Confused by KYC and KYB? You're not alone. This episode dives into the crucial question of money ownership in card issuing, revealing how it impacts your business and users. We'll uncover practical examples and strategies for smoother compliance. Tune in!
Welcome to our deep dive. Today, we're gonna be looking at KYC and KYB in FinTech card issuing. It's a really important area, but can be kind of tricky to wrap your head around sometimes. Luckily, I'm joined by an expert from Restro who really knows their stuff, and they also know how to actually make these regulations user friendly.
- Glad to be here. - All right, so we've got a ton of material here about KYC, know your customer and KYB, know your business, and I know our listeners out there who are building these great FinTech products or really get a benefit from this deep dive. So to start off, can you remind us why these regulations even exist in the first place? - Well, at their core, KYC and KYB are all about stopping financial crime, things like money laundering or terrorists financing, and it all comes down to figuring out one thing. Who owns the money? If it's a person, then it falls under KYC, and if it's a business, then it's KYB.
- Okay, so that's the big picture, why? But I think our listeners are probably wondering how this stuff actually impacts their products and their users. Our sources talk about some really interesting examples, Lentech, insurance payouts, and international money transfers. Why are these particularly interesting when we were talking about card issuing? - What's really fascinating about these examples is that they show how the specific way you structure your financial product can have a huge impact on the KYC or KYB requirements you have to meet. And even more importantly, it affects the user experience.
So it's not just a one size fits all approach then. - Nope, not at all. - I think that's where a lot of people trip up. Could you walk us through these scenarios, maybe starting with Lentech? - Sure, so let's say you're a lender and you're giving someone a loan.
Now, if that loan goes directly onto a personal card that the borrower owns, then you're looking at a pretty straightforward KYC situation. You'd need to verify that person's identity to meet the regulatory requirements. But let's say you do things a little differently. The card is just part of like a Lentech account and the loan itself isn't actually issued until the borrower takes money out of that account.
- So the Lentech company is acting kind of like a middleman in that case? - Yeah, exactly. And because the funds are technically being held by the Lentech company at first, you're now dealing with a KYB situation. You need to verify the business, not the individual borrower. - And that could make a big difference when it comes to onboarding, right? I mean, KYB for a business has got to be simpler than a full KYC check for an individual.
Especially if they're already a customer. - Absolutely. And this is where strategically designing your product comes in. If you really get the nuances of KYC and KYB and you think about different ways to structure things, you can potentially make the whole process much smoother for your users without compromising on compliance at all.
- Okay, this is already making me rethink how I approach product development. - Yeah. - What about insurance payouts? Our source has mentioned something about the difference between gift cards and cards with limits. - Right.
Imagine you're an insurance company and you need to pay out a claim to a customer. If you give them a gift card with the full payout amount on it and that money is immediately theirs to spend, well, that triggers KYC because they now own that money, right? - Makes sense. What if you use a card with the limit on it instead? - Ah, that's where things get interesting. If the funds are technically still being held by the insurance company and they only get released when the customer uses the card to buy something, you might not need to do KYC at all.
It turns into a KYB situation because the insurance company, the business, is still the one controlling the funds. - So you're basically shifting who owns the money to make the process easier for the person who's getting the payout? - Exactly. And again, that can make a huge difference in the user experience. Instead of waiting for KYC verification, they can get their money much faster.
- Okay, I'm starting to see a pattern here. It's not just about blindly applying KYC and KYB, it's about really understanding the regulations and then using that knowledge to design products in a way that causes less hassle for users. Sounds like that's a big part of what Verestro does. - Yeah, that's a big part of our approach.
We look at our clients products and their legal structures to find the most efficient way to handle KYC and KYB. We're all about making compliance as seamless and user-friendly as possible. - I'm curious, can you give us a specific example of how you've helped a client make their onboarding process easier using this kind of approach? - Sure, we worked with a global money transfer company a while back and they were using virtual gift cards to send money internationally. - And since the person receiving the money became the owner right away, they had to go through KYC every single time, right? - You got it.
- And it was causing a lot of friction for their users. So we worked with them to switch to a virtual card with a limit instead. That way, the funds only became the recipient's property when they actually used the card to make a purchase. - So they were able to avoid that initial KYC requirement and make things much smoother for their users.
That's really smart. - It was a win-win for both the company and their customers. Compliance was taken care of and the user experience was way better. - This is amazing.
I'm realizing just how much potential there is to optimize these processes. I bet a lot of ThinTech companies are struggling with this stuff. - Oh, absolutely. And that's what we're here for to help them figure it out and find solutions that work for everyone.
- This has been so insightful. Before we move on, let me just quickly recap what we've covered. We talked about why KYC and KYB are important to prevent financial crime. We look at how the structure of a financial product could have a big impact on KYC and KYB requirements.
And we saw how Verestro is helping companies use those nuances to create a better experience for users. - And Verestro, we're dedicated to staying ahead of the game by creating new solutions and helping our clients navigate this ever-changing world. - Well, thank you so much for sharing your expertise with us today. This has been awesome, deep dive.
To our listeners, I hope this is giving you a better understanding of not only why KYC and KYB are important, but how they actually work. And how Verestro is finding ways to make them work better for everyone. Until next time.
