Your customers are the lifeblood of your business – without them, you wouldn’t be in operation. So, it’s important that you ‘Know Your Customer’ and take steps to verify their identity and protect their information. The fact is fraud threats and identity theft is increasing, and businesses need to do everything they can to prevent it. Know Your Customer (KYC) is one way to verify customer identities and protect your business.
If your company deals with customer data – whether it’s financial data, personal data, or both – then you need to have a KYC process in place. In today’s article, we’ll explain what KYC is, how it works, and how it can benefit your business.
KYC stands for Know Your Customer. It’s a process that businesses use to verify the identity of their customers. The goal of KYC is to prevent fraud by ensuring that businesses know who their customers really are.
To complete the KYC process, businesses must collect certain information from their customers. This usually includes the customer’s full name, date of birth, address, and identification number, such as a national identity number or passport number. The exact information required may vary depending on the country or jurisdiction in which the business operates.
In some cases, businesses may also need to collect additional information, such as proof of address or a copy of the customer’s passport. This is typically done for high-risk customers, such as those who are opening a new account or applying for a loan.
Once the KYC process is complete, businesses will have a better understanding of their customers and can take steps to prevent fraud, such as identity theft, and money laundering.
What Is eKYC?
eKYC refers to digital KYC processes. eKYC stands for electronic Know Your Customer, it also means digital KYC. It’s a paperless and remote way of verifying customer identities. The goal of eKYC is to make the KYC process more efficient and convenient for both, businesses and customers.
There are many benefits of eKYC for businesses. It can help speed up customer onboarding, reduce costs associated with paper-based KYC processes, and improve compliance with Know Your Customer laws and regulations.
For customers, eKYC can make it easier and faster to open new accounts or sign up for new services. It can also help protect their identities by reducing the risk of identity theft and fraud.
eKYC is an important part of Know Your Customer regulations. By using eKYC, businesses can more easily comply with KYC requirements while providing a better experience for their customers and reducing customer friction.
There are many reasons why businesses need to verify the identity of their customers. KYC checks help businesses to:
- Prevent Financial Fraud
Financial fraud includes activities such as identity fraud, account takeover fraud, credit card fraud, phishing, money laundering, fraudsters opening bank accounts in someone else’s name, and using stolen credit cards to make purchases. Financial fraud is one of the most common types of crime worldwide.
KYC checks can help businesses to prevent financial fraud by verifying the identity of their customers. This helps to ensure that only legitimate customers can open accounts and make transactions.
- Comply With Regulations
Regulations such as General Data Protection Regulation (GDPR) and AML Anti-money laundering (AML) regulations are designed to prevent criminals from using the financial system to commit financial fraud by defining clear rules and criteria.
Businesses are required to verify the identity of their customers as part of their GDPR and AML compliance obligations. KYC checks help businesses to meet these requirements by ensuring that they only do business with legitimate customers.
- Combat Terrorism Financing
Terrorism financing is the act of providing funds or other resources to support terrorist activities. It’s a serious crime that can have devastating consequences.
With KYC checks, your company can help to combat terrorism financing by verifying the identity of customers and ensuring that they are not on any terrorist watch lists.
KYC Verification Types
KYC checks can take many different forms, depending on the business and the level of risk involved. Some of the main types of KYC checks include:
The most basic form of KYC checks is paper-based KYC. Customers are typically required to submit physical copies of their documents, which are then reviewed by someone at the company. These physical documents include things like passports, driver’s licenses, and utility bills.
Paper-based KYC checks are initially relatively simple and inexpensive to implement, but they can be time-consuming and costly as there is also a higher risk of fraud with paper-based KYC checks because it’s easier for criminals to forge or alter physical documents.
Another common type of KYC check is offline KYC. With offline KYC, businesses require customers to provide physical copies of their documents, but these documents are then scanned and stored electronically. This allows businesses to review and verify customer identities more easily.
Like paper-based KYC, offline KYC is typically used for low-risk customers. It’s more secure than paper-based KYC, but it can still be time-consuming and expensive to implement.
Digital KYC checks are conducted entirely online. Customers are typically required to submit digital copies of their documents, which are then reviewed by someone at the company. These digital documents include things like passports, driver’s licenses, and national identity cards.
Digital KYC checks are more secure than paper-based or offline KYC checks, as it’s more difficult to forge or alter digital documents. They are also more convenient for both, the businesses and customers, as there is no need to use physical copies of documents.
Biometric KYC checks use physical characteristics, such as fingerprints or iris scans, and face to verify customer identities. They are typically used in along other types of KYC checks, such as paper-based, offline, or digital KYC checks.
Biometric KYC checks are more secure than other types of KYC checks, as it’s very difficult to forge or alter someone’s physical characteristics, especially if liveness detection in also used.
Since biometric checks were first implemented about five decades ago, they have become increasingly common. In fact, the global biometrics industry is expected to surpass $136 million by 2031.
Video KYC checks are conducted via a video call, assisted by a KYC agent. Customers are typically required to submit digital copies of their documents, which are then reviewed by someone at the company. These digital documents include things like passports, driver’s licenses, and national identity cards.
During the video call, customers are also asked to verify their identities by showing their faces and providing other identifying information, such as their full name and date of birth. Thanks to video KYC, companies can verify their customers’ identities in real time from anywhere in the world. Besides, the emergence of machine learning (ML) and artificial intelligence (AI) has made it possible for companies to automate parts of the video KYC process, making it even more efficient.
Just about any business that deals with customer information can benefit from KYC verification. KYC checks help businesses to ensure that their customers are who they say they are, which reduces the risk of fraud and identity theft.
Some of the most common industries that use KYC verification include:
Given that most scams are financially motivated, financial institutions like banks are some of the most frequent users of KYC checks. Banks use KYC to verify the identities of their customers and prevent fraud such as account takeover, phishing, identity fraud, money laundering, terrorist financing, and other financial crimes.
In the past, banks would typically require customers to submit paper copies of their documents, which could be time-consuming and expensive to process. However, thanks to advances in technology, banks can now verify customer identities using digital KYC checks.
- Cryptocurrency Exchanges
Crypto fraud is more common than you may think, with criminals stealing an astounding $14 billion worth of cryptocurrency assets in 2021. While this was a record-breaking year for crypto scams, it’s likely that the number of scams will only increase in the coming years.
KYC checks can help crypto exchanges to prevent fraud such as crypto fraud and NFT scams by protecting their customers’ crypto assets. By verifying the identities of their customers, exchanges can ensure that criminals are not using stolen or fake identities to open accounts.
- Gaming and Betting
The gaming and betting industry is another common target of fraudsters. In addition to identity theft, gaming and betting companies also must worry about things like money laundering and underage gambling.
KYC checks can help gaming and betting companies to prevent these types of crimes by verifying the ages and identities of their customers.
Like banks, insurance companies deal with large sums of money and are, therefore, a common target of fraudsters. KYC checks can help insurance companies to prevent fraud and ensure that their customers are who they say they are.
In addition, KYC checks can also help insurance companies to assess the risk of their customers. For example, if an insurance company knows that a customer has a history of making fraudulent claims, they may be more likely to refuse coverage.
- Travel and Tourism
Organisations operating in the travel and tourism industry often deal with complex checks and controls. They can benefit from KYC checks to enable a smooth and improved customer travel experience.
For instance, if remote KYC checks are done, this will enhance the user experience by decreasing the time which customers spend in queues and crowds. Leading to the removal of pain points which cause high customer friction.
The KYC norms are a set of standards that businesses must follow when verifying the identities of their customers. Some of the key requirements of the KYC norms include:
- Obtaining and verifying customer information
- Identifying and verifying the identity of beneficial owners
- Conducting due diligence on customers
- Keeping records of KYC checks
- Reporting suspicious activity to authorities
Businesses that fail to comply with the KYC norms may face financial penalties or be blacklisted by governmental or financial regulatory bodies such as the Financial Conduct Authority (FCA) in the UK or the Financial Action Task Force on Money Laundering (FATF).
KYC involves verifying the identity of customers using a combination of methods, including visual ID checks and digital verification. Visual ID checks involve comparing the customer’s face to their photo ID, such as a passport or driver’s license. This can be done in person or using remote KYC checks such as Biometric Identity Verification.
Digital verification, on the other hand, involves verifying the customer’s identity using digital documents, such as an electronic ID card or passport.
Now that you know more about KYC and its benefits, you may be wondering how you can implement KYC checks in your business.
One way to do this is by using Udentify. Udentify makes it easy to verify the identities of your customers, whether they’re opening a bank account, buying insurance, or gaming online. With Udentify’s six layers of security, your company is guaranteed fool proof KYC compliance. It’s no wonder Udentify is trusted by companies from a wide range of industries, including banking, insurance, crypto exchanges and gaming.
If you’re ready to take your KYC compliance to the next level, get in touch with us today and learn how Udentify can usher you into a new era of Identity Verification and authentication.
KYC checks may seem like a hassle, but they’re a necessary part of doing business in today’s world. By verifying the identities of your customers, you can help to prevent fraud and protect your customers’ and company’s assets. KYC checks can also help you to make sure that your customers are who they say they are, and most importantly make your KYC process fast and smooth for a better customer experience and retention.