Know Your Customer Compliance: 3 Steps

According to UK Finance, the first half of 2021 saw fraudsters steal £753.9 million. Compared to the first half of 2020, that’s a 30 percent raise. There has been a 25% increase in internet fraud in the United States as well.

Global financial crime has become a major issue due to criminals’ widespread use of financial institution systems to perpetrate fraud. They can only be stopped by implementing KYC (Know Your Customer) policies and enhancing security measures.

The three phases of the KYC verification procedure are explained in this article.

What does KYC stand for?

It is the process of verifying and verifying the identification of your consumers to determine their reliability and the dangers connected with their transactions. KYC is the most prevalent form of identification among banks, gaming and gambling websites, telecommunications firms, e-commerce enterprises, and other businesses that deal with money.

Why Is Postal Address Verification Required for KYC?

As a result of address verification, financial institutions may ensure that the individual making a transaction resides at their stated residence. A person’s real name and face may only be given to them via their postal address.

For example, postal validation API has decreased fraud due to a rise in financial crimes. It’s an extra line of defense against someone trying to steal your identity. To limit the likelihood of fraud and other illegal activity, contemporary postal address verification methods use artificial intelligence (AI) technology to confirm the accuracy of submitted addresses.

Verifying an address is important for the following reasons.

  • When law enforcement agencies investigate financial fraud, they frequently end up incorrectly. The assailant turns and goes away. Thanks to addressing verification, illegal financial activity may be traced to a specific address.

Mismatched billing address data also helps to identify suspicious activity before it occurs. A fictitious address is a red flag that something fishy is going on.

  • To have client orders delivered to the correct door, e-commerce platforms and online enterprises use address databases. Ensuring that products are delivered to the correct recipients every time is made possible by double-checking shipping addresses.

KYC’s Crucial Role in Business

The globe has shrunk to the size of a town because of globalization. There has been a rise in fraud and financial crimes due to data sharing and internet transactions. As a result, companies are required by law to carry out identity checks on their consumers.

The following types of illegal activity would be impossible to stop without KYC verification:

Identity theft

There will be 1.4 million allegations of identity theft received by the Federal Trade Commission in 2020. Compared to 2019, the numbers rose by 45 percent. To get the advantages or privileges that the original owner is entitled to, abusers sell false or stolen ID cards on the black market.

When it comes to protecting both enterprises and customers, KYC comes to the rescue. Thus, financial and non-financial companies may do thorough identification checks on their consumers to ensure that they are only working with reliable individuals.

Money laundering

Banks and other financial organizations often deal with the issue of money laundering. Human trafficking, smuggling, terrorism, narcotics, and other illicit acts are funded partly by the money that criminals stash in fictitious bank accounts. These fictitious bank accounts are used to launder large sums of money by distributing them around several other accounts.

The good news is by implementing KYC best practices; firms can monitor the records of financial activities. It helps them to combat money laundering and make financial activities more transparent.

A scam using stolen money.

Financial fraud is another important issue that KYC aims to solve. An example of financial fraud is credit card fraud. When someone takes your card or hacks your card online, you’ve committed credit card fraud. Because of this, the card’s original owner is now responsible for any charges that were not allowed.

Loan fraud is yet another kind of financial fraud. Fraudsters construct dummy accounts with phony IDs and fill out a loan application. They just disappear with the borrowed funds after the application has been accepted.

Generally speaking, KYC is the initial stage for firms to know their customers. Fraud may be lessened by using this data to better serve consumers.

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