Know Your Customer (KYC) helps financial institutions to correctly identify customers and combat financial crime. It is an essential part of reliable and secure payments.
It is a mandatory process for financial institutions such as banks and payment institutions to establish and regularly verify the true identity of their customers. The purpose of KYC is to prevent money laundering, fraud, terrorist financing, and other forms of financial and economic crime.
Why is KYC important?
Careful customer identification helps to limit risks in payments.
This enables financial institutions to:
Determine whether someone is who they say they are;
Recognize unusual or suspicious transactions more quickly;
Comply with legal obligations, such as the Wwft(opens in new window) (Money Laundering and Terrorist Financing Prevention Act).
Consumers also benefit from this: a good KYC process helps to prevent fraud and scams by other bank customers.
How does KYC work?
The KYC process usually consists of three parts:
Identification – The customer shows a valid ID (such as a passport or ID card).
Verification – The provider checks whether the ID is genuine and belongs to the person presenting it.
Monitoring – During the customer relationship, transactions are analyzed for unusual patterns.
Digital identification is playing an increasingly important role in this, for example via iDIN(opens in new window) (logging in with bank details) or biometric verification such as facial recognition or fingerprinting.
KYC and biometrics
Biometric characteristics are increasingly being used as an additional check for digital identification. These techniques are useful when opening an account via an app. The storage and processing of biometric data are subject to the GDPR and therefore require strict security measures.
Role of the Dutch Payments Association
The Dutch Payments Association:
Contributes to the development of secure standards for digital identification;
Promotes reliable and privacy-friendly KYC processes;
Represents payment institutions in national and European consultations on customer identification and anti-money laundering policy.
