The Significance of KYC for Online Businesses
The technological innovations are driving businesses to digitize their operations for better customer experience and to compete with the big giants in the market. Shifting the operations online if on one hand provided a better user experience then, on the other hand, it has prompted major security concerns for businesses. We have often linked KYC with banking institutions, but the laws are not limited to the financial industry only. Every industry dealing with money is required to meet KYC compliance.
Know Your Customer (KYC), as the term describes is the process of verifying the identities of the users. The purpose behind verifying identities is to ensure that a user is a real entity, doesn’t belong to any prohibited lists (Sanctions list, PEPs, etc.), and also evaluating the risk factors associated with the user. All this process is to prohibit money laundering, terrorist funding, and digital scam and frauds.
There is one important thing to note and that is to effectively fulfill KYC requirements without penalizing innocent consumers or being too strict that drive away consumers.
Driving factors behind KYC
In today’s modern digital world, know your customer (KYC), Anti-money laundering (AML), and tracking and monitoring of politically exposed persons (PEPs) are more important than they have ever been. As the financial institutions are going digital, the market for KYC/AML service is rapidly growing. According to the study of OWI labs, the KYC solutions market is forecasted to grow at least $12 billion by 2022, as compared to $5.6 billion in the current year.
Here are some significant factors fueling the growth of the KYC/AML market.
With the banks and other businesses shifting their operations online are prone to frauds and cybercrimes. It means that while onboarding the customers, KYC and AML screening is required to ensure that the account belongs to the real entity only. Also, the organizations need to confirm that the account won’t be used for fraudulent or illegal purposes – for example, money laundering.
Growth of FinTech Industry
In recent years, there has been significant growth in the FinTech (Financial technology) industry. FinTech is more focused on the digital transformation of the traditional bank-like functions, for instance, cash deposits, lending, and cash payments through apps and websites. This makes fintech an easy target for cybercriminals and money launderers – hence making it important to obliged with KYC and AML regulations.
The growth of bitcoin and other cryptocurrencies and the online platforms that allows their exchange is driving the growth of the KYC market. These platforms provide the currency exchange for consumers by retaining their anonymity and that’s why it is becoming the hub for money launderers and cybercriminals. To keep such criminals at bay, the KYC requirements are strictly imposed on cryptocurrency platforms as well. They haven’t adhered to a KYC/AML compliance but now they will have to
KYC – From weeks to seconds
The manual KYC process to meet the compliance is quite time-consuming, costly and requires a whole team effort. Even after weeks of verification, there can still be an error because of the manual effort. Waiting for weeks just to verify the identity often drives away the customer out of frustration. In this modern world, time is money and no one would want to waste the time just for proving their identity. Moreover, the trend of digital onboarding customers from the various regions is making manual KYC quite useless.
Taking into account such limitations, online businesses are incorporating digital KYC verification services and solutions provided by third-party. This enables them to verify the identities of their users in real-time without any delay and hence providing their customers a great experience.