Knowing the identity of your counterparty has been fundamental to doing business for as long as time itself. With the nature of interactions and transactions in banking and financial services, it becomes imperative to know more than just the identity. However, determining whom you can and should do business with has a significant cost, time, and resource implications for financial institutions. According to a recent KYC compliance survey, the average annual spend on global KYC is reported as US$48 million, and onboarding times remain lengthy, with banks reporting an average time of 30 days.
Relying on a patchwork of resources may leave potential gaps in coverage where bad players can hide while putting your revenue and reputation at risk from regulators.
Know Your Customer, sometimes referred to as Customer Due Diligence, is meant to verify the identity of customers and assess their suitability to be a customer. While customers universally consider KYC to be burdensome, it is crucial for businesses.
Throughout this document, Know Your Customer and/or Customer Due Diligence will be referred to as KYC.
The three main drivers for KYC are money laundering, tax evasion, and the financing of terrorism.”
Due to these, KYC policies have now evolved into an important tool to combat illegal transactions in national and international finance arenas. KYC allows businesses to protect themselves by ensuring that they are conducting business legally and with legitimate entities. Furthermore, it protects individuals who might otherwise be harmed by financial crime.
How customers have evolved in the digital world
Due to the advent of digital technologies, customers have evolved from interacting with businesses on only traditional channels to digital channels. Customers are now used to convenience in onboarding and transacting with service providers. This change in customer behavior has led to KYC also evolving.
KYC has evolved from customers’ physical verification by reviewing documentary pieces of evidence to validate customers across digital platforms using real-life images, scanned or uploaded identity documents, etc. API services are integrated to validate images, liveliness, and credentials provided by the customer, etc.