A Know Your Customer (KYC) service provider can help you navigate the complexities of the compliance process and provide you with the technology tools to authenticate client identities efficiently. But with KYC technology advancing rapidly and the field of providers continually growing, choosing the right solution can be a challenge. Here's our guide to finding the right KYC service for your needs.
First, we'll look at a KYC service provider and what they do. Then we'll consider what kinds of companies need KYC as a service. Next, we'll review the types of KYC solutions for businesses. Finally, we'll walk you through a four-step process for choosing a KYC service provider.
What Is a Know Your Customer (KYC) Provider?
A KYC provider delivers a third-party service to help organizations verify and authenticate customer identity through automated KYC checks. In addition to identity verification, KYC providers provide ongoing monitoring of customer transactions and help organizations remain compliant with relevant regulatory requirements.
KYC regulations, which form part of broader Anti-Money Laundering regulations, require banks and other covered financial institutions to confirm the identity of customers opening new accounts and conducting transactions. AML regulations are designed to prevent fraud and identity theft. Essential KYC procedures include:
- Verifying the identity of new customers applying for accounts
- Assessing the risk of money laundering posed by new customers
- Monitoring customer accounts for suspicious activity
- Managing risk when suspicious or fraudulent activity has been detected
A KYC provider helps clients perform and automate these procedures using appropriate technology. KYC providers support a range of automated tasks, including:
- Real-time ID verification of identity documents presented by new customers
- Capturing data such as scanned OCR text and photos to be used for biometric facial identification
- Ensuring that digital signatures are collected in a way that meets legally binding standards
- Measuring risk levels associated with customers and transactions and triggering appropriate actions
- Confirming the identity of individuals using established customer accounts
- Securing transactions to reduce fraud through means such as two-factor authentication
- Sharing databases with third-party providers to speed up authentication of customers whose identity has previously been authenticated
KYC providers provide the know-how and technology to help organizations perform these tasks accurately and efficiently with minimal inconvenience to customers.
What Is a KYC Provider's Responsibility?
The specific responsibilities of a KYC provider will be laid out in the language of their service agreement contract. Typical duties may include:
- Confirming the authenticity of identification documents provided by customers
- Verifying the identity of individuals presenting identification documents
- Checking client information against government watchlists and sanctions lists
- Monitoring the receipt of cash or cash equivalents and filing corresponding reports required for regulatory compliance
- Monitoring and reporting suspicious activity
The exact responsibilities will vary by the service agreement. Review your contract in consultation with your legal team to ensure you understand your provider's responsibilities and rights before entering into any agreement for KYC services.
Who Needs KYC as a Service?
In the U.S., federal AML regulations mandate KYC for industries that provide financial services, including:
- Credit unions
- Mutual fund companies
- Securities brokers and dealers
- Futures brokers
- Wealth management consultancies
- Fintech providers who engage in covered activities
KYC services may also be required for companies in high-risk industries, such as casino gaming and dispensaries. Even when not legally required, KYC services may be prudent to protect businesses susceptible to the risk of fraud or identification credentials misuse, such as eCommerce retailers and travel and hospitality providers. If you're not sure whether you need KYC services, consult with your legal team and Chief Risk Officer.
Types of KYC Solutions for Business Needs
KYC solutions cover a wide range of services. They may include:
- CIP (Customer Identification Program) services: This is the process of confirming the identity of new customers by collecting and reviewing identifying documentation, photographs, and biometric identifiers
- Data capture: Improving collection of identifying data such as OCR scans and photos for greater accuracy, making the data more useful for customer identification
- CDD (Customer Due Diligence) and EDD (Enhanced Due Diligence): CDD uses a rating scale to evaluate the risk of customers committing financial crimes, while EDD performs stricter risk assessment on customers flagged as high risk
- Sanctions checks and Politically Exposed Persons (PEP) checks: This involves checking customer identities against official government watchlists and other databases identifying individuals, organizations, and countries that are considered high risk because of sanctions or political vulnerability to bribery
- Ongoing monitoring of transactions: After a customer's identity has been confirmed, accounts must continue to be monitored for suspicious activity and periodic updating of current customer information.
- Digital signature and non-repudiation: Managing an online collection of digital signatures to ensure they meet standards that will hold up to legal scrutiny if challenged
- Risk management: Steps triggered when a suspicious activity has been detected
- Database sharing: Sharing of information with third-party services so customers who have previously been authenticated can receive faster service
- eKYC (Electronic KYC): This term refers to solutions that deliver the above KYC services electronically so that customers can verify their identities entirely or primarily online
- Integration and developer tools: These make it easier for clients to integrate identity authentication software with other apps or to build customized APIs to meet specific needs
Each category may include more granular services, such as biometric data collection and authentication. Some KYC providers may offer services in addition to the above.
What Are the Benefits of KYC Providers?
KYC providers offer their clients several essential benefits. These advantages include:
- Regulatory compliance: Without professional assistance and appropriate technology, complying with AML and KYC regulations may be difficult or impossible
- Increasing accuracy and efficiency: Automating KYC procedures improves the accuracy of identity checks by eliminating manual mistakes while simultaneously speeding up KYC procedures and increasing efficiency
- Saving labor, time, and money: KYC services speed up the KYC process through automation, cutting costs by freeing up internal resources that would otherwise be tied up in covering the expense of manual KYC compliance measures
- Providing a better customer onboarding experience: KYC services and technology speed up customer identity verification procedures to deliver a better experience
- Nurturing a positive company reputation: By speeding up customer identification and reducing the risk of fraud, KYC providers can help brands enhance their reputations for service and security
This array of benefits makes KYC services essential for any organization in the financial industry and advantageous for any company that must protect customers against fraud risk.
How to Choose the Right KYC Service Provider: Four Steps to Picking Providers
The process of choosing a KYC service provider can be broken down into four main steps:
- Determine if the service coverage offered meets your organization's needs
- Determine compatibility with your existing KYC processes
- Determine if the KYC provider complies with all relevant regulations for the countries your company conducts business in
- Determine if the solution meets your data storage and security needs
Let's look at what each step involves:
1. Determine If the Service Coverage Offered Meets Your Organization's Needs
A first step is to ensure the provider you're considering offers all the services your company needs. To determine this:
- Start by reviewing your KYC procedures and itemizing them
- Identify the software you're already using to automate these procedures and look for where you need to increase your efficiency
- Prioritize the services and technologies you need
- Look for providers who offer services that can help you fill the gap between where you are and where you want to be
2. Determine Compatibility with Your Existing KYC Processes
Once you've identified one or more suitable providers, review their services and software to verify compatibility with your existing KYC procedures. An ideal solution should integrate easily with your current processes. Leading identity authentication solutions typically provide out-of-the-box integration with popular solutions, and best-in-class solutions offer developer support for customized integrations.
3. Determine if the KYC Provider Complies with All Relevant Regulations for Your Country
After establishing that a provider is suitable for your needs and compatible with your existing processes, the next step is to verify that they cover your regulatory compliance needs. Assessing this requires familiarity with your regulatory requirements and your provider's compliance level. Consult your Chief Risk Officer and legal team to help you make an informed assessment.
4. Determine if the Solution Meets Your Data Storage and Security Needs
A final step is to review your prospective provider from a data storage and security standpoint. For example, where will OCR and facial recognition data reside, and what safeguards will be used to protect it? Depending on your industry, this may require you to consider additional regulatory requirements beyond your KYC requirements. Talk to your IT and legal teams about your data storage and security requirements and what your provider needs to deliver to serve your needs.
Explore Incode's KYC Solutions to Find Your Fit
Today's KYC services include CIP, CDD, EDD, eKYC, sanctions, and PEP checks. Depending on your needs, you may need one, some, or all of these services. An ideal solution should integrate easily with your existing KYC processes and meet the regulatory requirements applicable in your location and industry.
Incode Omni is designed to integrate easily with your existing KYC and AML processes or make it easy for your team of developers to build your custom solution. We offer a comprehensive, AI-powered KYC solution that includes CIP, CDD, EDD, eKYC, sanctions, PEP, and more. Request a demo to see if Incode Omni is the right KYC solution for you.