Whether you are an individual or a businessperson, it’s highly unlikely that you don’t have any connection with a bank. If you do, for some years now, your financial institution may have required, on one or more occasions, that you provide details to identify and explain the associated economic activity. If you remember, these requests probably mentioned KYC policies, which stands for Know Your Consumer. What is this all about?
PSD2 and KYC prevents money laundering
The international fight against money laundering is at the heart of governments’ KYC requirements, as is the criminal activity associated with money laundering (organised crime, drug trafficking, terrorism, etc.). These measures have been adopted in countries all over the world as a result of international agreements. For example, countries in Europe have established a Europe-wide regulatory framework in addition to individual national laws.
If your company is going to provide financial services for consumers, you will have to become familiar with terms like KYC , but also with others like AML, which stands for Anti-Money Laundering. This is the case, for example, of companies that act as payment initiators, as the new PSD2 obliges companies considered Third Party Payment Service Providers (TPP) to register as Payment Initiation Service Providers (PISPs) or as Account Information Service Provider (AISPs). They will therefore have the same obligation to collect certain information as a traditional bank.
The KYC processes for PSD2’s application
As we said, this has meant that, starting a few years ago, organisations have required their clients to provide official identification (for example, a passport), even if they have had dealings with that person for years. In addition to this official ID, they also have to provide some sort of “real” identification, to prevent, for example, the use of fronts to set up businesses. Here we will be asked for information to show the nature of our activity as professionals or businesspeople (paystubs, income tax reports, social security payments, etc.).
As it is a legal requirement, failure to provide this information may even mean we can’t open an account, or that the one we have will be closed. Because, additionally, the organisation has the obligation to follow up with clients and request additional information if, for example, it detects a possible change of activity.
PSD2 reinforcing security
We see that the new players (like FinTechs) on the financial scene aren’t going to decrease the measures geared towards fighting money laundering. The new European directive on payment services, PSD2, reinforces security measures, requiring, for example, stronger authentication or SCA (Strong Customer Authentication).
The new directive will mean users have to provide at least two of three possible things to identify themselves (and, therefore, access the financial service): something they know (like a password or PIN); something that belongs to them (like a card or a mobile); and something that is part of them (for example, a fingerprint or other biometric value).
APIs to identify the consumer: KYC
Many possibilities have opened up as a result of open banking plus technological development, and all of them should help improve customer service. For example, it is now possible to work with digital onboarding (a remote identification process), with all its benefits over face-to-face or semi-remote options, in terms of comfort.
But, how can your business comply with the new demands without affecting customer experience? At Unnax we offer APIs that will allow you to access your customers’ banking activity to identify them (in full compliance with KYC and AML, in real time); while also informing you of their financial status. And, as an extra advantage, you will be collecting useful information on their consumption habits. We’ll help you take advantage of it.