Andrey Borisenkov

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.

Finally, there is the third option. It seems to be the easiest and most rational and entails no extra expenses if the customer identification aspect is taken into consideration right away. In spite of the fact that the basic legislation is the same for all European countries, it is just the foundation base on which each particular jurisdiction builds its own legal superstructure. Accordingly, there are countries where the remote identification of customers for the payment institution is allowed. The simplified procedure is as follows: a customer files an account opening application via the company website, accepts the reliable data provision conditions, fills out the forms and attaches scanned copies of his/her passport and residential address confirming document. Your employee checks the data and… the customer is identified! In such a case, the whole procedure takes less than an hour even with allowances made for filling out the forms. At a later time, with customer's account turnover growth, some additional procedures may be needed, for instance, a small interview by Skype or a scanned copy of an additional document, but at any rate there will be neither personal visit to the office, signing of papers nor mailing of the papers. You must admit that this is a solid competitive advantage!

In what countries is the remote identification possible?

One of them is the UK – the leader in financial systems that has already issued more than 500 licenses. From the end of 2016, in Lithuania, the country that passed an amendment about the remote identification within the framework of its financial system development plan. In Malta as well, but it shall be taken into account that the remote identification application issues are to be resolved by the regulator and it is far from certain that it will make the decision in your favor. It has to be argued into it.

What's to be done if you need the remote identification but the license is obtained in the country that has no remote identification? There is a way out. The European legislation allows to use KYC procedures of third party companies that have payment licenses in the countries where the remote identification is permitted. Coming around to the example with the Czech Republic, the following plan can be offered: working under the Czech legislation you may engage a company having a license in UK or Lithuania for customer identification. That company will carry out all the procedures and confirm identification of your customer.

Your customer will not be even aware of the fact that he/she has been identified by a third party company since the whole procedure can be automated via API gateway.
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