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Understanding the Importance of KYC

Learn the processes involved in KYC and why it is important

As a payment service provider (PSP) you are responsible for performing the KYC

What is KYC? Know Your Customer (KYC) is a series of steps your business takes to verify a customer’s information. 

You may also hear the term know your business and the steps are the same. 

Why do you want to know your customer?

Performing a KYC is a legal requirement and a necessary risk prevention process.

The goal of a KYC is to ensure the customer you are partnering with is not involved in fraudulent activities. 

Ready to start the KYC process? Here are the steps you should follow. 

Identify the Customer

Identifying the customer involves more than checking their I.D. The business must provide documentation that typically includes details about the company’s ownership. 

If the business has an ultimate beneficial owner, someone with significant control over company decisions but not listed on ownership papers, the individual must be identified. 

Other necessary documents are tax I.D. numbers and company registration details. 

You may also want to ask the business to submit copies of government-issued IDs such as passports or driver’s licenses. This type of documentation is typically only required for company stakeholders. 

Verify Every Document

You never want to take a potential partner at face value. 

While it rarely occurs, fraudulent documents may be submitted. If you do not perform your due diligence, your business is at risk for fines and penalties. 

Verifying all of the submitted documents does take some time. However, spending a few days on verification protects your PSP business from potential regulatory issues. 

What should you do if fraudulent information is submitted? The best advice is to contact your industry’s regulatory office. 

Run a Risk Assessment

Since you have verified the submitted information, you do not need to repeat the step. A risk assessment looks at various factors that could mean the business requires additional monitoring to ensure it is meeting compliance standards. 

What factors should you include in a risk assessment?

Consider the type of business, the number of transactions the company processes daily, weekly, monthly, and annually, and their history of meeting industry compliance standards. 

You also want to consider the number of chargebacks the business typically processes. Another consideration is the business’s location. Some geographical locations present unique risks. 

If you consider a business to be high-risk, you may want to consider implementing ongoing monitoring procedures and performing an in-depth background check on all stakeholders. 

Continue Monitoring the Business Throughout the Partnership

By law, as a payment service provider you are required to constantly monitor a company’s business activities. This includes monitoring the type and number of transactions. If you notice any irregularities, you may want to issue a report to the regulatory commission. 

Along with helping you know your business, the continual monitoring also helps ensure you are providing the resources and support the business needs to process payments easily and securely. 

Taking the time to perform these steps will help protect your PSP.