KYC Know Your Customer Fraud Detection

Know Your Customer: the Basics

As a business term, Know Your Customer (KYC) refers to the formal verification of customer identities and their potential for fraudulent activities.

KYC came to prominence in the financial services industry as a way to prevent criminal activity by confirming that customers are who they say they are. Money laundering, the financing of terrorism, and other financial crimes are often committed under the guise of a false identity, so it’s crucial that financial institutions understand who they are dealing with. Once a customer’s identity has been confirmed, subsequent steps can be taken to gauge their risk for criminal activity.

While KYC is most common in the financial services industry due to regulatory compliance, other industries have adopted the practice as a voluntary measure. KYC fraud detection measures not only help to reduce crime, but their use also establishes a degree of trust within the general public.

In the United States, KYC-related regulations were introduced post-9/11 as part of the Patriot Act. In 2016, these regulations were bolstered by rulings from the Treasury’s Financial Crimes Enforcement Network.

In Europe, the General Data Protection Regulation (GDPR) and Anti-Money Laundering (AML) directives compel financial services companies to embrace KYC practices. While the GDPR statutes are considered legally binding, know your customer AML directives are recommendations meant to be adopted on a country-by-country basis.

For instance, in Germany AML directives are translated into a rigorous, video-based KYC process that specifically outlines how companies confirm the identification of their customers. Across the border in France, customers must produce a secondary identification document, and in Italy, companies must perform seven different risk checks.

Managing KYC processes can be a difficult undertaking, though. That’s why many organizations look for outside help.

What Service Does a KYC Verification Company Provide?

While larger companies might be able to tackle KYC processes using in-house

employees, smaller organizations may struggle to do the same. Thankfully, a small industry of third-party vendors has sprung up and smaller companies can now easily outsource KYC for retail banking and other operations to a third-party provider. Companies looking to use a top third-party vendor should consider factors like jurisdiction, compliance needs, integration, data storage needs, and risk tolerance.

Because KYC regulations can vary from country to country, companies looking for a KYC vendor should first understand if a potential provider is able to operate within their jurisdiction. Providers must be able to access legal registries, and if they cannot, they will not be able to provide adequate services. Most vendors will provide potential clients with a coverage list.

Companies looking to use a KYC vendor should also understand all relevant regulations. Some organizations may only need to perform basic verification of customary identities, while others may need to perform comprehensive due diligence procedures. With offerings varying considerably from provider to provider, it is important for a company to understand its legal obligations before trying to assess various providers.

Some countries have strict data localization laws that dictate how personal records can be processed and stored. If a company is doing business in one of these countries, such as Australia or India, they need a third-party provider with servers inside the country in question for the collection and storage of customer data.

Typically, a company will need to integrate with a provider through an API, and ideally, a partner can offer an easy-to-use solution such as a plug-and-play widget. A company may also need technical capabilities related to automation, biometrics, machine learning, and other modern technologies. Part of the vendor assessment process should be determining which vendors can meet various technical needs.

Top KYC Vendors

Top-rated KYC vendors provide a significant return on investment and help make necessary KYC processes as frictionless as possible.

Claiming the ability to verify more than 5 billion people and 330 million businesses around the world, Trulioo is one of the premier KYC vendors. The company uses data from utilities, mobile networks, credit bureaus, and other organizations to perform KYC operations.

Refinitiv is another international company offering a wide range of services for companies in financial industries. Refinitiv uses hundreds of analysts around the globe to offer fully managed KYC services. The company also offers critical risk intelligence services.

Dun & Bradstreet is a provider that specializes in insurance-related KYC operations. The company says it helps clients take a comprehensive approach to KYC using deep datasets and international business affiliations, which includes multi-bank data integrations.

LexisNexis Risk Solutions allow companies to verify business and customer information in more than 30 countries. The company also uses more than 5 million structured profiles of consumers to assess entities across 60 different risk categories, such as international sanctions and state-owned corporations.

How TripleBlind Can Support KYC Operations

The very nature of KYC operations involves the use of personal information, and companies looking to share this type of information should have robust privacy measures in place.

The innovative TripleBlind Solution is a best-in-class tool that many financial services companies are already using in their operations. Our privacy-enhancing technology is delivered via a simple API, and it can easily support various KYC operations.

If you would like to learn more about how TripleBlind can support your compliance efforts, contact us today.