KYC – Know Your Customer is a due diligence procedure and banking regulation that financial institutions and other legally defined entities must perform to identify their clients and obtain certain, relevant and accurate information required to conduct business with the interested party. KYC processes are also used by companies of all shapes and sizes to ensure that prospective customers, agents, consultants or distributors have the proper attitude towards fraud and bribes. Detailed due diligence information is something banks, insurers, export creditors and other financial institutions are increasingly demanding.
When KYC is a must
The online gaming industry – The online gaming arena is a fast-paced industry and has been plagued with fraud for quite some time. Gamers require their services to be smooth and have fewer interruptions. Gaming companies also face an increased amount of regulations and legalities from regulators. They have to implement fast yet effective due diligence procedures in order to keep their platforms free from fraud. Larger transactions require a more meticulous process of KYC AML Compliance.
Digital industry/Fintech – the need for automated KYC and AML compliance procedures within this industry is more than necessary. FinTech companies came up with advanced technologies to make the implementation of compliance policies easier for businesses. They have been integrating technologies like machine learning and A.I to design smart and efficient solutions for KYC and AML.
Health sectors – fraud in the medical industry has also been acquiring some ground for a few years now. Scammers tend to steal medical insurance data from people to purchase prescription drugs as well as to have medical procedures performed through the stolen data. Such fraud ends up affecting both the victims whose identities had been stolen as well as the healthcare insurance providers.
Cryptocurrency sector – The cryptocurrency business has been gradually but surely gaining ground as an incredible investment tool. Cryptocurrencies’ flexible nature has made them notorious for all sorts of financial crimes including money laundering and embezzlement.
Know Your Customer importance
KYC, i.e. getting to know the customer, is extremely important for gambling operators and financial institutions, when it comes to sensitive data and often high amounts in the game. Reliable verification processes will allow you to reduce the amount of fraud that some players commit, as well as protect players from addiction. Although KYC is required in most jurisdictions, we believe that getting to know the client should be treated as a good practice safeguarding the interests of both parties (player and operator), and not just the annoying obligation imposed by the legislator.
Industries are reluctant to KYC
One of the most common reasons for any given organization to avoid KYC procedure is that most of them have to perform them on a manual basis. Hiring and maintaining a whole new KYC compliance staff can be costly for any business. Moreover, manual verifications of customers tend to take time and can end up frustrating the customers. This can cause them to lose loyal customers thus eventually hurting their profits. They need procedures that are fast and do not affect their bottom line in any significant way.
The purpose of KYC is to prevent banks or financial institutions from being exploited by criminal elements for money laundering. Related procedures also allow them to better understand their clients and their financial transactions. This helps them manage the risks properly. Today, not only banks but also various Internet companies can implement KYC procedures. Their policies are usually based on the following key elements:
- Customer acceptance policy
- Customer identification procedures
- Transaction monitoring
- Risk management
Although the KYC program ensures the safety of both parties, such procedures also carry some risks. For example, this delays the onboarding process for customers since they need to ensure they are compliant with the requirements and provide additional information. The latter might prove troublesome since some of the customers might oppose that, even though they have nothing to hide. Sometimes account owners might repeatedly receive requests for the same information over and over again, but for different departments in the exact same institution. All this causes financial institutions to lose customers. In addition, KYC program’s cost is very high – sometimes too high for some of the institutions or companies. In 2017 there was a 19% increase in all customer onboarding-related costs compared to the previous year.
The development of IT solutions to support KYC, AML and compliance processes is moving towards their further digitalization. As far as onboarding is concerned, we are talking solutions such as AI-based face and emotion recognition or searching the Web for negative press. These new tools are to make KYC procedures more cost-effective, accurate and customer-friendly.