The Deep dive: Know Your Customer

By Puja Sharma

The deep dive’ is our bi-weekly exploration of a relevant topic, hot trend, or new product. For Prime subscribers only.

How does it work?

A Know Your Customer software is a program that assists in implementing KYC. Know Your Customer or KYC refers to the procedure through which a company verifies the identification of its clients. Organizations like banks, financial institutions, and other institutions and workplaces employ KYC as a method of authentication.

A KYC process includes a few characteristics to be considered standard. Policy on customer acceptance, techniques for customer identification, management of risk, and monitoring unusual activity in consumer transactions are some of the most important functions that KYC software performs. Any business relationship with a financial institution, bank, and company handling sensitive information, international vendor, customer, or supplier is required to go through the KYC procedure.

In addition, it is crucial for organizations to conduct KYC during the contract signing and onboarding and on an ongoing basis. This is needed to prevent affiliation with business partners who are engaged in non-compliance with regulations and rules and financial crimes.

Who is under the radar?

KYC is a part of customer due diligence (CDD) and it engages in confirming customers’ identities. To detect ownership connections, collusion in anti-money laundering (AML), and connections between organizations, KYC procedures are implemented to evaluate personal and company records. The process identifies any negative hits, such as watch lists, sanctions lists, and politically exposed persons (PEPs) lists associated with the person. Minimum criteria for CDD, risk and compliance assessments have been created to help combat money laundering, financial crime, terrorist financing, and other illicit activities.

KYC is an essential part of the compliance management system (CMS). The system defines the extent of compliance checks and regulatory risk needed to be considered depending on the anticipated level of risk. Additionally, transactions are reviewed for any potential odd activity. The determination of the source and location of funds is consequently a primary goal of Know-Your-Business-Partner due diligence.

Why does it matter now?

The Global Know Your Customer Software Market size is expected to reach $9.5 billion by 2028, rising at a market growth of 19.7% CAGR during the forecast period.

A significant trend of the pandemic was the desire for flexible workforces, which intensified even after the outbreak subdued. Businesses outsourced contingent workers on a project-by-project basis to save operating expenses. The number of compensation claims, loan approvals, mortgage holiday requests, and other state claims and rules that must be vetted, processed, and distributed by individuals in compliance increased. As a result, for many companies’ completion of KYC became a critical provision.

Streamlining and quickening the KYC process

Most of the know-your-customer software significantly helps in countering the high abandonment rates that are usually seen in manual know-your-customer systems. The time-consuming process of carrying document copies for the KYC process to go through successfully renders customers to abandon the process, and some may not even consider it. The rising adoption of KYC software has eventually increased the range of KYCs being done in many companies and institutions. KYC software enables businesses to deduct the time requirements of a single KYC from days to minutes.

Easy configuration of rules to comply with CDD/EDD

The automated onboarding of KYC through the software assists in verifying individuals and their documents remotely. This can be done either through visual identity verification software or by searching international databases. This simplifies the inclusion of checking against sanctions registers and PEPs, in addition to enabling the due diligence of directors or beneficial owners for harmful political and media exposure.