The core pain point of KYC onboarding is friction. No customer wants to encounter it when they sign up with an organization.
Nor is it just applicants who can be inconvenienced by onboarding. According to McKinsey, banks use up to 40% of their onboarding time on KYC and due diligence processes. This time and labor can strain organizations’ ability to welcome new customers.
If not implemented effectively, KYC onboarding is where the potential inconvenience can begin. If implemented properly, however, it can reduce customer friction and lost time. With this in mind, let’s look at what KYC onboarding is and how to implement it well.
What Is KYC Onboarding?
KYC onboarding occurs prior to KYC checks. It involves the mandatory gathering and initial validation of a person’s details, such as their personally identifiable information (PII), which is required to initiate the full Know Your Customer process.
A successful KYC onboarding process requires the following steps to occur in this order:
- The prospective customer expresses interest in registering for a service. This is often achieved by entering their email address and chosen password.
- Upon acceptance of this information, the organization must request PII from the individual, usually one or more documents confirming their full name, address, and date of birth.
- Depending on the jurisdiction and the organization’s policies, other PII may be requested, such as the individual’s social security number in the US.
- The individual provides the requested information.
- The organization determines whether the information matches its KYC criteria.
Once all these steps are fulfilled, KYC onboarding is complete. The prospective customer is then eligible for the organization’s KYC verification.
If one or more of these steps fail, the prospective customer cannot be onboarded.
Why Is KYC Onboarding so Important?
KYC onboarding is crucial: It is required by AML-obligated and/or fraud prevention-focused industries. Onboarding ensures the KYC process is worthwhile and well-informed by verifying the identity of prospective customers and assessing their risk level.
By ensuring identity verification compliance, KYC onboarding increases an organization’s likelihood that it won’t waste its time dealing with illegitimate individuals. It also ensures the organization has at least a rudimentary understanding of its customers’ propensity (if any) for money laundering, the financing of terrorism, and other fincrime.
KYC onboarding is, therefore, an act of customer due diligence and enhanced due diligence. It supports businesses to protect their operations, reputation, and return on investment. A successful KYC onboarding process reduces the chances that friction and false positives will lead to customer churn and customer insult rates.
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KYC Requirements for Customer Onboarding
KYC onboarding varies depending on an organization’s business needs and jurisdiction. Even so, KYC onboarding’s two main requirements must be met:
- Ensure the prospective customer sends all their required PII and that every part of that PII is valid and reflective of a legitimate individual.
- Assess the screening results to determine whether the PII and the individual are eligible to pass the KYC onboarding stage and progress to the KYC process. I’m
Here is a four-step process that shows the actions organizations should take to achieve KYC onboarding from beginning to end:
- Check all requested PII has been received and deemed valid.
- Cross-check the PII with the person’s photo ID and/or other documentation.
- Carry out an initial risk assessment to determine if there are any reasons to question the person’s legitimacy. This allows the organization to determine the individual’s risk level to inform future due diligence procedures, such as anti-money laundering (AML) or fraud prevention regulations.
- Decide on the individual’s eligibility for the full KYC process based on the cross-checked personal information and risk assessment results. This final stage determines whether the individual’s KYC onboarding is successful or whether one or more queries need answering. Note that not immediately passing doesn’t mean outright failure. An individual needing further review could still become a customer by passing an enhanced due diligence (EDD) screening process.
These steps encompass the whole KYC onboarding process. However, the legitimacy of the individual is far from proven at this point. Indeed, KYC should be an ongoing process because there’s always more to learn about your customers, even after they’ve spent years with your organization.
Benefits of the KYC Onboarding Process
The benefits of KYC onboarding extend to the organization and its account holders by reducing risk and friction. This lessens the chances of the business and its customers being subject to fincrime attacks while also avoiding wasting time and effort on delayed security checks.
Let’s take a closer look at the benefits of the KYC onboarding process:
- Regulatory compliance: Carrying out KYC onboarding ensures organizations show the correct level of due diligence and comply with identity verification requirements, such as those mandated by AML compliance procedures.
- Market research: The documentation required to implement KYC onboarding helps businesses know their market, particularly if they cross-check their applicants’ PII with their digital footprint.
- Streamlining operations: KYC enables organizations to get to the root of their security priorities early. This avoids complications that can arise from poorly-ordered Know Your Customer operations.
- Reputational benefits: Early security checks and clear compliance with KYC onboarding show prospective customers that a business prioritizes its own and its customers’ safety.
Putting this all together, KYC onboarding not only ensures regulatory compliance but also enhances operations and the collective customer experience.
What Is the Relationship Between KYC Onboarding and AML?
Both KYC onboarding and AML require organizations to verify the identity of individuals to meet their compliance regulations. KYC onboarding is sometimes even a prerequisite for AML regulations. However, the two terms are not always interdependent.
AML is the umbrella term for all anti-money laundering precautions. KYC onboarding and KYC itself embody many components needed for regulatory compliance. This may include – but is far from limited to – AML and identity verification procedures.
Here’s a closer look at how KYC onboarding and AML correspond to one another:
- AML compliance calls for organizations to apply due diligence. KYC onboarding’s identity verification is often the first step of this.
- Both AML and KYC onboarding are systems of risk management. Organizations that carry out adequate KYC onboarding processes can help prepare themselves with the tools needed for AML risk assessments after their prospective customers have entered the signup stage.
- The data gathered to achieve AML and KYC onboarding are crucial to informing organizations’ fincrime prevention processes. The information obtained by both processes should be safely stored (in line with the business’s data protection obligations) to meet compliance requirements.
While KYC onboarding and AML are far from interchangeable, there is often an overlap in their processes. In fact, KYC and AML can sometimes have a symbiotic relationship depending on an organization’s jurisdiction and policies.
In the table below, you can learn more about the common and contrasting processes of AML and KYC:
How to Improve Your KYC Onboarding Processes
A crucial thing to remember with KYC onboarding and KYC itself is that there must be minimal friction for a prospective customer to enter the signup stage (and, later, the account creation stage). The best way to improve your KYC onboarding process is to minimize, rather than remove, friction.
With this in mind, here’s a list of recommended actions to help reduce friction:
- Deploy pre-KYC checks by ensuring prospective customers provide their basic details at signup.
- Enable dynamic friction by allowing low-risk individuals to be quickly onboarded. Meanwhile, act on the fact that those who are harder to verify will need to provide further information. For example, individuals whose addresses can’t be found on your database may need to provide more documentation than those whose details are found straight away.
- Weigh up your KYC procedures and solutions by determining what will and won’t stand the test of your KYC onboarding demands. For instance, if it’s too time-consuming to have your staff carry out photo ID verification, consider integrating biometric authentication solutions.
- In such a case, you could forgo asking prospective customers to email you a scanned copy of their passport or driving license and instead request they send a video of themselves holding up their documentation and stating their full name and the date of the recording.
- Offer regular feedback throughout the process to manage prospective customers’ expectations. For example, when they complete the initial signup, ensure they receive an automatic welcome email that details how the business will process their information.
- An important message in your welcome email is that while your organization will only ever ask for necessary documentation, it may require further information if any complications arise during the initial verification stage.
The best ways to improve KYC onboarding are to ensure prospective customers are well-informed and encounter as few delays and as little admin and repetition as possible.
How Can SEON Help in Your KYC Onboarding Process?
SEON automatically runs AML checks in the background while also offering its customers manual AML and social media lookup solutions. These search through various data sources at the push of a button.
These capabilities are vital to ensure your prospective customers face as little friction as possible while also taking care of your background checks – meaning your KYC onboarding process is fast and intuitive.
You can see how easily SEON’s AML checks work by entering someone’s full name into the widget below:
With a person’s name, SEON can search through politically exposed persons (PEPs), sanctions, and watchlists and quickly inform you if they appear on them.
In addition, SEON’s social media lookup functionality helps you determine each individual’s risk level. For example, a person’s digital footprint may show that their address and date of birth differ from what they claimed at the signup stage.
Adding extra automation to this process is optional: SEON customers can set their APIs to conduct such searches in the background as soon as a person’s details have been received.
All this allows SEON to offer you and your prospective customers efficiency and seamlessness. After all, if it reduces friction and expedites your KYC onboarding process, why not run your background checks in the background?
- KYC Compliance: Its Requirements & Steps to Follow
- KYC Integration: How It Works & the Advantages
- KYC Verification: How to Improve Your Process
Frequently Asked Questions
No. KYC can only occur after KYC onboarding is completed. Just as someone cannot become a gym member without being onboarded onto the gym’s system, a prospective customer cannot progress to the KYC process until they’ve passed the KYC onboarding phase.
The prospective customer provides a valid and adequate amount of personally identifiable information (PII) so that the organization can approve the individual’s account creation process.
KYC onboarding requires due diligence and AML compliance through the organization receiving, validating, and (when permitted) storing its prospective customers’ PII. Many KYC onboarding processes also require background checks, from social media assessments to PEP screening.
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Bence Jendruszák is the Chief Operating Officer and co-founder of SEON. Thanks to his leadership, the company received the biggest Series A in Hungarian history in 2021. Bence is passionate about cybersecurity and its overlap with business success. You can find him leading webinars with industry leaders on topics such as iGaming fraud, identity proofing or machine learning (when he’s not brewing questionable coffee for his colleagues).
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