The process of customer onboarding is crucial in establishing a strong connection between clients and businesses. KYC onboarding is particularly important for regulating entities like banks and other financial institutions.
KYC onboarding is a procedure where businesses take measures and careful steps to identify their customer’s identities in order to protect businesses. Basically, it’s a process of customer due diligence (CDD) to be done during customer onboarding.
The KYC process varies in different countries of the world. However, here are the following credentials a business must collect before customer onboarding:
- Full Name
- Date of Birth
Once a financial institution or a business has gained a piece of certain information from their clients, verification is the next step. It’s important to confirm the identity of the person sharing the information to ensure it belongs to them. Enterprises have to gather identity documents from their customers and cross-match them against the available databases.
However, mere KYC onboarding is not enough to ensure the security of the corporate and finance sector. In fact, continuous monitoring of customers and their financial activities play a vital role in protecting businesses from fiscal damages.
KYC onboarding aims to verify customers’ identity and analyze the risk while initiating business with them. In the KYC client onboarding process, the system starts with customer identification, analyzes their intentions, and also keeps a check on their transactions.Here are the main steps in KYC onboarding:
- Collection of data and identity documents from customers
- Background checks for verification of the data submitted by customers
- Conducting historical checks to analyze the previous criminal record of customers and finding if there are any sanctions against them
- Categorize the clients and see if they are low or high-risk
- Commencement of the financial or business relationship if clients pass all the above-discussed checks and application of consistent AML transaction monitoring
All the AML-obligatory financial and corporate sectors have to follow KYC customer onboarding procedures to avoid huge financial losses and fraud.
Following regulated financial institutions must ensure KYC onboarding:
- Insurance Companies
- Real Estate Sector
- High-value Dealers etc
Well-structured KYC process is critical to combat illegal financial activities, for instance, money laundering or other fiscal crimes. Due to this reason, the regulations concerning anti-money laundering (AML) and counter-terrorist financing (CFT) require KYC procedures.
KYC onboarding procedures are mandatory since they hold an integral position in CFT and AML regulations. That’s why financial institutions and banks have to perform KYC processes while onboarding new customers before opening their accounts.
Following AML regulations, businesses have to carefully monitor and verify their customers while onboarding. Moreover, it’s mandatory to keep a check on the customer’s ongoing transactional activities. For instance, sudden changes in user transactional activities indicate suspicious activities.
Negligence in conducting smooth and thorough KYC onboarding processes leads to failure in meeting AML and KYC compliances. It can cause huge financial damage to businesses and financial sectors and hence make them face immense reputational losses.
The establishment of authentic onboarding processes is significant to ensure that the business or financial company meets standard requirements. However, inefficient KYC onboarding processes quickly drop the conversion rates.
Some businesses offer lengthy and time-consuming KYC onboarding processes and hence struggle to convert their customers. Therefore, it is crucial for enterprises to streamline KYC onboarding procedures to retain their customers. The use of enhanced KYC and AML compliance solutions automates the process of document verification by 98% and completes the identity verification process in six seconds only.
Moreover, businesses should also help their clients get through the procedure of KYC onboarding smoothly. By explaining the prerequisites of the identification and verification process, the corporate sector can ensure the smooth onboarding of its customers in the first go.
Ensuring a smooth and efficient KYC onboarding process is crucial for businesses, especially those in the financial and corporate sectors, to verify customer identities and protect themselves from fraudulent activities. This process involves collecting customer data and identity documents, conducting background and historical checks, categorizing clients based on risk, and applying consistent AML transaction monitoring.
Failure to conduct thorough KYC onboarding processes can lead to non-compliance with AML regulations and significant financial damage. To improve the process, businesses should streamline procedures, utilize enhanced KYC and AML compliance solutions, and provide clear explanations to customers. This approach can help in maintaining customer satisfaction and creating a seamless onboarding experience.