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Have you ever wondered why the financial and other sectors strictly verify customer identities? This important process protects businesses and customers from various identified risks. The service is the first line of defense when deterring impersonations, money laundering, and terrorist activities.
Although KYC is common in the financial sector, it’s also available in other industries like real estate, accounting, and cryptocurrencies. Therefore, if you have a company or business that offers services to many customers, it’s advisable to adopt the process. While traditionally, the process relied on manual processes, automation technology has transformed the process in modern times.
Pondering why you should implement KYC services in your business? Let’s explore 5 significant benefits.
KYC in full means Know Your Customer is a regulated process where investments identify and verify their customers before accessing services and products. The main objective is to ensure people are who they claim to be. The process mainly relies on three main principles which include;
Customer identification program (CIP)
A business must access personal identifying details like date of birth, personal address, name, ID card number, and others.
Customer due diligence (CDD)
This involves collecting and verifying customer details and analyzing their risk levels.
Enhanced due diligence (EDD)
EDD entails the collection of extra personal information for high-risk customers. It’s common if a customer is suspected of funding terrorism, drugs, and money laundering.
Before adopting manual or automated KYC services in your business, these are some advantages to expect.
Affirming that it’s the right customer you are serving is one of the surest ways to help curb fraud. Sometimes, people who want to commit financial fraud will try to impersonate others.
But when an institution has a robust mechanism to vet their customers before any transaction, it becomes hard for fraudsters to exploit that avenue. Using the latest technology like AI and banking automation, biometric verification as part of KYC has reduced fraud due to impersonations and identity theft.
On fraud, banks and other financial service investments can help catch people engaging in fraudulent activities like tax evasion, counterfeiting, and other criminal activities.
When a business has the account details of the owner involved in these illegal transactions, it is easy for the relevant authorities to arrest and prosecute them. This saves the business from legal implications resulting from such activities.
Money laundering is a serious global crime and has seen many countries put robust measures to curb it. In the United States, banks and other financial institutions that can enable money laundering are required by law to enforce KVY to comply with anti-money laundering laws.
When the policy is enforced with strictness, it helps to prevent the laundering of money, which can end up financing terrorism activities and drug trafficking.
Usually, banks capture customer information during the account opening process. Also, they maintain and monitor the account for every activity. The account can be put on the radar and investigated in case of suspicious deposits, payments, and transfers. Since the account owner's details are known, it becomes easy to identify them and take the necessary steps.
Implementing KYC in a business offers excellent protection. The process is amazing in ensuring you can do proper vetting and background checks of individuals and organizations to ensure they aren’t a threat to your business. Additionally, the process ensures you can only prioritize your registered clients when offering the services.
For instance, banks can only offer loans to their registered customers. The same applies to withdrawing cash, as only members with bank accounts can withdraw from their systems.
Apart from protecting businesses, KYC is essential in protecting customers. When doing transactions in a bank, the verification process ensures that customers are protected from impersonation.
Consequently, it’s hard for customers to lose their funds due to errors in identification by banking systems. Multiple identification mechanisms aimed to comply with KYC make it hard for errors.
KYC can lead to better customer service, especially when you choose automated systems. Although the traditional ways were effective in curbing vices common in the financial and other sectors, efficiency was a big issue.
Dealing with mountains of papers manually led to a slow process, impacting customer satisfaction negatively. This is why most customer verification is automated nowadays to reduce time and errors and improve efficiency.
Through KYC automation, you can offer customers superb services, thereby improving your company's reputation. Apart from making access to services faster, it’s also easy to access them when needed. For instance, if you have a bank account, automating services means you can access services remotely through smartphones or computers with just easy automated verification processes.
Banks having their customer account details is essential for their business. The account details, precisely the loan details, can help banks determine whether customers are likely to pay or default on their loans. When they do the risk assessment, they can decide whether to offer a loan.
Besides assessing loan eligibility and risks, banks can evaluate people's likelihood of engaging in fraudulent activities. This helps to make the right decisions when issuing a loan and take extra safety measures when necessary. Banks can suspend an account by taking proactive measures before criminal activity happens when dealing with potentially fraudulent activity.
Knowing your customers is one of the vital things for any qualifying business. It makes running a business operation safe since you can monitor customer behaviors. Also, the process enables you to interact and observe different customer trends, making it easy to customize offered services.
While KYC service offers many benefits to the business, enforcing the policy makes your business compliant with state laws, hence avoiding fines and other legal repercussions.
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