The Importance of Know Your Customer for Crowd Funding and ID Verification Service

  • Richard Marley
  • December 12, 2017
  • 6 minutes read
  • 5935

In today’s world where most business and financial transactions are taking place online, the importance of knowing who exactly you’re dealing with has become essential. Not only since governments and regulatory authorities have implemented this requirement, but also to safeguard one’s business and financial interests. This is even more important when it comes to crowdfunding where potentially anyone can be an investor or a donor. The importance of knowing the background of who is sending the money and where specifically their money is coming from is of the utmost importance. The role of a ID verification service cannot be stressed enough in this scenario. Although, crowdfunding is not as regulated as other financial areas, steps are already being taken to ensure that it is. Before that happens organisations need to make sure that they are prepared. We will look at the concept of crowdfunding and the reasons behind the increase in regulations.

What is Crowdfunding?

Imagine you have a certain task or idea that you wish to bring in to fruition, there is just one catch you don’t have the money or resources. What would you do? Most people would go to a bank or a finance company to get a loan or maybe borrow from someone if the amount isn’t unreasonable. These days, however, there is another way you can get the funding you need. The way is crowdfunding, also known as crowd-sourcing, to finance your project and that too online. Through it you literally ask people to support your cause, project or idea and people donate, invest or lend you the money. For example, if you need $10k it would be difficult to get that amount from maybe a single individual, but if a thousand people were to give you $10 each then you could reach your financial goal quite easily. That is exactly what crowdfunding allows; the specialized platforms and sites that support it, have thousands of people who would fund you if it piques their interest or if you can offer them something in return.

Crowdfunding in itself is not a new concept. Without going into the history of it; it was done manually before it even reached the world of the Internet. For example in the US, presidential candidates rely on crowdfunding to support their campaigns and have been doing so for many decades. In fact many people relied on and still rely on crowd-sourcing to build hospitals, educational institutions and other projects to benefit humanity. The amazing part is all this was happening way before it became a popular financing method online.

Although there are several types of crowd-sourcing, we will use two examples to elaborate the role of — Know Your Customer, ID verification service and fraud prevention services. The two examples are ICO for cryptocurrencies and donation-based ones that are usually given with no expectation of return.

Risks and Threats Associated with Crowdfunding

There are several drawbacks to unregulated online crowdfunding. The first is the risk of fraud and this happens more often than you think especially during ICOs (Initial Coin/Crypto Offering) that are held by various cryptocurrency providers. In initial coin offerings people fund or purchase tokens or coins as they are more regularly referred to. If there isn’t a fraud prevention service such as Shufti Pro integrated then the purchasers that have used a credit card or debit card can later cry wolf and say that they never carried out the transaction. This results in charge backs and loss for the cryptocurrency provider.

The second threat is money laundering. People have been using crowdsourcing platforms to

launder money. This is due to the lack of proper Know Your Customer processes and id verification service. They often get away with this crime and when they do get caught by other means, all the venues they used to launder money including the crowdfunding platform is brought under investigation. To put in to perspective the severity of this threat, imagine what would happen if it was ever found out that the presidential campaign of the current US president was funded by laundered money. What would happen to the reputation of that president and the overall trust that people have in him? Luckily campaign funders are required to go through a KYC process that includes comprehensive background checks.

The third threat which is most critical in the post 9/11 era is that crowdsourcing platforms can be made a basis for finance terrorism and without proper ID verification service these financiers can be hard to identify and catch.

ID Verification Service and Fraud Prevention Service to the Rescue

Realising these hard facts, platforms that provide crowdsourcing service and cryptocurrency providers that carry out ICOs have turned to specialist companies for ID verification service and fraud prevention services. These companies have the software, hardware and expertise to provide real time as well as offline verification of an individual’s identity. They also offer proof of purchase in the form of recorded verification videos that can be accessed by crowdfunding platforms or ICO providers. Hence, any potential charge-backs can be deterred and/or disputed. In a worst case scenario the complete verified information of the individual is there so that they can be traced if required. These service providers also counter identity thefts and usually have databases that are ultra secure. So platforms and website owners can have peace of mind that their customer’s data is in safe hands.

Selecting an ID Verification Service

Having mentioned the value of verification service it must be said that not all companies offering fraud prevention services are the same. Companies understand that customers usually do not like waiting on or going through long KYC processes. That is why it is important that these platforms take on a company that gets the verifications done in minimum time and that too in seconds.

Most verification companies boast about implementing machine learning and advanced AI systems to catch documentation fraud, identity theft, real-time liveness verification, etc. But the better ones go the extra mile and offer a hybrid solution that includes a backup of human intelligence on top of the AI. This adds a time tested human touch to reverify the entire process and all this is done in seconds as well.

Also, given all the attention about user data privacy there are a lot of new regulations that are being launched. In order to avoid any fines or issues because of these new laws it is important that crowdfunding sites thoroughly check the ID verification service provider. They should be up to the mark with regard to compliance with all such rules and regulations.

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