While the market shifts toward omni-channel commerce and the payments landscape becomes more diverse and less traditional, it has become a challenge for merchants to provide a functional and flexible way to handle transactions. To do so elegantly is key to customer satisfaction, and to do so securely is all the more important. This is where Know Your Customer (KYC) comes in.
The central element of business security is Know Your Customer. This broad concept was first coined within the financial sector, KYC is now standard practice in a wide range of industries. When identifying the security needs of your business, there is no better place to start than by knowing your customer.
In brief, KYC is the practice of collecting data about your customers for a variety of purposes beneficial to your business. For businesses seeking to add payments functionality for their customers, implementing a company-wide KYC policy could be the determining factor in consumers and business partners choosing you over the competition.
Knowing your customer has three distinct advantages:
- Fraudsters lie in wait for a company that doesn’t take KYC seriously. If that turns out to be you, your business could be facilitating fraud, identity theft, money laundering, and terrorist financing without you even knowing it.
- Regulatory bodies keep careful watch on payment providers and financial institutions. A KYC-compliant business will have a smoother and more profitable relationship with their payment provider and other business partners.
- The data you collect by knowing your customers is an invaluable knowledgebase for understanding your consumer base, developing your products, and marketing around their needs and desires.
One cannot understate the importance of KYC in today’s digital marketplace, especially when you conduct your business online rather than face-to-face. KYC is central to operating a secure and sustainable business and it doubles as a tool to offer a personalized, omni-channel customer experience.
Why Implement KYC
In most jurisdictions, there is a basic level of KYC standards enforced by law. This is most stringent in the financial sector, with banks spending up to 500 million USD per year on KYC.
Because of the benefits of a robust KYC policy, most financial institutions choose to go above and beyond the basic requirements. Simply put, KYC is the most effective security measure there is. The costs associated with a sub-par KYC policy, which allows cybercriminals to conduct illegal activities using your product, service or platform, are much higher than the expenses involved in implementing KYC.
Failing to maintain adequate security controls not only puts you at risk but your business partners, banking partners and all of your law-abiding customers as well. This could result in fines, legal expenses, and long-term reputational damage. The only way to create a sustainable online business is to practice top-of-the-line security right from the beginning and to know every one of your customers at least in terms of their name and place of residence.
How to Implement KYC
There are countless KYC practices that fall under four main categories:
- Customer Acceptance – Develop clear and explicit criteria for who you do business with and ensure that all of your customers are who they say they are.
- Customer Identification – Develop procedures for customer identification at every step of the relationship, from submitting personal information such as addresses and bank accounts to carrying out a transaction and shipping a product.
- Monitoring – Identify unusual and high-risk transactions, such as large or complex transactions that don’t fit the typical behavior of your customers, and subject them to an extra level of scrutiny.
- Risk Management – Internal audits and compliance screenings as well as company-wide training programs should be in place to minimize both the frequency of risky activities and the consequences of security breaches.
Knowing your customer is key to operating a successful business and to providing a good experience for everyone you do business. To find out more about best practices in business security, visit the Payza Security Center.
Payza maintains a strict KYC policy above and beyond the basic requirements of customer due diligence and KYC compliance. For businesses seeking to offer the most secure and flexible payments functionality to their customers, visit Payza.com to learn more.