What Is KYC Verification and Why Does It Matter?

a person lending a pen

KYC verification, which stands for Know Your Customer, is a part of the due diligence process in establishing credit or financial relationships.

This process helps you to make an informed decision when selecting a new customer since it offers insights into their business and helps you identify risks. It also helps you comply with international, industry, and company regulations.

KYC verification is a key part of the screening process for all types of businesses that provide financial services to customers.

The process has been standardized by the Financial Action Task Force (FATF), an international organization charged with developing policies to combat money laundering and terrorist financing.

KYC verification is also one of the Industry Guidelines published by the FISCO International Organization for Securities Cooperation (FISC).

What is KYC Verification?

In simple terms, the KYC process serves two purposes. First, it checks a new customer’s identity and location to ensure that they are who they say they are and that they meet the legal requirements for opening an account.

It ensures that the person or organization opening an account can be monitored in the event of fraud, money laundering, or other illegal behavior.

Second, the KYC process verifies that the account is not controlled by anyone else, which can include an entire group of people.

Sometimes fraudsters will set up multiple entities to support the fraud so they can more easily get away with committing it and have plausible deniability.

Once the KYC process is complete and verified, the account can then be opened.

Why Does KYC Verification Matter?

As you work to increase the customer base of your business, you’ll be required to verify the identities of new clients.

By having a solid understanding of your customers, you can protect your identity and ensure your business continues to operate within the guidelines of a legal and ethical environment.

It’s also important to note that having a solid understanding of your customers can help you better protect the identity of individuals.

With a robust understanding of your customers, you can improve your customer experience, avoid identity fraud, and reduce costs.

How to Implement KYC Verification

Companies that offer credit, lending, and financial services such as lenders, banks, insurance companies, payment processors, check writers, debt collectors, and investment advisers can benefit from KYC verification.

The process can take some time and effort, and in some instances may not be suitable for every business.

One of the benefits of KYC verification is its speed and efficiency. It is designed to reduce a lender’s transaction time while improving customer satisfaction and curbing fraudulent activities.

However, for small businesses, it may be difficult or costly to implement, especially if you don’t have in-house resources and are not familiar with the process.

In Summary

Every business that accepts or lends money must have a solid KYC process in place. The process must be in line with government regulations and abide by industry best practices.

Your customers expect you to do what is right for your business, but you also must do what is right for your customers. If you don’t, they will walk and find a more secure business to transact with.