Know Your Customer (KYC)

What is Know Your Customer (KYC)? 

Know Your Customer (KYC) is a term that refers to procedures and mechanisms that are used to verify the identity of customers before conducting business with them – accordingly, KYC is intrinsically linked to Identity Verification. 

When conducting KYC checks, a business, institution or organization will typically be verifying:

  • That an individual exists 
  • Whether that individual is exactly who they claim to be 
  • Whether that individual is eligible to receive the product or service in question 
  • Whether that individual poses a threat of money laundering or other such crime

By verifying this information immediately at the time of signup/onboarding, a business, institution or organization can drastically reduce the chance that the individual is a bad actor who will cause harm. 

Why is KYC Important? 

KYC is important for...

  • Regulatory Compliance: Countries have a wide array of laws and regulations designed to fight economic crimes like money laundering, which are known as AML/CFT. In many instances, businesses, institutions and organizations are obligated to maintain KYC protocols – failure to do so can result in the regulator imposing serious penalties on the business.
  • Fraud Prevention: By verifying identities, KYC checks can identify and catch criminals and bad actors who may otherwise have done harm to the business.
  • Risk Assessment: KYC checks provide a wide selection of information that can be used to mitigate risk; the more information a business has on its customers and employees, the more effectively it is able to assess risk and take steps to effectively mitigate against it. 

What is the KYC Process? 

There is no exact KYC process; it varies from case to case, depending on the needs of the specific business and the laws and regulations it is obliged to comply with. 

Accordingly, the information that will need to be verified and validated will vary. Below are some of the most common KYC-style checks that may form part of a business’s KYC process. 

  • Identity (verification of an individual’s ID number)
  • Age
  • Active validation of the identity/liveness detection (typically done through a selfie or brief video recording)
  • Address validation 
  • Business activity/employment 
  • Screening information (the individual’s identity may be screened against terrorist and sanction watchlists) 
  • PEP check (some KYC checks may assess whether an individual is a Politically Exposed Person)

The exact information and documentation that an individual will be required to present will vary on a case-by-case basis depending on the depth and the detail of the KYC being conducted. For example, while some KYC processes may only require an Identity Document (ID), some others may require information such as physical addresses associated with the individual’s place of residence and/or place of work. 

Today, the digitalization of KYC has enabled a broader range of information to be gathered and analysed. For example, biometric information gathered from a simple selfie can be used to accurately verify an individual’s identity. 

ThisIsMe offers a wide variety of world-class identity verification and data validation tools that empower businesses to accurately, efficiently and cost-effectively structure their KYC protocols to ensure regulatory compliance obligations. 

Applications of KYC 

The primary reason for KYC is for the purpose of Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT). In the context of AML/CFT, KYC protocols make it harder to commit financial crimes because every transaction is tied to a verified identity. 

KYC has a wide range of other applications and can prove invaluable even for businesses and organizations that are not required to conduct it by law. 

KYC is applied in a wide variety of circumstances and across a broad range of industries. Some examples are listed below: 

  • KYC for Onboarding: The process of onboarding new customers and/or employees is important, both because doing so helps to mitigate the risk of fraud, as well as often being required by law. Although doing carrying out KYC on clients and employees manually can be tedious and costly, the digitalization and automation of KYC procedures has revolutionized the process by making it cheap, fast and highly accurate.
  • Know Your Business (KYB): KYB refers to the verification of the identity of a business and is designed to ensure that the business in question is legitimate and not a bad actor. KYB may be used by a bank to assess a business’s request for a loan, or by an insurance company to verify information related to the company.
  • KYC for Merchants/Vendors/Suppliers: KYC is an extremely useful tool when it comes to protecting your business from malicious business partners. In South Africa, suppliers, merchants and vendors are a common perpetrator of fraud, but this threat can be mitigated by carrying out KYC checks on a business partner before conducting business with them. 

All of these applications of KYC are available as solutions offered by ThisIsMe. Click here to find out more about how ThisIsMe can help your business benefit from KYC by integrating it as a standard business practice. 

Online KYC – The Value of Digital KYC 

Today, KYC processes have been completely automated and have transformed the ways in which businesses can verify identities and validate information. 

The incredible impact of digital KYC is best demonstrated by ThisIsMe’s revolutionization of the FICA compliance process in 2017. Initially, FICA compliance cost businesses time and money by forcing them to engage in inefficient and lengthy administration that consumed human resources. The labour-intensive process of ensuring compliance also contained many moving parts that rendered it vulnerable to non-compliance or fraud. For customers, FICA compliance entailed complex paperwork and time wasted standing in a bank queue. 

In 2017, ThisIsMe transformed the South African RegTech industry by cutting FICA compliance down from two weeks down to three minutes – an achievement that got the company featured as one of the Emerging 50 Rising Stars on 2018’s FINTECH100 list. 

The transformation of FICA compliance – enabled by new online identification verification technologies – allowed businesses to save time and money and ensure the highest levels of AML/CFT compliance, while consumers benefited from easier documentation provision and near-instantaneous personal information validation. 

Furthermore, the digitilization of KYC has greatly improved its accuracy. In the past, the KYC was completed manually by human reviewers, which was a slow process that was immensely inefficient and consumed a vast amount of resources. Today, KYC has been completely automated. The automation and digitalization of KYC has transformed the KYC process, making it not only cheaper, faster and easier, but also far more accurate: technologies such as machine learning and liveness detection allows for the cross-validation of documents across various databases, which has greatly improved the detection of forged documents. 

The Importance of Fast and Easy KYC 

It is incredibly important that the KYC process is quick, easy and painless for the customer. 

Because the KYC process is often one of the first interactions that a customer has with the business, their experience during the KYC process can greatly determine how the customer will view the business. If the KYC process is confusing and laborious, the customer may abandon the process and terminate their relationship with the business before it has even begun. To this extent, a bad KYC process can seriously undermine a business. 

Consequently, it is important to create a quick and easy KYC process that allows your customers to easily provide the required documentation and get themselves verified in minutes. Today’s KYC solutions enable businesses to accurately conduct KYC in a manner that minimises customer friction and maintains a strong brand image in the minds of their customers. 

KYC Regulatory Compliance in South Africa 

In South Africa, the Financial Intelligence Centre Amendment Act (FICA) governs how financial services are required to interact with their clients in such a way that risk of money laundering and other such crimes and sufficiently mitigated. 

The Prevention of Organized Crime Act of 1998 (POCA) and the Financial Intelligence Centre Act, 38 of 2001 (FICA) are the backbone of South African Anti-Money Laundering/KYC legislation. 

In South Africa, any business, institution or organization that is designated as an Accountable Institution (AI) must comply with a broad range of laws and regulations that govern how that AI must interact with its clients. 

If any business, institution or organization fails to comply with these laws and regulations, they may be subject to harsh penalties – high fines and even jail time may be applicable, depending on the specific circumstances of the case. It is therefore essential for every business, institution and organization to ensure their compliance with the relevant laws and regulations by adopting the necessary KYC protocols, enhanced due diligence mechanisms, and risk mitigation strategies. 

KYC Services for South Africa 

By providing world-class KYC solutions, ThisIsMe gives businesses the tools they need to quickly and easily verify their clients and provide an excellent customer experience in the process. 

As South Africa’s leading provider of KYC, due diligence and remote-onboarding solutions, ThisIsMe is proud to be at the forefront of a trust-based and privacy-compliant digital world. To experience how we can help your business ensure regulatory compliance, mitigate risk and secure its transactions, contact our team here