KYC best practices for managing international payments

KYC in international business payments can be challenging due to the complexity and cost of implementing robust verification processes. The regulatory requirements vary across jurisdictions, making it difficult for businesses to navigate different rules and stay compliant.

In this blog, we’ll explore the various KYC elements required to vet prospective customers thoroughly and compliantly onboard them.

The typical approach to Know Your Customer (KYC) is to conduct it at the time of onboarding and then at periodic intervals, depending on the customer’s risk rating. Your KYC process will include collecting a few details and documents in compliance with regulatory requirements and touching upon areas your experience has told you are green flags —to establish that your customer is a valid, reliable entity with legitimate transactions.

However, KYC has a broader role. For example, your customer may launch new business lines or change their ownership structure or enter a new geography. Comprehensive and up-to-date KYC records will help you detect these changes on time and assess if any additional KYC checks need to be performed. Here is how to start building a KYC framework.

1. Understand the markets you and your customers operate in, and draw up a list of KYC information, standard identification documentation, and KYC checks to be collected and performed that are compliant with the regulatory guidelines applicable in those geographies. If you are working with a payments partner, engage with them to understand their KYC requirements so you can collect all the required information from your customers in one go. Ensure the checks cover areas such as screening for global sanctions, and money laundering, etc, so you can identify high-risk customers early on.

1. When a prospect is close to conversion, make sure they comply with this KYC checklist, and if they cannot, try to understand their reasons. If the client has any alternative KYC documentation that is not covered in your KYC checklist, discuss it with your team or your payments partner. If KYC checks can be completed in compliance with these documents, only then should you proceed with the relationship.

• Once a customer is onboarded, maintain proper records of all your financial transactions with them in a standardized way in a single place using available technologies or a homegrown approach. Check these records regularly, such as once a month. It's even better if your technology proactively alerts you to certain patterns. This centralization will ensure that if the customer displays any unexpected behaviour, you can take action immediately, such as contacting them to perform additional due diligence.

Update your KYC framework in consultation with your ecosystem partner every six months or a year. Regulations and norms will likely have changed, been added, or disappeared from the list. Remember to check for gaps in KYC for your existing customers. Politely follow up with your customers if regulatory updates require additional information or documents.

As you maintain your KYCs in this systematic, centralized fashion, you will identify fairly distinct categories of customer profiles based on a spectrum of risk. For example, the lack of certain documents or information in your KYC checklist might be a clear red flag. 

1. To lay a good foundation, profile-based screening mechanisms should be in place at the onboarding stage and on an ongoing basis. 

1. If a customer profile indicates higher risk after completing the KYC process, evaluate how to incorporate more rigorous checks into your KYC process to spot these patterns earlier in the customer journey.

1. These checks will evolve over time for better accuracy. They may include conditions such as collecting the latest financial statements and proof of website ownership. 

1. When your KYC system flags a customer profile as risky early on, contact them for the deeper information your second round of checks, i.e., enhanced due diligence, requires. If enhanced due diligence checks are completed, you can consider onboarding the customer. 

Remember, the risk assessment must be done regularly as part of your KYC due diligence. The identification of risk profiles will sharpen over the years, helping you optimize your customer portfolio.

In parallel with setting up a rigorous KYC process, remember to instil its significance within your teams. Receiving international payments exposes you to a much larger risk surface than the secure confines of an RBI-governed environment in India.

1.  Identify process owners and give them and give them a complete understanding of your KYC requirements and additional training and support wherever needed.

1. Conducting training workshops on KYC procedures for the entire team is worthwhile. This routine check will alert everyone for warning signs that may emerge as early as exploratory conversations or midway through the customer lifecycle. Regular training will also ensure some team members can quickly take over as process owners when existing ones leave the organization.

As you venture into international territory, your risk surface expands exponentially. It covers new payment systems, customer behaviours, and regulations you need to familiarize yourself with. This makes you vulnerable to fraudsters, credit risk, and risk of non-compliance if you are not up-to-date on regulations. 

Hence, it is important to:

1. Set up a comprehensive KYC process to screen out risky profiles early on.
2. Internally align your company with the pivotal role of KYC compliance
3. Monitor and improve the KYC process continuously.

Finally, remember to carefully choose your ecosystem partners, such as payment platforms with deep expertise in helping Indian businesses receive international payments. With experience, insights, and streamlining, they can help you build a KYC process that screens international prospects quickly and effectively for suitability and risk.