In spite of the recent price crashes, cryptocurrencies continue to gather momentum with investors from all walks of life. Initially, crypto enthusiasts were those on the cutting edge of the tech world, but today the demographic is broadening by the day.
No surprise then that, in parallel to this growth, we’re seeing an increase in regulation. Regulations are evolving rapidly and, as they do, identity verification and Proof of Address (PoA) are becoming increasingly crucial for enabling exchanges to safely onboard customers in a compliant and seamless way.
Even with 20 years of continuous innovation, it is still very difficult to prove one’s identity on the Internet. As we transition into Web 3.0, which is another term for the use of blockchain technology, identity verification and POA are at the center of widespread participation.
The need for KYC
Regulators in jurisdictions around the world are attempting to shape crypto measures around the following pillars: first, protecting consumers from scammers or illicit companies. Second, mitigating the potential for crypto to be used to facilitate nefarious activities including financing terrorism, funding criminal enterprises, money laundering, and circumventing sanctions lists. Third, regulators are looking to put in place the same standards of due diligence that are required with traditional financial services. Each of these pillars requires crypto exchanges to have a clear understanding of who they’re doing business with.
The only way forward
There are two reasons why KYC for crypto exchanges is so vital: trust and privacy. A crypto exchange hoping to scale with consumers while staying within the good graces of regulators will want to build a trusted ecosystem. Exchanges don’t want to unwittingly facilitate money laundering or expose their users to identity theft or financial crime. Effective identity verification helps establish the legitimacy of a user and creates trust so both parties can transact confidently and securely.
Simultaneously, there is a strong emphasis on privacy. Ultimately, it’s up to the crypto exchanges to guard the privacy of their clients either through advanced cryptography, anonymized wallets, and continuous investments in cyber security. As regulations crystallize and clarity is gleaned into what information must be disclosed and for what purpose, there will be a competitive advantage for exchanges that take a privacy-centric approach to handling data.
Finding a balance between trust and privacy is imperative and will continue to be a balancing act for exchanges. Moreover, operators that don’t comply will be shunned by legitimate exchanges.
Onboarding the compliant yet convenient way
When customers attempt to open an account with an exchange, they are excited and want to start transacting immediately. They don’t want to fill in time-consuming forms, be subject to complex onboarding steps, or, worst of all, wait days for approvals. Often, the easiest way to get started is using digital identity verification. The customer provides basic identity information, and the exchange can run numerous checks on the information to help ensure compliance, detect fraud, and perform other risk-mitigation measures.
While the speed and simplicity that underpins identity verification have advanced considerably, the same cannot be said for document verification. Proof of Address remains a painfully slow, high-friction experience. It involves paper based-forms and tends to require manual uploads and reviews and often inaccurate user inputs from old ID cards and licenses. This process can take days, or even weeks, and is simply not suited to crypto exchanges today, let alone the increasingly regulated world we are about to see.
Improving Proof of Address
Finding a better way forward to address manual document verification requirements became integral to our mission at Trulioo. We recently launched UtilityID as part of a recent platform update to do just that. This consent-based identity verification service uses utility provider data, such as bills and records to verify addresses, removing the need for the manual download, upload, and scanning of documents and other high-friction document verification processes. This also provides a more secure way to obtain address verification as utility documents are easily forged.
Ultimately it is a faster, frictionless method of address verification and a more accurate proof of address determination. This is critical to business as it reduces onboarding times from hours or days to just minutes. By using this solution, crypto exchanges, or any business, can meet proof of address compliance requirements in real-time, provide a faster onboarding experience, a higher level of address accuracy, and significantly reduce operation times associated with manual utility document and ID document review. Being able to onboard customers and allow them to transact is the name of the game and leveraging technology to make that process painless will make all the difference.
The time is now for crypto exchanges to ensure they are remaining compliant, while also setting themselves up for success in meeting tomorrow’s tighter regulations. Finding the right technology partner is key to achieving both.
This article first appeared on The Paypers.
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