What You Need to Know About KYC for Online Lending
Last Updated: March 15, 2023 by Jimmy Fong
Carrying out KYC (Know Your Customer) for online lending is mandatory to ensure that you provide online loan payments to loan applicants you can trust.
There are, however, many things that online lenders have to keep in mind so that they carry out their KYC processes safely and effectively.
Let’s take a look at KYC for online lending and what online lenders need to know about the process.
Why Is KYC Essential for Online Lenders?
Put simply, it’s because KYC helps online lenders know to whom they are offering their loans. Offering loans is a sensitive process, and it’s even more sensitive when the loans are offered online instead of face-to-face.
KYC is also essential for online lenders in the sense that Know Your Customer checks are a legal requirement for any organization issuing loans. Non-adherence to KYC obligations can result in prosecution.
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Requirements for Online Lenders?
One legal requirement for online lenders is the implementation of KYC checks, but with that requirement come many other ones that online lenders must adhere to.
These KYC-related requirements typically include verification of a customer’s face, ID card, and documentation. This is why online lenders should ask prospective customers to provide documents such as utility bills, so that they can confirm the customer’s address, among other details.
While the law requires online lenders to carry out KYC checks, specific requirements will depend on their jurisdiction.
For example, online lenders based in the US must follow KYC laws at the federal level, meaning that they must adhere to the Bank Secrecy Act. This dictates that they must undertake and record certain activities, such as ensuring that they complete a Suspicious Activity Report (SAR) when such a need arises.
Meanwhile, EU-based online lenders are legally required to comply with KYC rules in line with 6AMLD and GDPR. These two regulations ensure that online lenders must record their KYC processes for anti-money laundering purposes and that they protect customers’ personal information throughout the process.
Three Custom Rules for KYC for Online Lenders
SEON’s fraud prevention software is equipped to help the KYC process along for its customers by flagging suspicious activity from individuals – sometimes before the KYC process even begins.
Let’s check out the top three custom rules that SEON offers online lenders wishing to carry out KYC processes.
#1: Disabled Cookies & Suspicious Browsing Behavior
Many people disable their browser cookies for the sake of convenience; however, some people do so to evade detection.
In the context of online lending especially, fraudsters and other malicious actors will consider (among other things) disabling their cookies in an attempt to render their browser activity as hard to trace as possible. This decision could be made for fear that their digital footprint could lead to them failing a KYC check and ultimately being refused a loan.
This is where it becomes particularly useful to set a collection of rules relevant to suspicious browsing activity.
Let’s take a look at the below screengrab, particularly the two red windows superimposed on it.
The info in the two red windows reflects the fact that SEON’s software can be set to flag when a user has disabled browser cookies and is displaying other suspicious browsing behavior, such as the use of a browser version that is five or more years old. This is because they may be choosing an old application to circumvent the latest internet security systems.
Customers of SEON can act on such suspicious browsing behavior by having it set a fraud score for anyone who disables their cookies, uses an outdated browser, and so on.
#2: Email Address Is Disposable
An email address that has been obtained through a disposable email provider is suspicious because it reflects a clear likelihood that the person who chose it does not want to be traced.
As the above screengrab shows, the “Domain is disposable” rule is one that focuses on a particularly suspicious type of customer.
In fact, the screengrab shows that the SEON software has been set to assign a fraud score of 80 – a substantial number because SEON recommends that even fraud scores of 20 or more should be considered risky – to anyone using a disposable email address.
While it may seem obvious that anyone who enters a KYC process with a disposable email address may be suspicious, this rule nevertheless reflects a simple but effective solution. It offers SEON’s customers a chance to flag up potentially dangerous entities before they even enter the KYC stage.
#3: User Matches a PEP Check
SEON’s software can flag anyone who matches a PEP (politically exposed person) check. In other words, SEON notifies its users whenever they have customers/prospective customers who are registered as politically exposed persons.
Public figures, like judges, may be politically exposed and therefore listed on a PEP register. And while being a PEP is far from a surefire sign of being a financial criminal, the use of PEP checks helps online lenders evaluate whether there is cause for hesitation. This is often simply because there are factors, such as their likelihood of being targeted and/or bribed by money launderers, that warrant a need for PEPs to be flagged as such. Accordingly, many online lenders will find this a valuable tool.
The below screengrab shows the rule:
Let’s look at the red window here. By having the parameter, “PEP match is equal to true” (in other words, “it’s true that the customer matches a PEP check”), SEON’s software ensures that online lenders who are planning to carry out KYC checks will know whether their loan applicants are politically exposed before they enter them in a KYC check.
Note that the user in this screengrab has decided to set their software to flag these PEPs for the “REVIEW” status. As such, that user will have the chance to do their necessary background checks on an individual as early as possible. This may help them decide that the queried PEP is too suspicious to enter the onboarding stage of the KYC process.
How SEON Helps Online Lenders with KYC Compliance
By offering a fast and comprehensive approach to querying and flagging potentially suspicious customers, SEON helps online lenders both adhere to and benefit from KYC compliance.
KYC compliance becomes more reliable and efficient when it follows an extra layer of security, and that’s exactly what SEON’s software offers online lenders: a means to help them decide who to approve, review, or reject.
Ultimately, online lenders’ adherence to KYC compliance is a legal requirement, but that doesn’t mean they can’t ease the process by using the best equipment. Online lenders will benefit from the initial checks that SEON offers because it will arm them with a means to decide which of their loan applicants are suitable to enter the onboarding process of KYC checks.
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What You Need to Know About KYC for Online Lending
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Jimmy Fong is the Chief Commercial Officer of SEON. His expertise in payments saw him supervise the acquisitions of companies by Ingenico, Visa and American Express. Jimmy’s enthusiasm for transparent sales and Product-Led-Growth companies drives SEON’s global expansion strategy, and he interviews both fraud managers and darknet fraudsters in our podcast to stay on top of the latest risk trends. Yes, it’s also him wearing the bear suit on our YouTube channel.
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