Business

Know Your Customers (KYC) - meaning, benefits, importance.

KYC is a process that involves collecting and verifying customers' information to ensure that a business is not dealing with fraudulent individuals or entities.

An increase in the number of criminal activities globally is possible in a world full of innovations. Incorporating measures to help curb these illegal activities is an important part that every company should be part of. KYC is an initiative that stands for "Know your customer." 

Business owners put in this measure to help protect their customers against any misconduct that would lead to a failed relationship and mistrust between them.

Companies may put in strict measurements such as identification verifications to prove who their customers are or claims are valid. KYC policies aim to protect financial entities against fraud, money laundering, and other criminal-based activities that would be bad for businesses.

In this article, we focus on KYC as follows;

  • Importance of knowing your customer (KYC)
  • 5 Benefits of KYC to businesses
  • Know your customer marketing
  • How to identify your customer base
  • Types of customer base
  • 5 most popular documents that can be used for KYC in Kenya
  • Conclusion

Importance of knowing your customer (KYC)

Knowing your customer is a much-needed system and has since benefited many companies. The following are its benefits;

  1. It helps businesses save their financial resources by reducing the risk of being harmed or undergoing a big loss. Knowing their details would help you understand what type of customers you are dealing with and if they are frauds or participating in any illegal activities to avoid such from happening.
  2. It gives customers assurance about them dealing with you as a company and can be able to trust you with their funds.
  3. It allows businesses to build good relationships between themselves and their customers.
  4. It helps companies have accurate, verified records and data of the customers they are dealing with.

5 Benefits of KYC to businesses

Improved customer experience

By collecting and verifying customer information, businesses can provide personalized services and support to their customers, leading to improved customer satisfaction and loyalty.

Enhanced security

KYC helps businesses identify and prevent fraudulent activities, such as money laundering, terrorist financing, and identity theft, which can protect the company and its customers from potential risks and losses.

Reduced compliance costs

By complying to and applying the KYC policies and regulations, businesses can avoid costly penalties and fines that may result from non-compliance. This will give your business an opportunity to reduce operational costs for the people undertaking the KYC tasks. As you set these policies, you need to design them to prevent and detect potential issues based on where your business is at currently.

Improved reputation

With KYC processes implemented, businesses can demonstrate their commitment to responsible and ethical practices, enhancing their reputation and credibility in the market.

Improved decision-making 

Through collecting and analyzing customers' information, businesses can make better-informed decisions about the products and services they offer, the customers they serve, and the risks they face.

Know your customer marketing

Knowing your customer is an essential part of the business success moves. Knowing them will be able to get your products and services sale and at the same time make an earning out of it. Know what your customer needs and be able to put them in store for better management. 

You can easily find out more about your customers and put requirements in place through market research. Start by conducting surveys and let them fill in a KYC form template to collect their information for later communication. 

How to identify your customer base

Your customer base is like the stronghold your business needs. With them around, you can increase your sales and bring in revenue. Hence, it would be essential to understand your customer from the beginning to the point of their buying. Customer base refers to customers who repeatedly buy your products and services. 

This is how you can identify your customer base;

Determine your current customer base

Start by knowing your current customers. How long have they been your customers? From that point, you will be able to determine the amount of recurring revenue you will be receiving from them.

Know their shopping habits

Knowing your customers' buying habits is a good idea since you can find out more about them and even have products targeting them based on their liking. 

Know what their buying decisions are based on

What made them attracted to buy what you are selling? Was it the advertisement or reviews from other people that brought them to you? These questions and feedback will have you do whatever you do to attract more buyers and convert them to loyal customers.

Carry out research

By conducting research, you can determine who will likely buy your products and services. You can separate them by their ages and genders to know who prefers what as a customer. This will help you reach the ideal customers you are targeting.

Types of customer base

We have different types of customer bases as follows;

Loyal customers 

These are a group of customers who have time to time, remained loyal to your brand. Their consistency is out of this world, and you should maintain a good relationship with them.

Recurring revenue  

If you have loyal customers that keep returning to a point they have become members of your services and even subscribed, you will have recurrent revenue. This is revenue received from them.

Common customers

This is a combination of loyal customers and those who come along the way to make a purchase but are not regular. As a brand, you should convert those irregular ones into loyal customers.

Know your customer checklist

Checklists are part of anti-money laundering (AML)regulations that identify and screen customers, and the list should contain customer details and be verified for safety purposes. While coming up with these checklist forms, ensure they are easy to fill and answer KYC questionnaires. 

If you are running a business and dealing with multiple customers simultaneously, you can automate these checklists so they'd be sent to multiple of them. Confirm if the digital form can be opened and filled across other devices such as phones and laptops.

5 most popular documents that can be used for KYC in Kenya 

These are the essential documents required for use if you want to identify your customers while in Kenya as follows;

National ID card

This is the most commonly used document for KYC in Kenya and provides proof of the customer's identity and nationality.

Passport 

These documents provide proof of the customer's identity and nationality and can be used as an alternative to the national ID card.

Driver's license

These documents provide proof of the customer's identity and their ability to operate a motor vehicle.

Tax registration certificate

These are documents that provide proof of the customer's tax registration status, which is required for businesses to collect and remit taxes on behalf of their customers.

Proof of residence 

This document provides proof of the customer's address, which is required to verify their identity and ensure they are not using a false or misleading address. This can be in the form of a utility bill or a bank statement.

‍Conclusion

Knowing your customer is the most important thing any business can do. This will help you in your day in and out operations that are carried out in your workspace. Identifying and verifying your customers is a step that will help you run your business smoothly without worrying about being scammed or working with criminals. Almost every company that might be at risk should be able to incorporate KYC into their system as a safety measure. KYC check is the way forward. While at it, ensure to follow the KYC guidelines, and you will be good to go.

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Bellah Mukisa
January 6, 2023

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