E-commerce and fintech has made transactions between businesses and their customers easier and faster, but that has come with a risk. Statistics show that every fintech company witnesses an average of 0.30% fraud, and the crypto industry lost over 300 billion dollars in the last few years. The reports of cybercrimes involving businesses online can be daunting, hence the need to find the root cause of these risks, to know how to prevent and tackle them.
Some of these crimes are a result of the lack of proper customer identification programs. This involves KYC, but what is KYC? KYC is simply Know Your Customer, where you verify their identity. Thus financial institutions and virtual asset service providers with no proper KYC/AML process are at risk of cyber attacks and theft of customers’ assets. User identity verification and understanding AML vs KYC help protect financial institutions from fraud, corruption, money laundering, and terrorist financing. That is why verifying a customer’s identity, source of income, and proof of address are essential aspects of KYC processes. These checks are vital as a risk management strategy to avoid tangling with prospective fraudsters.
To stress how vital this verification process is to their customers, businesses and companies strive to provide stress-free KYC processes for customers through a streamlined user-friendly verification process.
Many companies do not only see KYC processes as a checkbox to avoid penalties from regulators but as a great tool that boosts security and user experience for customers. There is an increasing need for companies to comply with KYC standards and AML regulations on a global scale.
Efforts to police criminal activities have a history stretching back centuries to no avail. The United Nations Office on Drugs and Crime (UNODC) estimates that between EUR 715 billion and 1.87 trillion of global GDP is laundered each year. According to Zippia, $300 billion is laundered through the United States each year. Compliance officers have realized that 50% of money laundering goes undetected across the industry. Many of these criminal activities can be mitigated if the right KYC and AML solutions are implemented by companies.
However, how can you decide what KYC and AML solution to use? Whether you already have a KYC service provider or you’re looking at getting your first KYC solution, there are some important factors you should consider when choosing an ideal KYC provider that best suits your business.
Cost and Pricing model
As you already know what is KYC, finding a KYC provider with a service tailored to the organization’s needs while minimizing cost and saving time is important.
Many KYC providers have flexible pricing for companies based on their needs. Pricing could be based on the number of transactions/checks done within a period and other services you are entitled to.
A KYC solution is cost-prohibitive, but it’s imperative that you find a KYC provider that is always ready to work with your budget, specific requirements and further tailor their pricing to fit your unique needs.
Jurisdiction
Mark out the target area of your business and make a list of KYC providers you wish to use that cater for the region(s). Afterwards you can carry out specific research on their performance, look at reviews, and see what value they can bring to your business based on the region you intend to cover. Some KYC vendors can only process data from documents made for one particular country or continent. If your business or company operates globally, for instance, then you would need to seek the services of a KYC provider with a much wider coverage.
Jurisdiction transcends geography alone, it also cuts across business niches. If you are crypto, gaming, sports betting, or NFT platform, ensure the KYC provider offers services to your business’ area of focus. You wouldn’t get your money’s worth if you get a KYC service provider with focus on digital assets, for your online betting platform. There are rules that guide different sectors and you will want to be sure your KYC provider is conversant with what is applicable to your sector.
For example, casinos, betting websites, and gaming companies, only provide services to customers above 18 or 21, and also depending on the region. You would need a KYC provider with an age verification system to ensure kids do not gain access, and you don’t get into trouble with the compliance authorities.
In some cases, customers from specific countries are restricted from accessing some services like crypto and games. These regulations have to be understood and enforced properly by your KYC vendor to ensure you are not flouting any laws and also to protect your business from being penalized.
Generally, ensure the KYC vendor is AML compliant and follows the laws of your city or region. For example, if you are operating in Germany, does the vendor adhere to regulations laid out in GDPR laws, 6AMLD, and BaFin? Keep in mind that non-compliance with AML regulations could lead to fines, penalties, loss of customers, and even closure of the business.
Ease of Integration
KYC processes can be implemented through the integration of APIs. You need a KYC provider that offers that solution, if that’s a system that aids seamless user experience and requires less friction for your developers to maintain.
Other common integrations for KYC vendors include mobile SDKs, web SDKs, Cloud-based verification, etc. The web and mobile SDKs are commonly accepted because they are easily customizable, user-friendly, and support additional features, especially from third parties.
Demo
Find a trusted, and credible KYC vendor with proof of work. KYC providers offer what is called a demo. This shows their proof of work and could come in form of a video demonstrating how their product solves the needs of similar businesses to yours. Sometimes it comes with a free trial period, then you can decide if to integrate it into your platform.
KYC providers also offer sandbox tests to see if this is what your business needs, and you can also weigh the financial effect on your business.
Conclusion
It is more important than ever to have an effective KYC provider that helps your business follow all KYC and AML regulations of your locations and helps mitigate the risk of fraud. The ideal KYC provider offers you flexible pricing, an easy-to-integrate solution, helps you comply with AML regulations and provides a demo to decide what type of KYC process your business needs.
