If you’re taking advantage of the opportunity provided by embedded finance and are considering launching a branded card program, then one of the things you will have to get familiar with is KYC and KYB. Having a compliant KYC or KYB flow is not just a nice to have, it’s a need to have.
In this explainer, we’ll help you get a working understanding of KYC and KYB, their significance, challenges, competitive advantages, and a view into the KYC/KYB process when working with Bond.
What is KYC and KYB?
KYC (Know Your Customer) is a process through which businesses verify and authenticate the identities of their customers. It involves collecting personal information, such as name, address, date of birth, and government-issued identification, to ensure that customers are who they claim to be. KYC helps detect and prevent identity fraud, money laundering, and other illegal activities.
KYB (Know Your Business) is an extension of KYC but focuses on verifying the identities of businesses or corporate entities. It involves gathering information about a company's ownership structure, financial records, and legal status. KYB is crucial for understanding the risks associated with business relationships, especially when offering financial services like branded cards.
Why is KYC/KYB So Important?
First and foremost, KYC and KYB are essential for regulatory compliance. Financial institutions and businesses are required by law to perform due diligence on their customers and business partners to mitigate financial crime risks. You may not have thought of your company as a financial institution, but as soon as you begin issuing cards and moving money, you effectively become one. Non-compliance can lead to severe penalties, legal consequences, and damage to your brand's reputation.
KYC and KYB processes help identify high-risk customers or businesses, allowing you to make informed decisions about whether to engage with them. This risk mitigation is critical in preventing fraud, financial losses, and reputational damage. It can often mean the difference between your card program continuing successfully or it being shut down.
For customers, KYC ensures their personal information is protected, and they can trust the business they are dealing with. It enhances customer confidence in your commitment to security and ethical business practices.
By verifying customer identities and scrutinizing business partners, companies can effectively take a proactive approach in preventing identity theft, fraudulent transactions, money laundering, and safeguarding their financial operations.
Common Challenges with Implementing KYC/KYB
Implementing compliant KYC and KYB processes can be complex and often presents several challenges:
Lower Conversion Rates: Some KYC/KYB flows ask for a lot of information and individuals may get frustrated or may simply not have the required information on hand. This can lead to abandonment of the KYC process.
Data Accuracy: Obtaining accurate customer or business data can be challenging, as individuals and companies may provide incomplete or incorrect information.
Regulatory Complexity: Staying updated with constantly evolving regulatory requirements and ensuring compliance across jurisdictions can be demanding and resource-intensive.
Cost: Building and maintaining an in-house KYC/KYB solution can be expensive, requiring investments in technology, staff training, and ongoing compliance efforts.
Integration: Integrating KYC/KYB into existing systems and workflows can be challenging, potentially disrupting business operations.
Privacy Concerns: Collecting and storing sensitive customer and business data raises privacy concerns, necessitating robust data protection measures.
KYC/KYB as a Competitive Advantage
While KYC and KYB are primarily compliance measures, they can also be leveraged as competitive advantages:
Implementing robust KYC/KYB processes demonstrates a commitment to customer security and compliance, which can attract customers who prioritize trustworthiness.
Optimized KYC/KYB processes streamline customer onboarding, reducing friction and improving the overall user experience.
Better Risk Management
Identifying high-risk customers or businesses enables enterprises to make informed decisions, minimizing financial losses and fraud.
Adopting a flexible KYC/KYB solution allows enterprises to adapt quickly to changing regulatory requirements, staying ahead of compliance challenges.
So How Does Bond’s KYC Process Work?
Using Bond’s APIs, the KYC process can be viewed as three steps:
Step 1: Data Provision
Before a customer can be created, their identity needs to be verified. This step is initiated by an API call on Bond’s platform. The potential customer will be prompted to submit their personally identifiable information (PII) to create an account. PII may include data such as:
- Date of Birth
- Physical Address
- Email Address
- Social Security Number
- Government Issued Identification
Bond recognizes that this step is often the source of drop offs and we have worked with our verification vendors to deliver a process that limits the amount of PII data entry required while still maintaining a regulatory compliant process that limits your exposure to high-risk customers and entities.
At times the information the customer enters may contain discrepancies and needs to be verified by document collection. This takes us to the next step.
Step 2: Document Upload
While we typically see an over 90% automatic pass-rate without the need for document upload, in a minority of cases, the KYC process will require that one or more documents be submitted or that information be re-entered. At this stage we verify the documents and the re-submitted data in an attempt to ‘pass’ the user.
Bond’s KYC verification process currently supports over 50 types of ID documents and we provide a unique full-featured widget to guide users through the process to ensure as little friction as possible.
Step 3: Verification
When the KYC process has been successfully initialized and the customer has provided their information, it goes through Bond’s Automatic Evaluation Process (AEP) where the data is verified against a vast array of authoritative databases such as eCBSV and the DMV to ensure authenticity.
This process results in four possible outcomes:
- Passed - The customer information provided was sufficient to fulfill KYC obligations
- More Information Needed - Additional information is required to complete the KYC process
- Review Required - Bond must review the provided information for a final decision
- Error - An error occurred during the KYC process
When it comes to ‘Review Required’, Bond is unique in that not only do we provide APIs and workflows for our brands to satisfy regulatory requirements, we also go one step further by helping the brands review and exceptions to ensure a health KYC pass rate while simultaneously reducing the risk to their program.
If the process returns an outcome of ‘passed’ the customer is now eligible to create an account or get access to the financial solution you have on offer.
What About KYB?
Bond’s platform gives you the ability to provide financial services to business customers and the KYB process is very similar. The KYB process is designed to verify the legal business entity itself, however, each and any business application must be accompanied by a Beneficial Owner. This beneficial owner will have to go through the KYC process as well.
The data required for a business includes:
- Employer Identification Number (EIN)
- Legal Business Name
- Doing Business As Name (DBA)
- Business Type
- Incorporation Date
- Physical Address
- Beneficial Owner(s)
In order to provide the best user experience, Bond triggers a KYC flow for the beneficial owners during the KYB process. This greatly reduces friction for those submitting information as part of the KYB process.
The KYB flow provided by Bond’s platform was designed to meet regulatory requirements without the need for additional development work by our customers. Bond’s platform provides a convenient widget that plugs into the application and guides the end-customer through the KYB process.
In the world of enterprise business, KYC and KYB are vital tools for regulatory compliance, risk mitigation, and customer trust. Implementing these processes can be challenging, but when done right, they offer competitive advantages and improve overall business performance.
With Bond, you can verify most users immediately with only a fraction requiring further investigation. We optimize the process by collecting only the data we need while maintaining a high standard of data protection when it comes to user’s PII. As for business customers, we provide an optimized KYB process that integrates KYC for the Beneficial Owners and one that can collect and verify any documentation regardless of format, such as business registrations or certificates of incorporation.
To learn more about how we make KYC/KYB simple to implement with our plug-n-play KYC widget, contact us here.