Two of the most common questions new Routable customers ask are “what is KYC verification?” and “what is KYB?”
KYC stands for “know your customer” while KYB stands for “know your business.” The two are closely related and imply more than knowing your customers and clients on a personal level. They’re required by law.
KYB and KYC verification are longstanding regulatory requirements that banking and financial institutions must abide by or risk facing penalties. As Routable falls under the umbrella of a financial service, we require both KYB and KYC verification for all customers. This blog post breaks down both processes, why they’re important for every Routable customer and how exactly they work.
KYC means “know your customer” though sometimes the term is also a shorthand for “know your client.” KYC verification is the essential process of checking and confirming that customers are who they say they are.
Per KYC guidelines, banks and financial institutions are required to understand their customers’ financial dealings. A bank, for example, could be held liable for opening an account used by a criminal running a money laundering scheme. KYC requirements were put in place as a precaution with good intentions at their core. By following mandatory KYC guidelines, you’re doing your part in protecting everyone involved.
If you’ve opened a bank account, you’ve likely gone through KYC verification. The SEC requires customers to provide certain information when doing so, such as employment status, income and date of birth. Early KYC regulations first emerged in 1970 to help stem money laundering. The Banking Secrecy Act was passed by Congress to require businesses to maintain records of customer transactions and report cash payments that exceed $10,000, for example. As more businesses operate online, banks have implemented more KYC regulations to help reduce crime and prevent fraud. Specifically, the U.S. Financial Crimes Enforcement Network (often referred to as FinCEN) added rules that banks must adhere to when verifying a customer’s identity.
Over time, regulations have expanded and have only become stricter so financial institutions are subject to higher and higher standards. The result is that a wide variety of online businesses, platforms and companies also must adhere to these standards because they complete transactions with financial institutions. The consequences are real for not complying: In 2020, fines totaled $10.6 billion, a 27% increase from 2019.
Today, any bank, fintech (like Routable) and financial institution must comply with KYC regulations. In the digital age where business is conducted online rather than face-to-face, it’s common to do business with people we’ve never met before. That’s why now more companies than ever need to have their official documentation checked to validate their identity when doing business with these institutions.
For starters, it’s important to verify basic facts about customers, including their legal name, age and address. Sometimes KYC verification requires more in-depth documentation, too. (We explain what documents are required in the sections below.) KYC verification is a standard requirement for business-related payments and ultimately helps Routable’s customers power mass payouts at a greater scale safely and securely.
There are three key components of KYC verification: Customer Identification Program (CIP), Customer Due Diligence (CDD) and Continuous monitoring. Let’s break down what each of these mean, and why it’s important that organizations like Routable carry them out.
Customer Identification Program (CIP): This means confirming a person is who they claim to be. A customer may need to submit a valid driver’s license or passport, for example. A business may need to provide articles of incorporation or a valid business license, among other documents. Financial statements may also need to be verified.
Customer Due Diligence (CDD): Banks and financial institutions are required to analyze the risk of a customer’s account. In other words, evaluate how likely someone is to launder money or commit fraud among other crimes. They may be required to monitor customers more frequently if they have a higher risk profile. For example, high-net-worth customers tend to have a higher risk profile and may require more frequent monitoring.
Continuous monitoring: Rather than checking clients during onboarding alone, financial institutions are responsible for reporting suspicious activity over time. This helps protect everyone over the long haul.
It’s important to balance accurate verification and meet the industry’s compliance standards without sacrificing efficiency. That’s why Routable requires clients to complete a straightforward KYC verification process. This is a standard procedure done through the Routable platform that’s meant to streamline the process while also protecting everyone involved. Customers upload basic documentation to validate simple facts about their business.
KYB (or know your business) is an extension of KYC regulations. KYB requires fintechs to check the "identity" of a business and ensure they're not laundering money. Different countries have different KYB laws and regulations, too.
At Routable, we verify both KYC/KYB at the same time. Clients must provide proof of basic information about themselves to verify both their identity and their business. For example, a customer can provide a driver’s license or other ID card for KYC verification. For KYB, they may upload documents to confirm their registered business address or financial details.
The KYC/KYB verification process at Routable is straightforward:
Customers create an account.
They add verification documents.
Once verified, customers can start sending payments and invoices.
Customers provide their legal business name, business type, EIN, business category and registered business address. To ensure verification is approved without delay, the legal business name input on Routable must exactly match the official business name. If operating under a DBA (doing business as), just use the original name used to register the business. It’s important to input whatever name is legally on file with the IRS.
To complete KYC/KYB verification, Routable requires customers to upload an IRS-issued EIN letter. If you don’t know where to find the letter or lost it, this page offers guidance on what to do.
Customers also have the option to instead upload:
Filed and stamped Articles of Organization or Incorporation
Sales/Use Tax License
Certificate of Good Standing
Additionally, customers need to submit information for one representative. This can be anyone at your company who is authorized to deal on behalf of the business, typically the controller. The representative must:
Provide their phone number and current address
Upload a government-issued ID and ID number
For the latter, either a driver’s license or passport along with a social security number (SSN) or passport number typically suffices. This information is required to comply with U.S. Federal customer due diligence rules.
Another tip to expedite the process is to make sure to take a clear photo of the ID, showing all four edges with no glare. It may take a few tries to snap a quality photo that’s not blurry or obscured by the flash’s glare but it’s worth it to ensure speedy approval.
It typically takes 48 hours (or less) for an account to be verified by Routable. Our technology plus a real human from our team check each uploaded document.
KYB and KYC verification are standard practices today. Routable helps ensure verification is as straightforward as possible so customers can start making payments fast. We believe maintaining higher KYC/KYB standards than our competitors is worthwhile because your safety is our priority. If you need any help during the process, review the KYC/KYB instructions available in your Routable dashboard or reach out to email@example.com with questions.
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