Know your business (KYB) and know your customer (KYC) processes do not differ much apart from their purpose. Due to the increasing number of cybercrime and fraud cases worldwide, authorities require businesses to perform anti-money laundering (AML) and counter-terrorism financing (CTF) checks. For this purpose, firms carry out KYC and KYB checks to verify the identities of their potential customers, clients, and partners. This post discusses the key differences between these fundamental procedures that aim to curb money laundering and financial crimes.
Understanding Know Your Business (KYB)
Know your business refers to the due diligence and verification of business entities that a company is dealing with. AML and CTF regulations require that companies must perform robust checks to ensure the authenticity and verification of their clients and partners. Typically, know your business processes are part of national AML policies or international regulations created by authorities like the Financial Action Task Force (FATF). For instance, Financial Crimes Enforcement Network (FinCEN) is a regulatory body in the US that introduced Know Your Business procedures for financial institutions. Moreover, the US Patriot Act and Bank Secrecy Act further help prevent fraud and scam activities. Similarly, the EU has the 5th Anti-Money Laundering Directive (5AMLD) to bolster regional business verification. The market for digital KYB solutions is expected to reach more than $533 million by 2030, growing at a CAGR of 13.05%.
Fundamental Difference Between KYB and KYC
Broadly stating, KYB and KYC aim for a shared goal which is to prevent financial crime and make transactions safer. However, the main differences between these processes are the intentionality and the type of customers. The job of a know your business solution is to ensure that a business is secure for dealing and transactions. To be precise, KYB deals with business verification services, whereas KYC deals with individual customers. Therefore, any company that offers B2B services or products implements KYB solutions.
On the other hand, consumer-facing businesses typically use KYC solutions to ensure overall security. The global market for digital KYC shows an even more positive trend, with an expected growth rate of 21.40%. According to this projection, the market is expected to reach $2445 million by 2030. The stark difference in demand for KYB and KYC solutions is due to the increasing risks in consumer segments. Banks, financial institutions, and other organizations suffered huge losses due to scams and fraud. Therefore, companies are trying to update security systems to deal directly with customers.
Procedural Difference Between KYB and KYC
Another primary difference between know your business and KYC is the required documents in both procedures. KYB solutions usually identify and verify the following business information:
- Company registration and address documents
- Operation licenses and regulatory certifications
- Identities of ultimate beneficial owners and major stakeholders
The above-mentioned documents make it clear that the goal of the process is to identify if the company is clear to do business with. On the other hand, KYC checks ensure that a customer is not associated with any illicit activities. Therefore, safeguarding company interests from legal issues in the future. Here are some of the documents that are necessary during a KYC check:
- Government-issued identity
- Driver’s license
- Passport
In stark contrast with know your business, the primary goal of KYC is to verify the proof of identity and address of the customer.
Underlying Technological Differences
An important thing to note here is that the underlying process for both procedures can be the same. For instance, know your business and KYC checks need to extract the data from documents. Therefore, the technology for data extraction and parsing can be the same. Similarly, modern company verification services use digital KYB solutions, which include facial verification. The same technology can be optimized and re-trained for facial recognition in KYC checks. Therefore, the technological difference is minimal as compared to the procedural ones.
Key Takeaways
Companies, especially finance-related ones, are deeply connected with know your business and KYC checks. The differences in these processes boil down to the intended purpose, required documents, and the type of customers they are dealing with. Despite these differences, the primary goal of KYB and KYC is to secure financial transactions and business interests. Also, the underlying technology of both processes utilized optical character recognition to extract and process data from collected documents. However, the important thing here is that failure in compliance can lead to legal and reputational risks for a company. Therefore, businesses must proactively utilize a know your business solution or a KYC to stay compliant.
