KYC and KYB requirements in card issuing

KYC (Know Your Customer) processes usually raise a lot of questions. In this article, I would like to summarize the most important decision points and requirements. 

KYC regulations are directly connected with Anti-Money Laundering (AML), regulatory and sometimes with payment scheme requirements. In general, every payment or banking institution must be aware who its customers are, should know the source of its customers' funds, and should have information about the ways customers use money held by the payment institution. Regulators require that payment institutions know and monitor this in order to limit the risk of supporting terrorist or illegal actions. 

The main question in every project is: "Who is the owner of the money on account?" We can have 2 situations:

1. CONSUMERS - If the consumer is an owner of the money on account, the KYC process has to happen. Usually it means that the user (consumer - not a company) needs to provide an ID document or passport and selfie, meeting or video call needs to happen to make sure that consumer is a real person signing a contract with a payment institution. There are various additional verification ways that a payment institution may require, but those are the key ones.

2. BUSINESSES - If a company is an owner of money, the KYB (Know Your Business) process has to happen. Usually it means that the user (company owner, manager etc.) not only needs to provide an ID document and make a selfie or a video call, but the payment institution needs to verify beneficiaries (the owners of more than 25% of shares in the company). 

In both cases the payment institution is obliged to check whether the consumer, business manager or business owner is not present on various sanction lists, i.e. OFAC or UN sanction list. 

These rules are critical and in fact all other implications are outcomes of them. In projects connected with launching Payout to Cards, the very first question that we need to answer is :  "Who is the owner of the money on account?" If the consumer is an owner of the account (scenario 1) - the consumer needs to go through the KYC process. If the business is an owner of the money on account (scenario 2), the KYB process will have to happen and there will be no additional KYC.

There may be non-standard situations that will require some analysis. Let me present a few interesting scenarios:

As you can see, there can be different approaches to KYC and KYB requirements, so it is worth reviewing the legal structure and thinking about how to improve the user experience in such projects. 

Thanks for reading. 


Revision #3
Created 11 April 2024 12:38:53 by Krzysztof Drzyzga
Updated 18 April 2024 05:08:55