The extensive use of emerging technologies in finance called for defining standards to help combat online fraud and financial crime, such as money laundering, terrorist financing, and corruption, which resulted in issuing of guidelines called KYC. 

What is KYC, and why is it important?

Know Your Customer, or KYC, is the procedure for customer identity verification. Many financial services have switched to online, minimizing face-to-face interaction between clients and service providers, making customer verification increasingly essential to reduce fraud and other financial illegalities.

Fraud and money laundering are not the only issues that triggered the adoption of these regulatory requirements. Terrorist financing has become one of the paramount concerns, too, since money transfer channels may be used to finance terrorist activities. Consequently, apart from identity verification, it became crucial to estimate the purposes for which the clients are using the service. That is why KYC procedures apply not only to banks but also to any financial institutions offering money transfer services, including online wallets, exchanges, brokerages, etc.

The KYC process

The main objective of the KYC process is to verify that the user is actually who he says he is and to give them access to the services or products they need. This verification can be conducted through different methods.

The KYC process usually involves collecting customer information such as name, address, date of birth, and ID card number. It can also include biometric verification (most common for today – face or fingerprint verification).

Next, the KYC information is compared against lists of individuals and organizations known to governments and law enforcement agencies to identify individuals suspected of crime, detail which jurisdiction’s international sanctions organizations or individuals are subject to, provide information on entities suspected of bribery or money laundering, and detect Politically Exposed Persons (PEPs).

Types of KYC

Know Your Customer incorporates a variety of different practices and methods.

• KYB (Know Your Business) is an extension of KYC focusing on businesses rather than individuals. KYB is one of the critical practices to adopt if you are a financial institution dealing with companies, for instance, cryptocurrency exchanges.
  
• CIP (Customer Identification Program) forms the basis of KYC and establishes guidelines for ensuring your customers are who they claim to be. CIP covers the basic data on the customer: name, date of birth, and address.
  
• CDD (Customer Due Diligence) is the process of acquiring in-depth data about the customer, including career, business activity, and risk assessment. There are two types of customer due diligence processes: SCDD (Simplified Customer Due Diligence) and EDD (Enhanced Due Diligence), the latter mainly being triggered at high-risk and high-value transactions and individuals.
  
• eKYC (Electronic KYC) refers to using digital technology and online services to enhance KYC. eKYC, or digital customer onboarding process, can effectively replace human work, checking documents and data against government records.
  
• Sanctions screenings, or PEP (Politically Exposed Persons) checks, examine local and federal law databases to make sure that no dangerous individuals are involved.

Choosing a KYC solution provider: key parameters to consider

Since the KYC environment is intensely competitive, KYC providers are rushing to offer their safeguard solutions, making it challenging to select the right service provider. So how to choose a KYC provider that can secure effective protection against fraudsters and help you drive more customers? We’ve rounded up several key aspects to help you select the right KYC provider.

Jurisdiction

Ensure that the particular KYC provider you are considering has direct access to local registries in the countries you work with and which documents they can check there.

Regulation

Carry out in-depth research into the legal field you operate in and identify the KYC requirements you need to follow. The result of your investigation will help you shortlist KYC providers.

Language coverage

It’s essential to understand that your customers’ documents will likely be in different languages, especially if you offer a global service. Your identity verification system will need to be able to analyze all the data in the same way, no matter the language, so don’t forget to check this aspect with the KYC providers you’re considering.

Technology

Analyze what KYC providers you’re considering can offer in terms of technology. Ideal KYC solutions should effectively fulfill two criteria: streamline the customer onboarding process and ensure you meet relevant regulations.

Data storage

Remember that some countries have data localization laws, meaning that records about their residents and citizens are required to be stored in accordance with the law. Ask your chosen KYC provider where their servers are located and in which ways they manage clients’ data from such countries.

Databases

Ask KYC providers to present you with a list of databases they are connected to. It is a positive sign if there are premium data sources, such as Thomson Reuters or Dow Jones, as well as if there’s the vendor’s ability to integrate your blocklists.

Integration

It’s safe to assume that you’ll need to integrate with your KYC provider via API, making a service provider that can offer you a solution a better choice.

Top KYC solution providers

We’ve prepared a list of Top 6 KYC providers worth considering if you are looking for an identity verification solution for your business. Check them out:

IDnow

IDnow is one of the leading identity proofing platform providers in Europe. Today, IDnow serves over 193 countries, offering robust tools for customer ID verification, digital document signing, online video identification, and self-service customer check. The company’s solutions guarantee legal security throughout Europe and the highest level of data security.

LemonWay

LemonWay is a pan-European payment institution with headquarters in Paris, France. As an operator of a payment system dedicated to marketplaces, the company has a track record in managing KYC issues, which inspired them to create their own KYC solution. This identity verification provider offers two options for KYC checks: instant KYC for individual accounts and a more conventional solution for corporate accounts. By the way, if you integrate LemonWay’s payment system with your service, you’ll get the KYC with zero effort from your side.

Trulioo

Trulioo is a Canadian-based company that delivers electronic identity and address verification services covering both individuals and businesses. Trulioo offers identity checks by scanning its enormous database that contains 5 billion identities in 195 countries. Their KYC service includes access to over 4 thousand types of documents, from driving licenses to residency permits. All of their products are available via API integration.

Shufti Pro

Shufti Pro is located in London, United Kingdom, and provides KYC services in over 200 countries around the globe. Shufti Pro focuses on delivering solutions to six industries, including financial services, peer-to-peer economy, gaming, crowdfunding, telecommunication, and travel. Shufti Pro offers a comprehensive set of tools:

• identity verification
• business authenticity verification (KYB)
• video interview KYC
• OCR for business.

Shufti Pro’s KYB solution can be integrated through the developer API to access a vast range of global data registers.

KYC-Chain

KYC-Chain allows you to verify identities, run KYC / AML checks, and leverage the potential of blockchain KYC, offered by KYC-Chain’s sister company, SelfKey, which enables users to securely store their KYC data on-chain. This KYC provider boasts a robust bank-grade compliance toolkit that can scan over 10,000 data sources in 240 counties with a response time of 30 seconds.

IDology

Apart from being an efficient identity verification tool, IDology is also a trusted network to fight fraud in North America, South America, and Europe. The company offers KYC tools for fintech, lending, alternative finance, insurance, and other industries, including:

• identity verification
• CPA and Patriot Act compliance
• dynamic KBA
• age verification
• customer-based authentication

Wrapping up

With the rapid digitization of financial services, the advent of KYC regulations was virtually inevitable. Selecting a KYC provider is a crucial decision since the companies become liable for mistakes in case of failure. Before making the final decision about your KYC partner, ensure that the company meets the criteria that can ultimately fulfill your business needs.