Remote Identification of Customers for European Payment Institutions. Part 1

By Andrey Borisenkov, CDO ADVAPAY 

When choosing the jurisdiction for future payment business it is necessary to consider a large number of different aspects: these are license cost, license acquisition time, office costs and salary of employees in the licensing country (requirements of each regulator provide for at least one staffed operating office).

There is another important aspect that often remains unaddressed or at the end of the line. These are AML/KYC requirements.

The abbreviation stands for Anti Money Laundering (AML) procedures ordering each company to "know its customer" (KYC – Know Your Customer). In simple terms, each payment company when opening an account for its new customer shall be confident that the customer is the very same person whose documents he/she submits.

Consider the case of a bank account opening. It's simple physics: a future customer comes to a branch bank, shows his/her documents, a banker makes copies of the documents, makes sure that the customer is the very same person who is specified in the documents (by comparing with photographic image), offers the customer to sign necessary papers and the bank account is open!

One would think nothing is easier than repeat the same steps within the framework of the payment institution. But what's to be done if your company is located, for instance, in Czech Republic and your customer resides in some other country? You wouldn't be able to bring all your customers to a suitable country for contract signature. Nor refuse customers from other countries since it is ridiculous because in doing so you lose the prime advantage of the payment institution vs. conventional banks, i.e. openness, simplicity and funds management speed for the customer: the same bank account opening may take several days while an account in the payment institution may (and must!) be open within few hours. The main requirement is to follow the abovementioned AML/KYC procedures.

There are several ways to do that. The first option is to open branches in those countries where your customers reside. This option is rather expensive and time consuming one. It will be necessary to collect documents and submit them to the local regulator for consideration. In other words, it would take several months and it is clear that running offices in each country is a very costly affair affordable for major companies having a lot of customers.

The second option of customer identification lies in company agents. This option is cheaper since a payment system agent can be even a private individual having no license. That individual meets a prospective customer, proves his/her identity, signs documents with him/her confirming potential account opening. The problems of this method involve the necessity to send customer's documents to your main office and the necessity to deal with a great number of agents in each country to support prompt accounts opening. Moreover, it is necessary to take into consideration the fact during routine inspections, the regulator will ask to provide all documents for each identified customer of the company; that is why it stands to the reason that the procedure shall be followed in strict adherence to the rules and any violations thereof may entail suspension or revocation of the license.