Know Your User

When it comes to onboarding new prospects, user convenience and security are the most important aspects for a business. Knowing your user plays a key role in understanding their needs which helps reduce friction in customer experience. It has become a mandatory practice in business operations to verify user identity before onboarding. This creates a safe and secure channel of communication between the user and the business.

What is Know Your User?

Know Your User (KYU) is the process to identify and validate the end-users of a business’ product or service. The process usually takes place before onboarding where users submit essential information to complete the verification procedure. This way, only legitimate customers with real identities can open new accounts and enrol with a business.

Why is it Important to Know Your User?

Online service providers need to protect their users from the risk of cybercrime while also keeping off fraudsters from their platforms. Know Your User helps businesses/organisations take the necessary measures to verify authentic users and provide them with the level of security they need. It is important because of the following reasons:

• To prevent a business from associating ties with potential criminals
• Understanding the user’s needs to provide them better services
• To make the customer onboarding process quick and easy

Since online businesses involve a good deal of monetary influx they are at the risk of potential cybercrime. This makes it increasingly essential for them to adopt practices for foolproof verification of their clients.

KYU – How to Verify User Identity?

The Know Your User process starts with user identification which incorporates identity documents. Once the information is extracted from the IDs, the next step is to verify their credibility. A digital solution for user onboarding also includes facial authentication which is used to cross-check the user’s live presence for detailed verification.

In case the user is a business entity, they are verified through corporate documents, information about Ultimate Beneficial Ownership (UBO), and their financial records. This allows organizations to maintain high-risk users to meet Anti Money Laundering requirements. 

Compliance Obligations for User Onboarding

Financial regulators like European Union, FinCEN and FATF require online businesses to invest in better compliance practices to take down cybercrime. These regulations help businesses fight fraud and seek reputation as a verified entity which creates a better brand image. Some laws which emphasize on secure user onboarding are listed below:

• The Bank Secrecy Act (BSA) that is a federal law in the US requires all banking entities to verify their users before onboarding. Any suspicious transactions or activity performed by the end-user should be reported to the Financial Crimes Enforcement Network (FinCEN). 
• The AML directives by the European Union also require online businesses to conduct secure user onboarding and AML Monitoring.    
• The AMLA in France, Anti Money Laundering Act, lists identity verification laws for customers of financial enterprises. 
• User verification regulations for financial entities are stated in the Money Laundering Act (MLA) of the UK
• Australia’s AML/CFT Act has also published AML/KYC guidelines to verify user identities of corporate customers.

Businesses that need KYU

Know Your User allows a wide array of industries to benefit from safe user onboarding and prevent cybercrime. Some of them are listed below:

• Financial Industry including banks, insurance firms, payment services, brokerage houses, Non-banking Financial Companies (NBFCs), etc
• Fintech businesses such as digital payment solutions, online mortgage providers, Virtual Asset Service Providers (VASPs)
• Hospitals, online care centres, pharmaceuticals providers, and other healthcare facilities
• Online gaming platforms
• Peer-to-peer economy
• Travel Industry
• Real estate