What is KYC- Documents Required for KYC?

Know Your Customer – KYC

Online businesses have seen unprecedented growth over the past few years with wide-scale adoption of tech products and online services being preferred over conventional means of availing services. So much interest and sales have been generated by these digital channels that even the conventional business with brick-and-mortar branch networks such as Financial institutions and investment firms have started utilizing these online channels to not only provide a streamlined user experience but to also swiftly process their workflow as well. With workforce ranging in thousands, these companies have turned to digital resources in order to strengthen their revenue streams and not be left behind by their slick new competitors leveraging their technical knowledge base to write their own business success stories. After, all Fintech companies are gaining so much interest from customers all over the world that recently it was claimed that by 2030, the biggest bank in the world will be an online company.

But there is one problem with such an increased level of revenues being generated from digital resources. The scammers and fraudsters have improved their tactics and strategies to con these businesses by creating fake identities and using stolen financial information to avail services and buy products.  In order to secure their business interests and comply with regulators’ demand for strict identity verification protocols, online businesses are turning towards KYC to fight online identity frauds and payment scams.

What is KYC?

Know Your Customer – KYC for short – is a technical process the involves collecting verified personal information about your customer. This helps common users not only from identity theft but also secures the business interests of the companies that have to suffer as well because of identity theft in the form of payment fraud, account takeover or their services being used by unauthorized users.

Most digital businesses that are operating in cyberspace are performing these KYC verification on their own. But in some jurisdictions, businesses are required to perform these verification by their regulators in order to deter identity frauds. Banking institution and organization working in the financial service industry are required to collect verified information about the person or corporate entity that avails their services. Expected volume of transactions and funds that will be handled by a bank or financial institution and origin of those funds has to be declared in order to ensure that the banking organization and financial organization are not becoming a source for money laundering, terror financing or any other financial crime.

How Does KYC Works?

KYC verification is an important aspect of business models adopted by companies across the world and like any such large-scale business practice, there are different formats of performing those verification.

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Some businesses only check the basic identity credentials of their incoming users such as Name and Date of Birth in order to just comply with the requirements of their regulators. These businesses just ask their customers to provide official proof of their identity in the form of an identity document. Other businesses perform a thorough check of their customer’s identity that not only includes Name & DOB check but a check for their address as well as identity document number. Again the proof of identity is in the form of an identity document. Some companies turn it up a notch and verify the authenticity of the provided identity document before using it as a source to extract and verify the identity particulars of their incoming users.

Financial organizations and banking industry tend to not only explore the authenticity of claimed identity credential of their incoming users but also ensure that no significant financial risk attached to the identity of their incoming users. For this purpose, some use financial risk checklists to calculate the risk while others use sanction lists and watch lists issued by their regulators to ensure that the corporate entities or the people representing those entities are not blacklisted for the involvement in financial crimes. There are hundreds of financial risk databases available as issued by intentional law enforcement agencies such as UN, Interpol and Politically Exposed Persons’ List by FATF that are also utilized to gauge the financial risk attached to a particular user. Some expert in the Banking and Finance industry call it fully “Knowing” your customer not only

Document Required for KYC

Well, most of the regulators require businesses and corporate entities to use a unique identity document for verification of their incoming user’s identity. That is not all but these regulators, sometimes even specify that which document can be used for identity verification and most of those prefer ID cards as a preferred mode of verification. The basic identity document of any territory can vary but the primary source of a person’s identity in any jurisdiction is the first choice to be served as proof of identity.

Other regulators even allow driving licenses and passports to be used as necessary proof of identity. In countries where there are no hard and fast rules set by regulators, businesses even allow bank documents and utility bills as proof of one’s address or only verification of a credit card used for purchasing items is considered enough source of KYC by business entities.

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Conclusion

Every digital business or even those that are turning towards digital channels for better revenue generation, has to understand the importance of the question “What is KYC” and how the answer of this question impacts their service delivery model. Especially for finance-related companies or organizations who provide investment to upcoming businesses and entrepreneurs, it is important to validate the identity credentials provided by their customers. This is not only essential for regulatory compliance but also in order to safeguard the business interests of these companies against fraudsters and scammers that steal the identity of some other user to avail services that they are not entitled to in the first place. In the world dominated by frequent data breaches and where it is easier than ever to get hold of authentic personal and financial information, KYC verification is the only way to deter online frauds and financial scams.