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QuickRead: Understanding KYC and its importance for merchants
Payment gateways play a vital role in enabling secure and seamless financial transactions. If you are a business looking to accept online payments, sharing Know Your Customer (KYC) details is a crucial step in the onboarding process. In fact, RBI has mandated that all financial institutions must comply with KYC processes.
QuickRead: Understanding KYC and its importance for merchants
What is KYC?
Know Your Customer (KYC) is a procedure implemented by financial institutions including payment aggregators to authenticate and verify the identity of their customers. It helps combat financial fraud and money laundering. It helps gather essential details about customers, including identity, address, occupation, and income source. To maintain accuracy of the information, the details are verified on a periodic basis based on RBI’s recommendation.
Types of KYC
In-person verification
This is the conventional method where customers/merchants personally submit their identification documents, such as passports, driver’s licenses, Aadhaar cards, PAN cards, or other specified forms of ID. They visit the office of the financial institution to hand over these documents, which are then manually verified by a representative of the institution. Sometimes, personnel from the payment gateway visit the customer for verification.
e-KYC
This method enables customers/merchants to complete the KYC process entirely online, eliminating the need for physical documents. Customers provide their personal information and upload digital copies or photos of their identification documents via an online platform. These documents are then electronically verified, using APIs (application programming interfaces) connected to government databases or other trusted sources.
Video KYC
This method merges the ease of online KYC with the added security of real-time video verification. Through a video call, customers/merchants engage with a representative, present their identification documents, and respond to verification questions. The representative verifies the authenticity of the documents and ensures the customer's appearance matches the provided information, offering enhanced verification.
Why is KYC important?
Fraud prevention and risk mitigation
Payment gateways are highly vulnerable to fraudulent activities, including identity theft, chargeback fraud, and money laundering. KYC verification helps ensure only legitimate businesses can access the gateway. By verifying identities through government-issued documents and other credentials, gateways can mitigate risks and protect users from fraudulent transactions.
Compliance with regulatory requirements
Governments and financial regulators mandate KYC compliance for payment gateways to prevent financial crimes such as money laundering and terrorism financing. Sharing KYC details ensures the gateway complies with these regulations, creating a secure and legally compliant ecosystem for all users. Noncompliance can result in penalties, license revocation, or reputational damage to the payment gateway.
Establishing trust and credibility
KYC verification builds trust between payment gateways, businesses, and their customers. When businesses onboard with verified identities, it assures customers that the platform is secure and credible. This transparency fosters long-term relationships and boosts customer confidence in the platform.
Supporting global transactions
For businesses operating internationally, KYC compliance is often a prerequisite for accessing global payment options. Sharing KYC details enables payment gateways to offer cross-border transaction capabilities while adhering to international anti-money laundering (AML) and counter-terrorism financing (CTF) regulations.
Best practices for sharing KYC details
While sharing KYC details is necessary, it is crucial to follow best practices.
Verify the payment gateway’s legitimacy: Ensure the payment gateway is reputable and authorized before sharing sensitive information.
Use secure channels: Share KYC documents only through secure communication channels, such as encrypted websites or official platforms.
Keep your information updated: Regularly update your KYC details to ensure uninterrupted services and compliance with evolving regulations.
KYC is a vital cornerstone for building a secure, compliant, and efficient payment ecosystem. By adhering to regulatory mandates, businesses can protect themselves against fraud, establish trust with their customers, and access global markets with ease. Ensure your business is compliant and protected—partner with a trusted payment gateway like Zoho Payments that prioritizes KYC verification. Start your journey towards secure and seamless transactions today!