If you are a customer or a business owner, confirming identity is crucial when it concerns financial transactions. Over $56 billion was lost in 2021 to identity fraud in the US last year, with up to 49 million consumers being affected in some way.
This is why KYC (Know Your Customer) processes can be so useful for both businesses and consumers. It helps to tackle illegal activities such as theft and fraud, and can integrate seamlessly into most businesses that are customer-facing.
If you’re asking yourself, what is KYC?, don’t worry: we have you covered. In this article we will explain how KYC works and how it’s an asset for businesses as well as its customers.
What is KYC?
KYC, or Know Your Customer, is a new technology that helps to verify an individual’s identity, so that a person can prove who they are as a new customer.
Financial institutions such as banks, credit unions, private lenders, financial technology apps and credit unions all need to have KYC procedures. Having said that, organizations across all industries are also required to implement KYC protocols if they deal in customer financial transactions.
KYC works by cross-checking verified documents (passport, driver’s license or ID card) against a live face verification in an app. You may also need to have proof of address which is matched against the address listed on your verified ID.
After this has all been submitted and verified, a customer is then able to access and use all the services of the business immediately.
Here are three concrete ways in which KYC can improve the user experience for customers and businesses alike.
1. KYC prevents financial partnerships with money-launderers
Without proper customer identity checks, this can unwittingly result in a company entering into a financial exchange with criminals that have obtained the money through illegitimate means. This exposes the business to potential investigation or sanctions down the line with heavy fines.
The heavy fines would then put a financial strain on the business which, in turn, could affect customer experience and satisfaction with the business.
2. KYC monitors and reports unusual activity
KYC also protects existing customer accounts by triggering flags and reporting on unusual activity. This can include extraordinary spending habits, the addition of new clients to the account, new information or changes to the client or changes in the client’s business.
KYC technology is designed to comply with all existing regulations and keep customers’ money safe and secure.
3. KYC is compliant with all government regulations
Europe, the UK and America are bound by certain legislation surrounding anti-money laundering directives. This includes the 3rd, 4th, 5th and 6th EU Money Laundering Objectives, as well as UK specific laws such as the UK Bribery Act and the UK Modern Slavery Act.
Eligible businesses must uphold these laws and the clauses within them to be fully compliant with government regulations.
This is beneficial for customers who can feel assured that their money is being handled properly whilst the company adheres to all of the correct procedures.
Disclaimer: The content of this article is sponsored and does not represent the opinions of LeapRate.
Having gained a degree in economics, Alan entered the world of financial services starting his career in London and then moving to New York for a number of years. His first post at a City bank saw him establish a reputation as an forex trader. Having recently returned from New York after eight successful years, Alan is now a prosperous trader in his own right concentrating on commodities and forex.