8 Best Tips to Prevent Fraud Through KYC

The Know Your Customer (KYC) phenomenon is a significant trend in digital business and online operations. It's something that executives and top-level planners pay attention to for a reason!

Why is that? Well, new decentralized systems and blockchain technologies have opened the doors for many transactions and digital interactions that aren't verified traditionally. People started worrying that these types of anonymous businesses could facilitate various kinds of fraud, and experts show how this works in dark markets and other fraud scenarios. With the anonymity of bypassing traditional verification, it's all too easy for criminals to reach in and collect from their victims. For example, modern ransomware attacks often involve these digital pirates demanding Bitcoin in payment.

So what is KYC? Essentially, it's the process of achieving customer identification, or a kind of verification of its own kind, to ensure that a platform isn't allowing users to launder money or conduct other kinds of fraud or criminal activity.

So here are some of the ways that planners can use effective KYC to their advantage to crack down on the unscrupled and limit the potential for fraud and abuse.

1. ​Know the Data

​First of all, it's important to know what data the company needs to get from customers. There are two aspects to this. First, it helps to think about what's practical for anti-fraud protection, and secondly, operators should consider what helps with relevant compliance. Agencies like the SEC mandate KYC and AML compliance for business operators of some kinds, and compliance is a necessity, not a "nice to have" in these fields. Put that data to work for anti-fraud results.

2. Make On-Boarding Easy

After planners have put together this list of critical data, they need to seek it from their customers in convenient ways. Designing a better user interface will help achieve the KYC results you want without turning potential users off with draconian KYC requirements and laborious data standards.

One aspect of this, for example, involves showing users WHY they are doing something. That can be done with an intuitive icon opening up a drop-down box or just a disclaimer in red. Whatever the engineers come up with. The point is that there's more engagement and participation, which makes the average user more likely to go along with a KYC process. That will help with fraud!

​3. Integrate e-KYC

Different kinds of electronic Know Your Customer implementations are all the rage. Some of them involve using biometric information or modern kinds of remote verification that will streamline the interface in the ways we talked about above. Make e-KYC part of the anti-fraud design.

4. Mobile KYC

​In the KYC process, the smartphone is the stakeholder's best friend. It allows this process of making the KYC compliance easier from a customer's point of view. It also helps with inherent verification and anti-fraud standards. That's why multifactor authentication is so vitally important in any kind of digital activity, not just those built on the blockchain. The smartphone is the verification device for everything from online banking to e-commerce and everything in between and beyond. So use phones and MFA to deter fraudsters.

5. Using Registries

​Businesses can also use a series of registries to implement KYC.

The registry is an example of a build type that experts call "cKYC" or central KYC. In a sort of data center structure, it keeps all of the critical KYC information for exchange users.
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Without this, users in some systems would have to submit KYC information multiple times throughout a transaction life cycle. So the cKYC system is growing in popularity and utility for these types of interface designs. Registries can also help to spot and prevent some types of fraud.

6. Identify a Politically Exposed Perso

Another good KYC tip is to always check whether newly onboarding customers are subject to the designation of a Politically Exposed Person or PEP.
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This kind of research is part of the screening process that can help maintain KYC compliance in a particular part of this industry. The shorthand helps auditors and others to know whether some user has a hidden motive for some type of crypto use.

7. Screening Customers Beyond Onboarding

There's also a kind of popular 'beyond the perimeter' approach to KYC that suggests you need to keep identifying customer behavior after someone has been brought into the walled garden.
That's part of that idea with traditional KYC: screening can happen at the point of transaction or beyond.
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Those philosophies continue to drive innovation and KYC for exchanges, money transmission businesses, and similar operators who need to know what's best practices in the industry and how to implement those best practices for themselves — screen customers for better anti-fraud protection.

8. Document KYC Processes

Documentation is also key to one of these approaches. It's helpful in an audit situation, and it shows people how things have been set up and why.
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Take advantage of these tips for improving KYC for a money business adjacent to the blockchain. Go confidently into the new blockchain world with KYC processes that work.