KYC Checks – Enabling Transparency In Payment Transactions

KYC Checks

We all know what KYC or Know Your Customer measures are, used heavily in regulated institutions like banks and other applicable services. Financial Institutions commonly utilize KYC checks during customer on-boarding for authenticating identities of an individual in addition to authenticating who they say they are.  However, should KYC checks be limited to just account opening and identity verification at the time of establishing a business relationship? I think Not.

A financial institution or e-commerce platforms are faced with risks at multiple stages of the processing life cycle. Hence, business should not let settle on just the standard use-case for the application of Identity Verification and establish transparency more holistically. Taking that into consideration, Should KYC checks be used in payment transactions? Let’s find out.

Current Applications of KYC Checks

In the current scenario of applicable KYC measures, most of them are applied during customer onboarding, at the time of account opening or coming into the business relationship. Where the emphasis is on the time when a new user approaches a business. As this is when a business is faced with the most risk against a new user/customer. However, once a business onboard a fraudulent individual, the chances of them hurting the business are very high from that point onwards. Hence the preference during the first contact.   

Additional Application of KYC Checks

Businesses have a preference for first contact points as the perfect place for applying KYC checks. However, is the business case only applicable to just that one focal point? Absolutely not. Let’s say a potentially fraudulent individual is onboarded due to a less than ideal KYC verification cycle from a not so reliable KYC provider. And the only so-called ‘KYC Checks’ in place was during onboarding. The potential criminal is basically free to ‘roam’ or carrying out illicit activities on a false person’s name, using a fraudulent card number on the digital platform. The user can and most probably will make fraudulent purchases and get away with it, if there are no additional checks in place.

The solution, establish additional checks during key areas of the ‘checkout life cycle’ to help reduce and eliminate the risk associated with fraudulent transactions altogether. The first instance includes KBA or 2FA – Two Factor Authentication applied to the stages of ‘Proceed To Checkout’ or ‘Finalizing Cart Items’. The second instance is the application of KYC or Identity Verification checks, in particular, right before ‘Payment Processing’’ or after filing in the necessary card details and relevant PII data. The application of KYC checks at these two instances will further secure a digital platform from the risk of unauthorized purchases being made from the platform. The additional checks might hurt the customer experience, but it is absolutely required in high-stakes areas like trading, transactions, age-restricted purchases, etc.  

Additional KYC checks need to be employed right before high-profile transactions and on platforms where age-sensitive materials are sold. Additional checks will ensure only individuals mature enough and with the right intention to undergo the entire process. Through this, businesses will ensure greater transparency in front of the public by employing the right measures to restrict fraud and minimize risks.   

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