is as under:
Proof Of Identity (POI)
- A passport/UID, driving license, or voter’s Identity card.
- A Permanent Account Number (PAN) card along with a picture that matches the customer.
- A valid credit or debit card that the bank has issued.
- A current Identity card that is being issued by the State.
Proof Of Address (POA)
- A copy of the utility bills including electric bills with an address that can be verified
- Driver’s License or visa along with a digital picture.
- A copy of the registered sale contract or lease for the residence.
- An identification document is to be submitted in the name of the spouse.
What Is the Purpose of KYC Verification?
While KYC was originally designed for banks and financial organizations, it is now utilized by a variety of enterprises, including internet firms. Institutions often use one of four techniques to frame their KYC procedures:
- Acceptance Policy for Customers
- Procedure for Identifying Customers
- Monitoring of Transactions
- Management of Risk
The following approaches are commonly employed in KYC controls in organizations:
Personal identity documents are gathered and scrutinized.
Identity papers are compared to worldwide watch lists compiled by law enforcement authorities all over the world.
Identification and assessment of the risk posed by the consumer, as well as his or her proclivity for unlawful acts such as money laundering, terrorism, and identity theft.
Factors to Consider in a KYC Procedure:
Here’s what you’d like your KYC regulations to achieve, based on the problems mentioned above:
- Filter out, spammers.
- Collect useful user data even if you just have a few data points
- All required KYC criteria must be met.
- Detect IDs that have been stolen
- Verify the customer’s identity without relying on the 3DS.
- Assist in the automated detection of scammers.
- Increase the speed of the digital onboarding process.
Surprisingly, a solid fraud-prevention solution may satisfy all of these requirements
KYC Procedure Optimization as a Competitive Advantage:
Because everyone in your vertical should be subject to the same KYC risk assessment standards, it’s all about putting them in place in a clever method, such as through the use of dynamic friction.
The method enables you to onboard individuals as quickly as possible by requiring only a short KYC process, which entails filling out the most basic user profiles.
Single data points like an email lookup or a phone number, on the other hand, can already assist you to identify possible dangers and strengthen your anti-money laundering operations. You don’t need to run a comprehensive identity check because SEON’s Email module, for example, can tell you if:
- The address does not appear to be developed enough to be real.
- It appeared to be the work of a bot (by examining the strings).
- Has never been associated with a social media account.
- If you have any doubts about your user, you may use the onboarding process to initiate the more thorough client KYC procedures. This is a fully automated approach that doesn’t slow down your loyal customers at the outset (they can still go through the heavier KYC checks later, for instance at the time of withdrawing or funding an account).
KYC is triggered by a number of factors.
KYC triggers include:
- Transactions that are unusual
- Changes in the client’s situation or new information
- Changes in the client’s employment situation
- The nature of a client’s business has changed.
- Adding additional people to a party’s account
A bank, for example, could identify specific risk elements including frequent wire transfers, overseas transactions, and connections with off-shore financial hubs as a consequence of initial due diligence and continuous monitoring. A “high-risk” account is therefore checked more regularly, and the consumer may be requested to explain his transactions or submit additional information on a more regular basis.
How Does the KYC Verification Process Work?
KYC online verification process is as follows:
Collection of the information
The first step of KYC verification is to collect the personal information of the online user and then the user is requested to enter personal details to set up their account.
Ask the User to Upload the Evidence
Once the personal information is collected, comes the second step, the applicant is asked to validate the given information by uploading supporting documents. This serves as evidence to prove that the information entered is not fake and is authentic.
Verification of the Information
After the user has uploaded the documents as proof, a template for those documents is identified and investigated against several checks to ensure that the uploaded document is not photoshopped.
Importance of KYC Verification
A holistic approach to financial security begins with KYC solutions policies. They not only provide protection against theft but also ensure that all the financial institutions are knowingly or not knowingly involved with terrorists, human trafficking, money laundering, or other criminal entities.
In the post-digitalization world, KYC verification has become the need of the hour for organizations to prevent any financial crimes. To comply with the ever-changing KYC AML regulations, institutions need to have a KYC solution that follows KYC compliance in true words.