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Anyone who’s worked at a FinTech for longer than a few minutes has heard the term KYC. You probably think it stands for something technical, or at the very least something specialized to the banking and financial industries. But actually, it stands for something fairly ubiquitous across all businesses – Know Your Customer.

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What is KYC?

As a FinTech, you’ll need a strong understanding of the types of customers your company serves and will onboard for more than just your own business success. Having a KYC process is important because: 

1. It’s required by law. KYC processes are required by laws and regulations for bank accounts. These regulations are intended to combat financial crimes such as money laundering and terrorist financing. 
2. It mitigates fraud. A strong KYC process can mitigate fraudulent actors and reduce potential losses to your company.

In the United States, most KYC regulations center on having an appropriate customer identification program in place (i.e. collecting the name, date of birth, address, and identification number of each new client) and performing sufficient due diligence and monitoring. These requirements are dictated by the USA PATRIOT Act of 2001, as well as rules and requirements from Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Treasury.

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Consequences of failure

As you might have guessed, failure to comply with these requirements can have some steep consequences. A report from 2021 outlines that in just that one year alone, 80 financial institutions were fined $2.7 billion for AML (Anti-Money Laundering) and KYC violations. Capital One and Deutsche Bank were fined $390 million and $130 million respectively by U.S. regulators alone. 

And that report says nothing of the fraud that many institutions may have incurred, which the FTC reported rose to $5.8 billion in 2021. It’s difficult to estimate how much that fraud impacted businesses versus consumers, but it’s likely that proper KYC processes could help to prevent at least some of it.

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KYC best practices

With all that in mind, optimizing for KYC best practices can save you and your FinTech many headaches down the road. A few that we suggest at Synctera are:

Optimize the onboarding journey

Many of our customers are surprised by just how many customers fail KYC requirements, and while it can depend on the industry and customer characteristics, KYC programs should account for the fact that many customers will not initially pass.

Keeping in mind that a significant number of customers will fail KYC and need further assistance, making their initial experience as seamless as possible is important. In 2016, a Thomson Reuters survey of 800 financial institutions’ corporate customers found that 89 percent did not have a good KYC experience, leading to 13 percent of them switching their relationships. 

In order to prevent that from happening, FinTechs should make their KYC onboarding process simple, intuitive, and easy to follow. Customers should be provided with clear instructions on what information you need from them, and why. The why is important – by educating your customers on KYC’s purpose you increase their willingness to provide the necessary information and emphasize that it’s for their security.

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Ensure data quality

Ensuring the quality of the data you collect is also important. By building checks for minimum character requirements, proper dates, addresses, and email formatting to reduce typos, you can improve failure and abandonment rates. Allowing customers to double check for potential errors and offering double, triple, or even quadruple chances to correct errors can help in not only getting customers through the process, but passing without major issues and hassle.

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Be able to verify documents

When onboarding customers, in certain cases you may need to verify customer identity documentation. For example, a customer may not have a Social Security Number or an Individual Taxpayer Identification Number. Or, your Know Your Customer (KYC) system may have flagged the customer for review. In these cases, you can use Synctera KYC Document Verification to check identity documents, validate that they are real and accurate, and compare them with user-entered data. 

Without a document verification product, you’ll need to reach out manually to each customer and hope that they respond (spoiler alert: a lot of the time, they don’t). With Synctera Document Verification, 60 percent of the approximately 35 percent who require verification do complete the process, not only saving you customers but also saving you time and energy along the way. 

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Understand and adjust your KYC process over time

After your KYC process is built, you should continue to analyze customer behavior at each step of the process and make adjustments as needed where you see customers falling off. 

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KYC for FinTechs

If you’re a FinTech building and launching an app or embedded banking product, setting up a comprehensive KYC program will not only allow you to adhere to regulations, but it will also become a critical component of your onboarding and monitoring processes. 

When you build and launch your product with Synctera, your customers will automatically be required to go through and pass our KYC process before they can transact, protecting both you and your customers. Here’s how Synctera can help you establish an effective KYC program:

• We offer Synctera Know Your Customer (KYC) and Synctera Know Your Business (KYB) for initial identity verification, plus Synctera KYC Watchlist Monitoring and Synctera KYB Compliance and Risk Monitoring for ongoing monitoring. All services are powered by best-in-class providers and fully integrated already with the Synctera platform. You and your FinTech can access them simply by calling Synctera’s single set of APIs. 
• If, for some reason you are already working with another KYC vendor, potentially for international customers, Synctera still requires verification checks for each customer, ensuring compliance for regulatory audits. If you are working with another vendor, please see this guide in our knowledge base for more information. 
• Our Risk & Compliance team can advise you on policies and procedures. We also offer Synctera Ground Control: short-term, end-to-end banking and compliance operational support so you can launch before your in-house compliance team is fully staffed.

Every FinTech will at some point need KYC. And at Synctera, we’re here to make that process easy. Reach out at the link below to our team to find out more!

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