It’s been some time since cash was king, but the coronavirus pandemic prompted a 62% slump in ATM transactions, and as many shops went cash free to keep germs at bay, spending transitioned firmly online. But while the spotlight of opportunity shines very brightly on the payments industry, this vital sector has been struggling with growing pains for a while.
UK and international regulators have been working hard to keep a lid on industry-wide practices and protect consumers who have little choice but to part with their money online. Increasingly strict know your customer (KYC) practices may now be in place, but the heat is on for market players to prove they have the proximity to and insight of their customers that warrants fair and suitable transactions. Add to this an exponential rise in fraud and an urgent need to safeguard consumers and businesses alike, and the payments sector suddenly appears to be very complex indeed.
What are the KYC requirements for payment providers?
Electronic payments are a mainstay in retail and commercial Britain, and payment providers are under increased scrutiny to prove that they act in their customers’ interests at all times. Onboarding serves as a gateway for market players to demonstrate they have vetted prospective customers and that they have the channels in place to monitor case-by-case activity as the relationship evolves. Yet this is easier said than done.
While business-to-consumer engagement makes for an easier KYC process than transacting with businesses, many seemingly slick operators still resort to email and other channels that are at odds with their technologically advanced brand image.
As consumers have led the charge in engaging with brands and their finances online, the regulator has duly followed suit with measures that protect all parties. Already in their early stages, Open Banking, Open Finance and the Payment Services Directive (PSD2) are all set to improve consumer rights and online security. Compliance is not quite so simple for the more removed payment service providers and gateways, but Open Banking is levelling the playing field, opening up the infrastructure that underpins financial services to fintechs and other innovators.
B2B transactions are a little more complex. Businesses have been slower to automate, and all too often rely on manual onboarding processes that weigh them down at the very first hurdle.
Payment providers have long been scratching their heads over how best to fulfil the regulatory requirements that they must identify the ultimate beneficial owner of the firm they are transacting with and thereby delivering a suitable and fit service.
Despite the EU’s 5th Anti-Money Laundering Directive (5AMLD) mandating that all EU Member States must make UBO registry data publicly available, a recent Global Witness report found that two thirds (63%) of these 27 countries were yet to fully meet this obligation.
With no means for independent verification of existing listings, payment providers are reliant on conducting time-consuming research amongst secondary and tertiary data sources of sometimes questionable quality.
No margin for error
No matter how muddy the waters may be, every company is expected to understand who they do business with under the current AML and KYC regulations. In addition to stemming money laundering, complying with this regulation will help firms understand their customers, their financial activity and foresee potential avenues for risk.
5AMLD which entered into force on 10 January 2020 also tightened regulations towards the anonymous issuing of electronic money products. Upon setting up bank accounts, opening e-wallets or completing any transactions, consumers and corporates must confirm their identity through KYC procedures. Businesses themselves must verify clients before they are given access to perform monetary transactions of any amount, and some payment service providers use transaction limits and velocity checks to monitor eWallet account transactions. All of these measures are essential in the fight against financial crime, money laundering and identity theft, but can impede the delivery of a smooth and engaging onboarding and customer experience. Add to that the large amount of customer information passed on through the KYC process and then contained within innovations such eWallets, and payment providers have a lot of fraud-prone data on their hands.
While there’s immense opportunity within the payments arena, it’s important to remember that the stakes are high. If market players don’t have the processes to drive sufficient customer insight, they have little chance of protecting increasingly vulnerable consumers. As service providers and suppliers grapple to stay on the right side of change, they must embrace digital advances and drive the data they need for a brand experience that meets customers’ increasingly high e-commerce expectations.
The shining success of e-commerce giants such as Amazon and Alibaba have appeased many consumers’ concerns over the safety of transacting online. But while changing regulation has paved the way for new entrants within the ever vital payment arena, this is not without risk and ambiguity.
While we see widespread use of biometric customer authentication, data analytics on payment transactions and cloud-based storage, this often falls short in driving accurate and up-to-date information on corporate customers.
What’s the answer?
With an estimated global worth of $30 trillion, the payments market has mushroomed at the hand of the Coronavirus pandemic. But scale has presented a series of challenges for providers, who need to know who they are transacting with and for, regardless of whether they’re consumers or businesses – and irrespective of the underlying goods.
With real-time access to legally authoritative global company data, Kyckr connects payment providers to over 180 company registries covering 170 million legal entities in 120 countries via a single interface. The solution combines legally robust insight into companies, directors, shareholders and UBOs, giving immutable proof of a company’s information at the time of any transaction and driving prompt and complete KYC decisions, anywhere and at any time.
By connecting payment providers directly to the registry at every search, Kyckr only ever accesses up-to-date and accurate insight. With fully automated corporate customer validation and verification solutions and API-based technology that aids the seamless submission and verification of documents, Kyckr brings payment providers closer to their customers and ensures compliance at all times.
The worldwide migration to online transacting may mean that there’s everything to play for in this exciting sector, but payment providers have little option but to comply if they’re going to stay in the game. As regulators peddle to stay ahead of the sector’s phenomenal growth, they expect the firms under their watch to maintain a bird’s eye view of the global business landscape underpinned by sufficiently robust data. And the payment providers who invest now in their data and verification processes will make strides in building their credibility, and safeguarding their customers and their own businesses for the long term.