3 Steps for Fintech Institutions to Comply with KYC

KYC is a well-known regulation among financial service companies, this article will lead you through three easy steps for your financial technology business to meet these requirements
By | 8 min read

Not only sale people and marketing managers are required to have a full and accurate understanding of the person sitting on the other side of the shopping cart or B2B contract. 

KYC, short for Know Your Customer (or Know Your Client), is a set compulsory performance imposed by law on financial institutions (including Financial Technology companies) who are obliged to verify the identities of their clients.

The main goal of KYC regulations is to prevent fraud and constrain the service access for users, who don’t fulfill certain standards of credibility.

Having said that, KYC policies are not purely regulatory boundaries which every financial firm are forced to carry out. It’s also one of their vital source for competitiveness as KYC yields insightful data on one’s own services and customers.

Furthermore, It helps the financial institutions to build trust among its clients as a secured and trustworthy company. And for today business, trust seen to be the most valuable asset any manager could think of.  Because of that, it is even more important for Fintech companies to pay more detailed attention to this specific knowledge as they are more likely to subject to the doubt of security. 

So now, it is time to take a closer look at KYC’s definitions and meanings from a fintech point of view.

KYC in The View of Financial Technology Companies.

Three Easy Steps For Fintech Institutions To Know Your Customer-Fig 1
Image credit: Fintech Insider

For many aspects, the KYC regulations on financial technology firms are much like that of any other financial companies. But saying that is meaningless nowadays since most, if not all, financial firms are going digital or semi-digital. 

Turning back to the main theme, Know Your Customer is somewhat a multi-faced subject. It’s a series of data-driven procedure that by implementing them your financial technology firm needs to be certain that your clients:

  • …are who they claim to be.
  • …are accepted as customers of the product or platform in the first place.
  • …fulfill the requirements to use certain financial services.
  • …do not misuse the product or platform to commit a crime.

However, there is, of course, many more to Know Your Customer than only four bullet points could imply: Risk management, customer due diligence, transaction analysis… all these other aspects also play an important role in KYC. Financial technology business, as well as any other firm that operate in the field of finance, need to comply with.

In addition, if taken together, all those measures are aimed to form a line of defense against the frauds of which tax evasion and terrorist financing just being two of the more notorious. And for a financial technology business, staying clear of those two financial crimes poses more cruciality. And unless Fintech companies or even governments who don’t enforce the requirements of KYC law

Taken together, all those KYC measures form a line of defense against the financial crimes: Tax evasion and terrorist financing just being two of the more notorious. Companies or even governments who don’t enforce the requirements of KYC law must prepare for a judicial sequel.

Three Easy Steps for Financial Technology Institutions to Know Your Customer:

1. Customer Identification Program-CIP

The first objective targeted here is the question of how to really identify a person. Identity theft has been quite a notorious problem recently. In the US, over 16.7 million customers were affected, which amount up to $16.8 billion lost in 2017. For financial technology applications and business this problem create a huge disadvantage since it is even harder to identify the person behind the screen; thus demand greater effort to overcome. After all, for all financial entities, it is not only the story of financial risk, it’s law.  

In the US, provisioned in the Patriot Act, the CIP is designed to limit money laundering, terrorism funding, corruption, and other illegal activities. Therefore the CIP command that any individual going in a financial transaction is required to verify their identity. Not only in the US, the scope of similar regulations also cover most of every nation around the world; over 190 jurisdictions around the world have committed to recommendations from the Financial Action Task Force (FATF), including identity verification procedures. So for fintech companies who do business on the Internet, they need to be aware of the difference in regulations about CIP (or similar law) across borders. 

Here are the minimum requirements for an individual to open a financial account, which are clearly delimited in the CIP:

  • Name
  • Date of birth
  • Address
  • Identification number

These pieces of information need to be clarified and codified to provide continued guidance to staff, executives, and for the benefit of regulators. Fintech corporations have to strive more in order to collect and verify these pieces of information correctly, and for different types of financial technology as well as the level of confidentiality and importance of security, other information might be needed to increase customer satisfaction and their trust toward the company.

In addition, the exact policies depend on the risk-based approach of your financial technology institution may consider elements such as:

  • The types of accounts offered by the bank
  • The bank’s methods of opening accounts
  • The types of identifying information available
  • The bank’s size, location, and customer base, including the types of products and services used by customers in different geographic locations

2. Customer Due Diligence

Not only for Fintech company but for all financial institution the priority is to find out whether you can trust a potential client. And to make sure that the business can be done without any fraud; customer due diligence (CDD) is a vital factor of effectively and successfully managing your risks and protecting your financial technology service against cyber-criminals, terrorists, and Politically Exposed Persons (PEPs) who are considered as huge risks.

There are three levels of due diligence:

  • Simplified Due Diligence (SDD) are situations where the risk for money laundering or terrorist funding is low and a full CDD is not entirely required. For example, low-value accounts or accounts with infrequently usage. 
  • Basic Customer Due Diligence (CDD) is information requested for all customers to identify the identity of a client and asses the risks regarding that client.
  • Enhanced Due Diligence (EDD) is additional information collected for a higher-risk consumer to have a deeper notion of that customer’s activity to alleviate associated risks. 

In the end, while some customer due diligence factors are specifically mandated in a nation’s legislation, it’s up to your financial technology institution to anticipate the risk and take equivalent measures to ensure that their customers are not potential harms to the company. 

Furthermore, for a fintech startup with a newly established reputation, and inexperienced workforce, it could be a tough task to required customers to provide deep information. You need to balance between the need for your financial technology company security and the satisfaction of your customer who could be reluctant to provide too many information for a fintech startup. 

Here are some practical steps to execute your customer due diligence program:

  • Specifically ensure the information about a customer’s identity and location is 100% true, gain a good sense of what business she is in, her business condition. Your financial technology institution can carry this task out with ease by requesting a link of that company’s business. However, you need to verify the reliability level of that site, too.
  • Classifying customers’ risk category and define what type of customer they are, before storing this information and any additional documentation digitally.
  • Keeping records of individual, and transaction information of all the CDD and EDD performed of each and every client, or potential customer, is compulsory in case of a regulatory audit. This task is made simpler by the innovation of financial technology nowadays.

3. Ongoing Monitoring 

CDD is not a one-time procedure, this is a repetitive process, as existing customers have the potential to transition into higher risk categories over time. The iteration process can either be biennially, annually or monthly depending on the speed of your business cycle, of which financial technology field is usually quicker than the traditional paper-and-pen business. The ongoing monitoring function includes oversight of financial transactions and accounts based on thresholds developed as part of a customer’s risk profile.

Depending on the customer reliability and your risk alleviate strategy, some other factors to monitor may include:

  • Spikes in activities
  • Out of area or unusual cross-border activities
  • Inclusion of people on sanction lists
  • Adverse media mentions


These steps are the most fundamental instrument for a financial service company to meet the requirement of KYC regulations. However, getting to know your customer does not stop at the act of meeting the government’s request. It is more important for companies work in the fast business cycle enviroment such as that of fintech companies to strive to really know their customer, understand their needs, demand, and desire, which pass over the basic regulational criteria.

  • About: Samuel Vu
    Samuel is a Market Strategy Analyst at EnvZone with a diverse range of experience. Having worked with teams across industries from financial services, logistics, supply chain to real estate, Samuel’s…