KYC Compliance: The Building Block to Verifying Customer Identity

Amy Hou  |  May 17, 2019   |  ID Verification  


While it’s not quite necessary for consumers to know who their bank managers are – or what they even look like for that matter – businesses must know who they involve themselves with from their very first transaction. Luckily, Know Your Customer (KYC) compliance is specifically designed to protect companies against fraudsters and unwanted schemes.

Follow along as we briefly explore KYC laws and why every business, from credit agencies to eCommerce merchants, need strict compliance when verifying identities.

Get to know your customers

In a world full of lengthy abbreviations, understanding the basics of KYC is actually rather simple. In the U.S., KYC laws emerged from the Patriot Act in 2001 as a tool to detect terrorist behavior. Within this act, banks (and companies who do business with banks) are to comply with two regulations: the Customer Identification Program (CIP) and Customer Due Diligence (CDD).

Name. Address. Birthday. Social Security number. All basic identity information is collected and analyzed in order to meet CIP requirements. The purpose is to make sure customers are indeed who they say they are. Asking for an individual’s driver’s license or a company’s government-issued business license suffices for this step.

“Acquiring customers that you don’t have confidence in is like speed dating all the way to the altar – it likely won’t end up well.”

And then we dig a little deeper with CDD. Through the process of due diligence, firms and companies can obtain greater data on customers to find high-risk accounts that may be involved in suspicious financial activities.

President of Trulioo Jon Jones sees this as a vital step to reducing fraud. “Bypassing this step and subsequently acquiring customers that you don’t have confidence in from a data quality or identity perspective is like speed dating all the way to the altar – it likely won’t end up well,” said Jones.

Putting KYC compliance into action

So, why prioritize KYC compliance? As the digital landscape shifts and advances, regulation procedures should mature as well. Otherwise, businesses can suffer from costly fraud and damaging data breaches.

With the help of new tools and technologies, companies across several industries can vet the bad seeds and catch the villains – protecting themselves and those who they do business with.

Regulating banks

Potential risks can quickly snowball into billions of dollars in regulatory costs. If banks choose not to comply with stricter regulations, they’ll have to pay the consequences of owing steep fines. Back in 2016, Forbes reported that banks spent over $100 billion on regulatory compliance. There’s no need to pay the price if the root of the problem can be hacked away early on.

56% of consumers are more likely to choose a financial institution if it uses advanced identity verification methods.

Quality KYC compliance opens the door to collaborations with the fintech industry and a better customer service experience – only if banks are willing to take the opportunity. In a recent IDology study, 56 percent of consumers said they’re more likely to choose a financial institution if it uses advanced identity verification methods. As Jake Tyler, Co-Founder and CEO of Payso, put it, “Doing it right can be an important competitive advantage.”

Regulating credit agencies

While other businesses don’t face the same level of regulations as banks do, they still need to know their customers. Because agencies can likewise be left vulnerable to data breaches and identity fraud, they should be aware of the proper policies.

As the scope of credit models begin to change with alternative data, credit agencies are broadening their scope to target more thin-file consumers. However, thin-file consumers are even less likely than the mainstream customer to have available risk information. Hence, credit agencies will need to utilize new digital identity verification tools to maintain KYC compliance, for the payoff of expanding their marketable population.

Agencies get strong identity assurance, protecting them and their customers, while growing their portfolio – It’s a win-win for everyone.

Regulating eCommerce

So, what does KYC compliance look like out in the world wide web? For now, many sites still use multi-factor authentication. Consumers verify their identities through a code sent via text, email or phone call. But even with this security padding, fraudsters have found ways to breach the digital paper trail. Now, more friction (the good kind) is required more than ever.

Online merchants need KYC solutions that cover everything from data security to collecting consent from their customers. Streamlining the digital KYC process is crucial and mandatory for all customer and merchant onboarding. Fraud in the eCommerce sector has risen 35 percent year over year, resulting in $3.20 in costs to the business for every $1 of fraud.

Fraud in the eCommerce sector has risen 35% year over year.

Just as applicable as in the two previous examples, if done right, online businesses can meet KYC compliance with an identity verification process that minimizes the cost of fraud while maintaining a low-friction experience for the customer.

Don’t pay the cost of fraud

The bottom line is, from the largest banks to individual consumers, everyone is affected by the cost of fraud. It’s in everyone’s best interest to protect the integrity of financial institutions and the companies that do business with them. With everyone following the same standards, they can all achieve effective, secure transactions.

Luckily, there are identity verification tools that can make KYC compliance easier. Learn how Urjanet utility data can help, with third-party verified proof of identity and address.


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About Amy Hou

Amy Hou is a Marketing Manager at Urjanet, overseeing content and communications. She enjoys writing about the latest industry updates in sustainability, energy efficiency, and data innovation.

Tags   Credit   |   Data & Technology   |   Financial Services   |   FinTech   |   Identity & Fraud   |   Identity Verification   |   KYC   |   Regulation   |   Risk Assessment   |   Technology   |   Urjanet   |