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What do KYC Requirements Mean for Payment Facilitators?


What Do KYC Requirements Mean for Payment Facilitators?

Payment facilitators are known for detailed understandings of the industries they serve, which allows them to create a seamless, tailored experience for their merchants. But how well do they know the individual merchants themselves? That’s where KYC requirements come in.

What is KYC?

KYC stands for “know your customer,” which refers to procedures that payment providers use to do just that – understand who their customers are, what their businesses do and the nature of any risk they represent.

KYC requirements trace their roots back to laws that govern financial institutions – most notably the USA Patriot Act, which, among other provisions, strengthened previous laws meant to protect the U.S. financial system from money laundering, terrorist financing and other criminal activity.

The law applies to financial institutions and doesn’t mention payment facilitators specifically. However, acquiring banks typically pass along the responsibility for adhering to banking regulations – as well as industry requirements such as card network rules – to payment facilitators in their contracts.

So ultimately, payment facilitators must follow the KYC requirements set out for them by their acquirers. But KYC is not only a requirement – it’s also simply good advice. Because they’re liable for the activities of their submerchants, payment facilitators must guard against their own risk as well.

For all of these reasons, to protect themselves and the payments system, payment facilitators must develop a thorough understanding of their customers before enabling them to access the payments system.

What does KYC look like in practice?

When underwriting and onboarding merchants, payment facilitators must collect information from them through merchant applications. While certain basic information is required from all merchants, payment facilitators do have the flexibility to design applications that best fit the needs of the industries they serve.

Payment facilitators then use the information they’ve collected to make sure their merchants are who they say they are and are doing what they say they’re doing, in part by checking the data they’ve been given against government and industry databases.

For example, they must ensure that the merchant applicant is not on Mastercard’s Member Alert to Control High Risk Merchants (MATCH) list, which is a database of merchants that have been terminated by other payment providers. They must also check the U.S. Treasury Department’s Office of Foreign Asset Control (OFAC) list, which contains entities that providers are prohibited from doing business with by the U.S. government. Technology like Infinicept’s underwriting platform can automate much of this process.

In addition to these required screenings, payment facilitators perform other checks – such as identity verification processes and web site and social media checks – as part of the underwriting process to confirm the data the merchants give them about themselves and their business activities.

Developing appropriate KYC procedures that comply with all applicable laws and regulations – without creating unnecessary friction for their merchants – is an important part of becoming a payment facilitator. It should be done in consultation with payments industry experts. Infinicept has expert advisors available to help guide the development of these procedures.

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