(Warning: This blog is littered with acronyms but we hope we have at least helped define them)

‘Know Your Client ‘or ‘Know Your Customer’, KYC used to be something you didn’t want to worry about. Often bandied around by overzealous Compliance Officers as a reason not to do business with the amazing client you had just bagged, it felt like more of a hindrance than help. And even if that view wasn’t somewhat petulant; now, more so than ever, KYC really matters.

Traditionally KYC refers to the regulatory requirements for financial services companies to verify the identities of their clients to prevent (or at least reduce) money laundering and financial crimes. Fascinating eh? Perhaps not but in recent times its use has spread to all sorts of businesses, especially in the digital economy. Though exact requirements differ between countries and industries, we see the 3 common tenets as:

• Who is your client? How do you know they are who they say they are? Have you checked their passport or driving license?
• Can you trust them? Have you done your due diligence (DD) and reviewed their background? Have you checked their address?
• How will you ensure they remain trustworthy? Are you regularly checking their current status?

In the brave new world, the digital economy is being democratised and data shared. All, we are told, for our own benefit. Regulation and the protection of customers, are the inevitable consequences. Here’s 10 reasons why you need to Know Your Client:

1. Identity theft: According to a report by Cifas, in the UK alone in 2017, there were 174,523 incidents where people’s identity was stolen for fraudulent purposes – and I was one of them (yup – the old SMS phishing scam)

2. Fraud: A recent fraud study run by Stripe suggested that if not properly addressed, fraud can account for up to 3% of a business’s annual turnover. That could reduce profit margins by 12%.

3. PSD2 / Open Banking: Apart from being some of London’s most talked about Fintech’s, what do Habito, WealthSimple, Wealthify, PensionBee and Moneybox have in common? They are all partnered with challenger bank, Starling via their ‘Marketplace’ initiative. On 13th January 2018, the second Payment Services Directive (PSD2) brought about what is called Open Banking which allows consumers to share their banking details with select companies.

4. Strong Customer Authentication (SCA): Leaving aside the Brexit omnishambles, on 14th September 2019, new regulations will require ALL online payments in the European Economic Area (EEA) to be subject to at least two independent authentication procedures out of a choice of:

• Something the customer HAS e.g. phone or hardware token
• Something the customer KNOWS e.g. password or security question
• Something the customer IS e.g. face ID or fingerprint

5. Blockchain: Even if cryptocurrencies have had a torrid time in 2018, according to CoinSchedule Ltd, in 2017 start-ups raised $6.58 billion through Initial Coin Offerings (ICOs). Unlike Initial Public Offers (IPOs), ICO’s are often open to virtually anyone…

6. Fintech Interdependence: Revolut, Seedrs, Fidor ands Shyft – what do all these fintech businesses have in common? They are all clients of CurrencyCloud, the cross-border payments platform. Each party has certain obligations…

7. Time: A 2017 survey by Thomson Reuters found that the time taken to onboard customers increased by 22% and was expected to increase by another 18% the following year. Banks were taking an average of 24 days to complete the customer onboarding process.

8. Financial Inclusion: The 2018 World Bank Global Findex report found that 62% of sub-Saharan Africans do not have a bank account. This number might not increase but the combined number of Mobile Money accounts and Bank Accounts globally WILL. There are approximately 1.7 billion “unbanked” individuals around the world.

9. The growth of mobile money: According to last year’s State of the Industry Report on Mobile Money, the global mobile banking and payments industry is worth over $1Bn per day. In sub-Saharan Africa 21% of citizens had a mobile money account, double the figure in 2014.

10. GDPR: You probably tired of GDPR in May when you realised that you were actually receiving more emails rather than less (which was meant to be the case after the 25th) but the General Data Protection Regulation means everyone has to be vigilant about who their customers really are.

The web is increasingly opaque. In the land of the blind, the one-eyed man is king.

If you’re interested in finding out how the SmilePass KYC solution can help your business, take a look at our KYC brochure here.

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