In the world when technology is taking over, businesses and financial organizations need to adopt digital tools to advance their services. KYC is one of them. If you don’t know the KYC meaning, just read on. Once you get to know this term, you will understand why it’s an important and compulsory process.

What does KYC mean?

KYC stands for Know Your Customer. This process is implemented to provide banks and businesses effective tools to identify their customers. The purpose of this process is exactly like what KYC means. In reality, you must know who your customer is, what he/she is doing, in order to provide services to the right person and avoid frauds.

KYC meaning in banking is the same as KYC meaning in business or other sectors. The difference can be the requirements, depending on the group of customers that the sector serves. In general, businesses and banks have the same KYC standards and they must comply with the KYC regulations. 

What are the KYC standards?

Businesses must not be used by criminals. That’s the objective of KYC guidelines to prevent money laundering. Not to mention, KYC also allows banks and businesses to better understand their customers as well as their financial dealings. 

KYC principles incorporate the key elements, including customer acceptance policy, risk management, customer identification procedures, and monitoring of transactions.

KYC is considered a mandatory and crucial procedure for not only financial organizations, but also non-financial institutions. This process helps minimize the risk of fraud because it identifies suspicious elements beforehand. 

Reasons why the need for KYC is increasing

The world is more developed, our life is more convenient. However, the risks of money laundering and terrorism are also increasing. There are specific reasons why the banking system and economy need the KYC process.

1. Escalating frequency of data breaches

Banks are trying to attract more customers by offering convenience when registering or doing transactions. When they do that, they might eliminate internal roadblocks. And this is when cybercriminals are ready for their opportunities, prowling for personal information like phone numbers, email addresses, and social security numbers.

If you underscore the importance of the KYC process, you are making a big mistake. Even the biggest companies in the world are on the hook for big breaches such as Facebook, Shell, and Target. That also means that smaller institutions will suffer more. KYC bank is necessary to strengthen their data defenses. 

2. Steep regulatory hurdles

Because banking is one of the most regulated industries in the world, the opportunities for lucrative funds are a breeding ground for criminal behavior and increase scrutiny by regulatory bodies. That means banks with more relaxed KYC checks in place will foot the large bill. 

3. Outdated data-centric identity checks

Cybercriminals have always been around and they can always find different approaches to the system, increasing the need for innovative verification strategies. In addition, there are a lot more dark webs that make personal details available for those cybercriminals. The availability of information such as social security numbers, birthdays, email addresses, even ID cards are a good source that makes it easy for offenders to impersonate legitimate customers.

If banks keep using traditional and outdated tools to identify their customers, they are creating an open door for those illegal activities. And KYC is pivoting away from these static verification models and focusing on advanced methods like blockchain and biometrics. 

With the technological advances in smartphone tech, optical scans, and fingerprints, it’s much easier and more convenient for identity verification. Banks and businesses just need to establish their own customer records during onboarding, or they can link in with a government database. Then the issues with cyber crooks won’t be a big deal. 

Expectations in the mobile world

We can be confident to say that new technological developments will keep driving KYC solutions forward. There are much better ways to identify customers, from biometric data to AI. These technological advances are a big help in preventing money laundering and terrorism.

However, that doesn’t mean traditional methods are too outdated and cannot be used. In fact, if banks or businesses can combine mobile data with traditional data sources, KYC can be up to the next level. This combination not only adds an extra layer of authentication but also helps deliver a convenient and effortless customer experience.  

It’s a challenge to connect with real customers and avoid fraudsters in the mobile world. Even if you have many different verification methods and data, it’s always helpful to add more layers of protection. That layer helps reduce fraud risk and improve KYC standards.

Hopefully, you now understand the KYC’s meaning and its importance. Contact Omatech if you are looking for a solution to improve the security of your business.