Know Your Customer – Simplified

Know-your-customer (KYC) requirements are a critical component of the risk and compliance strategy of any company involved in the business of financial transactions.

Banks, insurers, online gaming and betting companies, financial service providers and more, must verify the identity and financial conditions of customers before doing business with them. With Internet connectivity breaking down barriers to trade and making commerce truly global, it has never been more important for businesses to meet KYC requirements.

Not only is KYC important for anti-corruption due diligence, it is critical in the global fight against money laundering, identity fraud and terrorism.

The principles of KYC requirements are, in essence, straight forward. Getting them right in practice, on the other hand, is more complex.

Under KYC an organisation is required to:

  • Collect and analyse basic identity information
  • Match names to lists of known parties (such as “politically exposed person” or PEP)
  • Ascertain the customer’s risk in terms of propensity to commit money laundering, finance terrorism or identity theft
  • Create an expectation of a customer’s transactional behaviour
  • Monitor the customer’s transactions against their expected behaviour and recorded profile as well as that of the customer’s peers.

The onus of getting these details correct falls on both the business and the customer.

For the business, meeting these requirements means investment in software and staff. The requirements are underwritten by legislation, and failure to meet them can mean fines and punitive measures which impact on the organisation.

For the customer, they have the responsibility to verify their identity, not just when they open accounts, but when they carry out subsequent transactions. In the online environment, this can mean a multitude of passwords and the re-entering of personal information that can slow down processes. As those familiar with digital commerce will know, slow and frustrating processes, no matter how necessary, can cause customer dissatisfaction and abandonment, something no business wishes to see.

As an example, in the online gaming industry, KYC requirements are paramount. Businesses are working hard to stop money laundering and fraud, so require customers to input passwords and other information each and every time they carry out a transaction. With punters looking to carry out multiple transactions on a regular basis, this can lead to friction and frustration.

By giving businesses the power to allow a customer to multi-factor authenticate their identity via a simple cardholder PIN code, they can reduce user administration time and cut down customer frustration while still meeting KYC requirements. The cardholder PIN ensures that the full identity management performed by the respective banks is brought to bear.

With PIN and any combination of any authentication mechanisms performed by the consumer’s own smartphone, KYC is performed seamless and without friction by something the consumer does every day anyway.