Why KYC Isn’t Always The Best Solution For Businesses

Know Your Customer (KYC) procedures have been implemented by some businesses in order to verify the identity of their customers. KYC protocols were originally created to combat money laundering and fraud and KYC is still widely used amongst businesses like banks, financial institutions, and some online platforms. To complete KYC checks, businesses must gather personal data from consumers in order to verify that they are who they say they are.

KYC protocols were designed with security in mind, however they are not always the best solution for businesses. In some instances, KYC requirements can hinder operations and present various challenges for both businesses and consumers alike. 

KYC Can Be a Barrier to User Experience

Businesses all around the world continuously strive to enhance their user experience. However, adding an extra layer of Know Your Customer checks for consumers to complete can be a barrier to a streamlined and hassle-free user experience. KYC protocols usually involve filling out paperwork and sharing personal details and many consumers find this tedious and time-consuming. For businesses who want to streamline operations and enhance user experience, KYC may not be the best option as it is usually seen as a hassle by consumers. 

For example, some businesses within the online gaming industry require KYC compliance before gamers can get started, however, a growing number are working to bypass this step as many gamers want to simply sign up and get started playing straight away. This is especially true with online casinos. While some online casinos ask bettors to complete KYC, there are a growing number of no-verification sites. No-verification betting sites allow players to get started gaming straight away, without the hassle of paperwork and ID checks (source: https://www.sportscasting.com/online-casinos/no-kyc/). With easy access to games, these sites are able to offer an enhanced user experience to their customers. Additionally, they are able to skip lengthy KYC checks which can annoy and deter customers from visiting their platforms or sites. 

Increased Operational Costs

Not only can businesses enhance user experience by bypassing KYC but they can also reduce operational costs. KYC checks are not only a hassle for consumers, but they can also be costly for businesses. Businesses that implement KYC have to verify customer details and data and must have the procedures, systems, software, and staff in place to do so. 

For small to medium-sized businesses, the costs of operating KYC checks can be prohibitive. While the initial set-up costs are one thing, there are ongoing costs that businesses must budget for to ensure the safekeeping of the data that they collect. Because of the high operating costs of KYC, it is not ideal for all businesses. 

Privacy Concerns for Customers

KYC procedures help businesses confirm their customer’s identities, but in doing so, they ask consumers for a lot of personal data. Data can include details like a consumer’s full name, birthdate, address, and even financial details. Many users are cautious when sharing these kinds of details online with businesses, especially as the number of data breaches and hacks continuously rises all around the world. 

So, while KYC may be needed in certain industries, businesses in other industries are increasingly looking for ways to bypass KYC in order to offer consumers a secure way to access their goods or services without sharing their personal details over the Internet. For example, in the online payment industry, some users are beginning to use decentralized payment methods more and more as these methods typically bypass KYC checks. Decentralized payment methods, like crypto, are known to be extremely private and secure and offer users increased levels of anonymity when making purchases online. 

Data Security Risks

KYC may not be ideal for all businesses as the procedures of collecting data also require businesses to securely store data for long periods of time. Many businesses opt out of KYC as they do not want to have to securely store consumer data and be responsible for it in the event of a data breach or similar event. It has been reported that 9 out of 10 consumers don’t think that businesses do enough to protect their data, so if businesses can bypass KYC checks and simply not store consumer data they may appeal to a wider market. 

By avoiding KYC altogether, businesses can remove the need to store private consumer data and cybercriminals are less likely to target no-KYC businesses as well. Simply put, many businesses believe that the risk of maintaining a database of personal information outweighs the potential benefits of KYC. 

KYC May Exclude Valuable Customer Segments

Businesses that implement KYC may be excluding certain consumer markets without even knowing it. Not all consumers have access to the documents and information that KYC requires. For example, a consumer may not have a permanent address to share or they may live in a developing country or have limited access to financial services. By implementing KYC, some businesses may be shrinking their customer base. 

For example, in emerging markets where documentation standards may not align with those of developed countries, KYC processes can act as a barrier to entry. In the remittance industry, for instance, individuals in rural areas might not have official identification or documentation to verify their identity, which prevents them from accessing vital services. Businesses that can accommodate these customers without rigid KYC requirements may gain access to underserved markets, creating new opportunities.

Customer Retention and Loyalty Impacts

Businesses that implement too many procedures or hoops for consumers to jump through may be seen as a hassle by consumers. Consumers may decide to take their money elsewhere when this happens. 

For example, a business with strict KYC procedures that require its customers to repeatedly share or confirm their personal and financial details may be seen as annoying if a customer is simply trying to make a purchase or transfer funds online. On the other hand, if a consumer can find the same goods or services online from a different business that does not require them to share their personal details, the consumer is likely to choose the no verification option. Consumers want to be able to easily and quickly access business services or goods online without the added hassles of confirming their identity first.