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KYC
Find out what KYC is and how to cut its costs with pre-KYC checks, allowing for fraud detection before full verification.
Find out what KYC is and how to cut its costs with pre-KYC checks, allowing for fraud detection before full verification.
Money laundering is a relevant global problem. The UNODC reports that the annual amount of money laundered is between 2% and 5% of the world's GDP. This amount is calculated in trillions of euros.
Businesses, especially financial companies, use KYC (Know Your Customer) procedures to fight this type of crime.
KYC, an acronym for Know Your Customer, is a protocol used by banks and other financial organizations to verify the identity of their customers.
The term is also used to refer to some regulations and requirements that companies must adhere to. Such legislation explains how organizations should authenticate their customers to reduce the risk of financial crime.
A financial organization may carry out KYC certifications for the following purposes:
1. Regulatory compliance. Nearly all countries have anti-money laundering (AML) and counter-terrorist financing (CTF) regulations.
Compliance with these regulations involves KYC checks.
2. Fraud prevention. Know Your Customer checks help to ensure that the customer is the person they claim to be.
It also confirms that the customer is eligible to receive the services requested and is not involved in money laundering or terrorism.
3. Credit risk assessment. Verifying a potential borrower's identity helps loan organizations assess the credit risk before offering services. In other words, to determine in advance the probability of defaulting on a loan.
KYC in the sphere of credit decisions is carried out in several stages.
A finance company should study the local regulations related to AML and CTF and implement a KYC procedure for its new customers.
Know Your Customer verification consists of several components:
1. Identity verification. The company asks the applicant for identity verification documents. This can be a passport, ID card, or driving license.
Online verification can be used to ensure the accuracy of the data provided. It is carried out via video calls, selfies, etc.
2. Address verification. To confirm the place of residence of a potential borrower, the lender may require utility bills, rental agreements, bank statements, or other documents.
3. Verification of financial information. Financial companies often ask potential customers to verify their source of income. You may also be called on to provide transaction history.
4. Continuous monitoring. In addition to maintaining the customer in the decision-making in the bank process, financial companies typically practice ongoing monitoring of clients. This is done in order to detect unusual activity.
If the applicant’s identity and details are verified, the system then authenticates the provided documents.
Favorable results allow the KYC verification to be completed.
There are several classifications of Know Your Customer checks.
Depending on the method of implementation, a distinction is made:
1. Regular KYC. This type of verification involves providing the borrower's physical documents. Also, in most cases, the applicant must be present in person at the lender's office.
2. Electronic KYC (eKYC). This is a digital process of verifying the identity of a potential borrower. It can be carried out in various ways:
Depending on the requirements of the borrower, they determine:
1. Limited KYC. In this verification, the client needs to provide a minimum of documents. Transactions and other activities are not deeply analyzed.
As a rule, such verification is prohibited for small transactions.
2. Full KYC. This check requires a comprehensive set of documents. Also, the borrower's transactions will be subject to in-depth analysis.
Full KYC is usually used for large loans, such as mortgages.
Large lending organizations, which attract thousands of customers every year, can spend millions of dollars on KYC.
A recent survey of lenders found that a review costs on average $2500.
This statistic confirms that reducing KYC costs is relevant for financial services companies.
RiskSeal allows its clients to achieve this goal with pre-KYC checks.
Even before a user's data is submitted for KYC checks, the system analyses it and concludes the presence of fraud.
This approach to assessing potential borrowers can eliminate up to 70% of applications before they even pass the Know Your Customer check.
This is a significant saving on the KYC budget.