KYC stands for Know Your Customer, which is not only good advice, but also a requirement. To prevent bad actors from accessing the payments system, payment facilitators must know that their customers are who they say they are and that they are selling what they have said they are selling.
The requirements for KYC processes have their roots within the Bank Secrecy Act (BSA), which obliges financial institutions to help guard against money laundering, terrorist financing, and other criminal activity.
The BSA regulations include requirements for customer due diligence, which require institutions to verify the identities of their customers as well as the beneficial owners of companies (defined as an individual that controls the company or any individuals that own more than 25%) that wish to open accounts. They must also monitor for and report on any suspicious activity.
The BSA applies to acquiring banks who must verify the identities of customers applying for merchant accounts. Acquirers in turn, pass on these requirements to their Payment Facilitator partners via contractual agreements.
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