Articles on: Users management

KYC Process

"KYC" stands for "Know Your Customer." It is a regulatory and risk management requirement that businesses, especially those in the financial sector, use to identify and verify the identity of their clients. The primary goal of KYC procedures is to prevent businesses from being used for money laundering or other illicit activities.

In order to use a Payment Service Provider (PSP) to manage the money transactions on your platform, you must implement a KYC process. This process should follow the guidelines required by your PSP. Nowadays, all PSP tend to ask for the same information, we can split into three categories: identity, UBOs and documents.

Identity confirmation

In this step, you need to gather all informations about the user.

Those information include first name, last name, birthday and sometime birth city and birty country, address and nationality. Some PSP may also asks for revenue category, last four SSN numbers or other very specific matters.

When the user is a company (sole-traders and non-profits are also considered as company), the Identity concerns the legal representative, not the user who is creating the account. The identity of the company is also required: the name of the company, a company number, a headquarter address and most of the time a website address. If the website has no website, the profile URL of the company on your online marketplace is enough. It your profiles are not public, some PSP accept the URL of the online marketplace, some don't. Please contact your PSP to know what information is eligible (Facebook or LinkedIn page, Twitter account, public companies directory extract, etc.)

Ultimate Beneficial Owners (UBO)

A UBO, or Ultimate Beneficial Owner, refers to the natural person(s) who ultimately owns or controls a customer and/or the natural person on whose behalf a transaction is being conducted. It also includes those persons who exercise ultimate effective control over a legal person or arrangement.

In most cases, UBOs concern only companies and is defined by all parties that own or control at least 25% of the company.

Like in the previous section, you will be required to give all their identity information.

Even if those information may be really easy to gather, the exact requirements can vary by jurisdiction and depending on the regulatory environment of a specific country or region. Some clients are required to give more details about:
Ownership Percentage: The percentage of the legal entity owned or controlled by the UBO. This provides clarity about the extent of influence or control a UBO has over the entity.
Type of Control: Details on how the UBO exerts control (e.g., through ownership, voting rights, or other means).
Tax Identification Number (TIN): If applicable, for tax reporting purposes.
Source of Funds: Information regarding the origin of the UBO's funds or wealth, especially in cases of significant ownership.

Documents upload

For natural accounts, which relate to individual users, commonly required documents include a government-issued identification (e.g., passport, national ID card, driver's license), proof of address (e.g., utility bill, bank statement), and sometimes a recent photograph or a selfie. These requirements can vary based on the individual's country of residence, with certain nations mandating more stringent identity checks or specific additional documents.

For legal accounts, pertaining to businesses or corporate entities, the documentation needs are generally more comprehensive. These may encompass company registration papers, articles of association, proof of business address, tax identification numbers, and documents identifying and verifying the Ultimate Beneficial Owners (UBOs).

It's crucial to note that requirements can differ vastly depending on the country where the business is registered. Additionally, certain industries, deemed high-risk due to their nature, may be subject to more rigorous documentation and verification processes to ensure adherence to regulatory and anti-money laundering (AML) standards.

As part of the KYC process required by many Payment Service Providers (PSPs), businesses may also need to ensure that they have accepted the PSP's Terms of Service (TOS), which could encompass specific requirements or conditions related to UBO disclosure and other compliance checks.

Beyond the Regulatory Compliance aspect, by verifying the identity of users, marketplaces can filter out potential fraudsters or those intending to carry out scams. KYC can help in reducing fraudulent activities. Implementing KYC can enhance trust among users. If a buyer or seller knows that other participants in the marketplace have gone through a verification process, they might feel more secure transacting with them. In cases of disputes between buyers and sellers, having KYC records can assist the marketplace in resolving issues, potentially reducing its liability.

Updated on: 25/09/2023

Was this article helpful?

Share your feedback


Thank you!