The KYC acronym stands for know-your-customer. It’s a common identity-verification procedure, in which a buyer, user, or consumer of any kind needs to prove that they are who they claim they are.
To be more precise, service providers are obliged to ask the person in question to identify themselves through a series of activities.
This article goes into the most common situations in which you might be asked to undergo a KYC-check.
1. Gaming Platforms
Gaming companies, platforms, and websites commonly require gamers to submit their age and locations, as well as one or more payment methods. The age thing is important because of the potential age restrictions. The location is here for geotargeting, and the payment methods are important for smoother gaming experience and personalization.
While undergoing a KYC procedure is considered beneficial for both platforms and players, sometimes this process detracts from a comfortable gaming experience. This approach is commonly used in iGaming, to comply with anti-money laundering requirements. Luckily, there are a growing number of the safest KYC-free platforms where players can enjoy their favorite casino games without having to submit their ID documents for verification first. These sites often use crypto instead of fiat currencies for payment, so they don’t have to comply with the requirements associated with traditional payment methods.
2. Buying Cryptocurrencies
We’ve witnessed the fast development of the financial technology industry in the last decade, particularly blockchain technology and cryptocurrencies. A cryptocurrency is simply a digital currency, protected with cutting-edge encryption. It’s not centralized, so that no single financial institution has complete control over it.
In 2021, the value of all existing cryptocurrencies surpassed #3 trillion, showing the consuming power of these assets.
But if you want to register to any mainstream crypto trading platform, you’ll have to pass a know-your-customer procedure. You’ll have to enter your personal data – name, surname, ID or passport number, email address (and verify it), and one or more payment methods from which you’ll transfer fiat money to buy crypto. You might also be asked to provide additional authentication factors, such as the mobile phone, biometric data, or any other feature that the website in question insists on.
Even though there’s no centralized supervision over cryptocurrencies, companies behind those platforms do take various precautions to keep their users safe. Hence, the KYF-check procedures.
3. Real Estate Operations
Let’s say you work at a real estate agency and one day a too-good-to-be-true client enters your door. They want to buy an expensive property and have enough assets to carry out that transaction. Nevertheless, they can’t prove the origin of the money in question. There’s no notice from the tax authorities that the potential buyer has paid the necessary taxes on that sum.
What every real estate agency should do in this question is double- and triple-check such a person. If you let things go that way, the bank or other payment-mediating institution that will be closing that deal would certainly ask a question or two. And if your agency is found guilty of not checking a suspicious buyer, your business will go bankrupt and you might face a prison sentence.
4. Legal Operations
KYC measures are meant to increase the security level of every person involved in a certain legal, financial, or business relationship in general. Primarily an addition to the global Anti-Money Laundering (AML) regulative, it’s an essential part of the onboarding process in every sector.
But organizations working in the legal field are under special scrutiny to carry out all the relevant background checks. It doesn’t only refer to legal entities, but to natural persons, as well.
Law offices and large legal companies handle a huge amount of personal and business information, together with financial data. As such, they’re the numero-uno target of various criminal groups and organizations.
In order to avoid falling victim to fraud, data theft, and reputation churn, conducting detailed customer verification checks is not a matter of choice in this industry.
5. Banking Services
People are most sensitive to their emotional relationships and balance sheets. Hence, financial organizations – banks, insurance companies, payment processors – must take KYC-checks with utter responsibility.
On the one hand, they’re obliged by the law to apply a certain number of checkpoints in terms of client identity. An average bank customer must submit their personal data – name, surname, ID/passport, physical address, mobile phone number, email address. Unlike some digital currency platforms that might not ask you to enter your physical address, traditional banks will always require this piece of information.
Every financial institution also has their internal rulebook for additional client clarification and categorization. For instance, a business that receives numerous chargebacks might be labeled as a high-risk entity by the issuing bank. It could impose higher commission fees to handle their transactions and chargebacks.
Likewise, natural persons who are regularly credited more money to their account than they’ve reported as monthly remuneration could cause concern and undergo additional background checks.
The Final Word
Every business entity should do everything they can to protect their operations and their clients. Carrying out know-your-customer checks is the cornerstone of a secure and client-centered approach to business management. For all the above, do your homework and always ask your customers to prove their identity.