Many companies that are just starting in the payments industry may ask themselves, what does Know Your Customer (“KYC”) mean? It is a great question, as all organizations in the payment industry have a responsibility to know who their business is dealing with, especially as it relates to prepaid and debit card programs.
Today, there are many opportunities for bad actors to partake in an account takeover, identity theft, the use of synthetic identities, or even using identities that don’t exist yet. These folks are out to take advantage of your payments business and are not looking to help you, your customer, or your bottom line.
‘Know Your Customer’ is required by the federal government as part of the Patriot Act. It means a payments company is obligated to demonstrate they have identified the person behind a payment account, like a bank account or a reloadable debit or prepaid card. Doing this also helps prevent scammers from abusing your card program. We monitor for fraud and malicious activity. We look for criminal activity, specifically money laundering.
It is a program manager and their client’s responsibility to know precisely who we’re dealing with and what activity should and should not look like. If you’re not watching your business, or if you’re not observing the behavior of the participants of your business, your card account could be abused.
The Importance of the ‘Know Your Customer’ Process
A company that doesn’t actively combat fraudulent activity can face massive fines, and the company’s principals could be prosecuted criminally. For example, there have been convictions of principals who have received as much as 10 years in federal prison and up to $500,000 in fines. For this reason, the “Know Your Customer” process should be taken VERY seriously.
To keep our clients safe, Cascade’s compliance team takes extra measures when we see potential money laundering or fraud in our system. Some examples of these measures include blocking a card, not allowing purchases, reaching out to the end-user, validating the activity, and validating the payment device owner has possession of it.
When suspicious activity is noticed, we alert our issuing bank and request that a suspicious activity report, or a SAR, to be filed. This report is then used by the federal government to fight terrorism, money laundering, and the like. In the end, if we do determine that it is actual fraud, we will close that account to reduce financial loss.
The ability to monitor transactions, along with the due diligence performed on clients, vendors, and account holders, help maintain a card programs’ integrity and the larger payment’s ecosystem in general. It’s a requirement to not expose customers to risks or financial harm, and it is also federal law.
At Cascade, we understand that knowing who your customer is, and knowing who you’re doing business with, is at the very heart of advocating for our client and their customers.