With the explosive growth of online shopping in recent years, the financial industry has increasingly emphasized digital authentication, online merchants, and KYC (Know Your Customer) for online payment accounts. Therefore, on June 22, 2018, the Hong Kong Financial Services Development Council published a report titled “Building Technological and Regulatory Infrastructure for a 21st Century International Financial Center: Implementing Digital Identity Authentication and KYC Platforms to Achieve Financial Inclusion, Maintain Financial System Stability, and Enhance Competitiveness” to promote the development of digital identity authentication and KYC platforms in Hong Kong.
To effectively investigate the business background of online merchants, banks cannot rely solely on traditional KYC procedures; otherwise, they will miss a lot of important risk assessment information.
Firstly, many online stores do not have physical stores, and the business registration location, website server, shipping location, and final buyers of many online stores are distributed globally. For example, an online store registered in Hong Kong might have its server in the United States, but transactions are shipped from India to Australia. This globally dispersed business model greatly increases the difficulty for banks to conduct investigations. Additionally, some online stores that intentionally deceive banks can set up multiple websites to confuse the bank’s approval process. They may appear to be legitimate online stores when applying for an account, but use techniques such as “transaction laundering” to secretly transfer illegal transactions from hidden websites to the bank’s payment system, causing the bank to unknowingly process a large number of illegal transactions. Currently, most banks or payment companies lack the necessary technology to detect these hidden transactions or websites, giving criminals the opportunity to exploit this weakness.
Therefore, compared to traditional KYC, online stores should be additionally scrutinized for website traffic, visitor sources, WhoIs information, and external links to provide a more comprehensive due diligence assessment. Of course, after granting the account, continuous monitoring of every transaction is necessary to ensure the online store complies with regulations.
Austreme’s “VerifyStore Technical KYC” is a fintech solution designed to address the shortcomings of traditional KYC in the approval of online store accounts. Many clients initially approached Austreme expressing that due to a lack of KYC and regulatory technology, they had previously rejected numerous online merchant account applications. However, as online shopping occupies an increasingly larger market share, they have had to find suitable solutions to help them handle the compliance approval of online merchants, thereby avoiding missing out on significant business growth opportunities.
Currently, some banks have designated that their online merchants must undergo Austreme’s “Three-Step E-commerce Approval and Monitoring” compliance process, which includes “VerifyStore Technical KYC,” “Transaction Laundering Detection,” and “SiteInspect Website Content Monitoring.” Due to Austreme’s globally leading regulatory technology, it became a “Registered Merchant Monitoring Service Provider” for Mastercard in 2015, allowing its clients to receive up to 75% fine exemptions.
(Article first published in PressLogic – BusinessFocus)