KYC in Banking
KYC in Banking

Understanding the Meaning of KYC in Banking

The dawn of various digital platforms and channels has transformed how we conduct financial transactions. Its convenience has made it so popular with consumers and businesses alike, making online transactions the preferred mode of financial exchange.

However, the development of financial technologies has also opened doors for new and evolving threats. Fraud and money laundering are major concerns in the Philippines, where business digitization continues to grow. This is where KYC checks in banking and business step in. Through this system, financial institutions implement identity verification software—acting as a defense mechanism for safeguarding their operations.

As experts in credit scoring solutions, Finscore has put together this guide to help you understand what KYC checks are and their significance. Through our expertise, we can help you strengthen your systems and seamlessly integrate KYC processes into your financial ecosystem.

What are KYC Checks?

“Know Your Customer” or KYC is a mandatory process for banks and other regulated institutions to verify their clients’ identities and assess potential associated risks. These checks are not simply a box-ticking exercise, they are fundamental to financial security. Generally, performing KYC checks serves several core objectives:

  • Identity Verification: KYC checks ensure that customers are who they claim to be. This verification process typically involves collecting and validating government-issued IDs like passports or national IDs, as well as proof of address documentation.

This helps prevent identity theft and fraudulent account openings, protecting both financial institutions and legitimate customers.

  • Risk Assessment: KYC goes beyond simple identity verification. It’s a deep dive to evaluate the likelihood of a customer engaging in illegal activities such as money laundering or terrorist financing.

This assessment often involves analyzing financial transactions, sources of income, and business activities. By understanding the customer’s financial profile and risk potential, institutions can take appropriate measures to mitigate risks and comply with anti-money laundering (AML) regulations.

  • Understanding Source of Funds: KYC regulations require financial institutions to understand where a customer’s funds originate from. This helps identify suspicious activity that can cause significant damage to both the business and other clients.

For instance, large deposits of cash with unclear origins raise red flags, prompting further investigation.

Getting to know customers is generally done for most entities going into partnerships with financial institutions. In fact, there are two types of KYC checks in the Philippines:

  • Individual KYC: When you go into a bank or apply for accounts online, you’re usually asked to provide documents like passports, government IDs, and proof of address. This is the most common type of KYC check used for onboarding a single customer for bank accounts, online wallets, and other financial services.
  • Business Entity KYC: Now, if you have a business, a KYC check verifies the legitimacy of your company. It typically involves checking for registration documents, ownership structures, and beneficial owners.

This helps ensure that your organization operating within the financial system is legitimate and is not a front for illegal activities.

Understanding what KYC identity verifications are and implementing this process is part of the due diligence financial institutions employ to increase their security. This check adheres to the requirements of the Data Privacy Act, ensuring your and the company’s information remains confidential.

KYC Checks

Applications of KYC Checks Across Industries

While KYC checks are equally important in other industries, organizations that often deal with financial transactions may need them more. That said, here are some industries that require KYC checks:

Banking and Financial Services

For banks and financial institutions, KYC compliance is essential for preventing fraud and money laundering. Verifying customer identities and understanding their financial backgrounds helps banks avoid being used as channels for illegal activities.

KYC compliance also builds trust with regulators, ensuring financial institutions operate within the bounds of the law.

However, traditional KYC processes in banking can be slow and cumbersome, often relying on manual document verification—especially if they don’t have digital partners to help set up eKYC systems.

Businesses and E-commerce

KYC in business means verifying your company’s client identities and preventing fraudulent transactions like scams or identity theft. This is especially important with e-commerce businesses that hold most of their operations online and are heavily reliant on digital systems.

Plus, KYC helps companies comply with AML regulations and build trust with customers by demonstrating a commitment to security.

Woman Using KYC for Business

The Future of KYC Checks

KYC regulations are constantly evolving to keep up with technological advancements. Since tech innovations continue to develop, we can expect to see a shift towards more sophisticated and efficient KYC processes.

One advancement to expect is an increased focus on automation for KYC checking. Since manual processes can be time-consuming and error-prone, leveraging technologies like optical character recognition (OCR) and artificial intelligence (AI) to automate document verification and risk assessment can streamline the process and free up resources for more complex tasks.

Other than that, since data privacy or anti-money laundering jurisdictions can differ per country, increasing collaboration between regulatory bodies can help harmonize KYC standards. This creates a more consistent approach to financial security globally.

As experts at credit scoring in the Philippines, Finscore is focused on ideating innovative KYC check solutions that accommodate and embrace future trends. Through research and development, we help other businesses adapt KYC processes while meeting their changing security needs.

So, What Exactly are Finscore’s KYC Solutions and How Can You Utilize This For Your Business?

Finscore’s KYC solutions allow businesses to significantly enhance their background verification and checking processes. Through the latest technologies in FinTech, we offer:

Efficient and Secure KYC Checks

Finscore utilizes technology to assess government-validated personal information for data analysis and risk assessment. This streamlines the process and ensures the security of sensitive customer data.

Secure KYC Check

Comprehensive Customer Profiles

Integration with various data sources allows Finscore to build comprehensive customer profiles, providing businesses with a deeper understanding of their clients.

Faster and More Efficient KYC Checks

Finscore’s streamlined processes significantly reduce the time and resources required for KYC checks. Our systems help your business onboard customers quickly and efficiently.

KYC checks are no longer just a regulatory requirement, they are a valuable tool for your business to mitigate risk, ensure compliance, and build trust with your customers. And through, Finscore’s innovative KYC solutions we can help your business navigate through digital technologies with confidence.

Ready to learn more about how Finscore’s KYC solutions can benefit your business? Request a demo and contact us today to discover how we can help you streamline your KYC processes and build a more secure financial ecosystem.

FinScore is a financial technology company in the Philippines that offers a powerful credit scoring platform and fraud detection tools based on alternative data, including telco-based data. 

As the pioneer in lending and scoring of the unbanked, we continuously provide fintech services that empower financial institutions, banks, and credit bureaus with flexible platforms to help them make insightful and reliable credit decisions. Contact us today to learn more about our products and solutions for financial institutions.