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KYC screening of customers is becoming a norm in every industry, but none has explored the untapped potential of this compliance practice. It is a vital part of risk prevention in all industries but with the increase in identity theft and financial fraud, it has become inevitable for e-commerce. As e-commerce has an online relationship with its diverse clientele online KYC screening solutions are gaining fame in this industry.
What is an online KYC screening solution?
Online KYC screening solution is a SAAS product designed to verify individuals in real-time through identity documents. It helps businesses develop strong transparent relationships with their customers in real-time. A KYC screening solution performs identity verification on the customers through ID card verification, face verification, 2-factor authentication, document verification, AML screening, etc.
KYC solution is mostly an outsourced resource that shares the compliance burden of the businesses that are liable for KYC compliance. Such solutions deliver highly accurate results in real-time and reduced the time span and effort previously invested in due diligence practices. The identity screening process that took days can now be completed within a minute.
Frauds that can be eliminated through a KYC screening solution
Fraud is increasing in online spaces. E-commerce spends millions of dollars annually on fraud prevention and risk management. In 2017 the e-commerce fraud rose by 30% as compared to the previous year. The fraud rate in e-commerce was higher than the growth rate of e-commerce. The growth of e-commerce is dependent on its online stakeholders and these spaces include legitimate customers and fraudsters aswell. This is where e-commerce faces the biggest threat, i.e. how to identify fraudsters among legitimate customers.
Fraudsters take many facets to defraud online businesses, and an online KYC screening solution ensures that all these fake and fraudulent entities are identified beforehand.
Fake identity
As per the report of insurance information institute, 3 million identities were stolen in 2017, and most of these stolen identities were used to defraud businesses. Criminals use fake or stolen entities to register as a client on an e-commerce platform, later they flee with the goods or funds. At times they use the platform just to transfer funds anonymously. In the end when the fraud is captured the e-commerce platform is left with a fake entity and fraud losses.
Money laundering
As per the report of the United Nations annually laundered amount of money is equal to 2% to 5% of global GDP. This huge amount of money is laundered not only through financial institutions but online payment solutions, cryptocurrencies exchange, online forex exchanges, fintech solutions, etc. All these businesses are anticipated to grow tremendously in the near future but financial criminals are a major hindrance to this growth.
Some online KYC screening solutions also perform AML screening on the customers and that too in real-time. It screens the background of the customers and screens is credentials against global watchlists, sanction lists, and PEPs lists. KYC screening ensures that the customers are not using some fake identity documents for registration and AML screening ensures that the customer has no financial crime history.
Fake merchant fraud
Fake merchant fraud is when an individual uses a fake or stolen entity of a merchant to conduct business with an online platform. This fraud is also increasing because the global B2B industry is growing and millions of businesses are available in online spaces with their goods and services. So it becomes difficult to identify fake and legitimate merchants.
Performing basic KYC or identity verification on the merchants before onboarding them helps online businesses in developing transparent business relationships with fellow merchants. Such relationships are longterm and ensure growth for both parties. On the other hand, developing relationships with fake merchants is risky. The merchant might deliver low-quality content, or flee with the funds.
Sometimes, money launderers also use the facet of a merchant to launder funds. They incorporate their black money into the business proceeds to manipulate the authorities.
To wrap up, the KYC screening solution helps businesses in gaining retainable success and onboard reliable customers. E-commerce has huge growth potential and securing it from fraudsters and criminals will help the industry retain that growth for a longer period.
