KYB merchant onboarding process for businesses in Singapore

Apr 05, 2024

When a business firm decides to collaborate with another business, it should evaluate the underlying risks, considering the financial transactions involved between them. This is where a proper KYB merchant onboarding helps.

When you onboard a merchant, you want to make sure who you are going to deal with and whether it's completely safe. KYB onboarding is necessary for your business to adhere to AML and other regulatory policies.

Payment and banking organizations conduct know your customer verification process to avoid being open to criminal networks and money launderers. The same applies to any business. 

In short, KYB onboarding is like conducting a background check on a business to analyze it from every perspective and not get used as a pledge in fostering illegal, criminal, and terrorist activities while forming a business partnership.

What is the business verification process?

The business verification process is the set of procedures that a company conducts to verify a business customer and their credibility before onboarding them.

B2B businesses whose clients are other businesses must mandatorily do this when they welcome their new clients. By performing this due diligence, you mitigate the risk that might befall your business and bring its reputation down. 

In this merchant onboarding process, you get them to fill out an onboarding application form and sign it duly, and also collect a set of documents to verify their legitimacy.

Not just financial institutions, but any business that forms financial relationships with another business in exchange for goods or services must carry out a business verification process. 

What does KYB mean?

KYB is similar to KYC (know your customer), only the intention and end results are different. Know your business is mainly conducted to stay in compliance with the anti-money laundering regulations and secure your business interests.

KYC is the due diligence process used by banks to verify their customers to keep money launderers, criminals, terrorists, and fraudsters away.

Likewise, KYB is executed by B2B businesses to identify the kind of business they work with and verify the legal representatives of that business.

If KYB merchant onboarding is successful, you are sure that the business is trustworthy, reliable, and safe to connect with. 

Just like how eKYC is possible, KYB also has digital solutions that can speed up the process, produce more effective results, and conduct in-depth money laundering checks.

How does KYB protect your business interests?

KYB merchant onboarding not just exhibits the real identity of the business but also the legal and financial risks associated with that company and its stakeholders and directors.

By verifying documents like incorporation documents, company bank account documents, and UBO (Ultimate Beneficial Ownership), you get to know the legal entity of a company’s beneficiaries and its shareholders with more than 25% of company shares. If any of that company’s top officials are already on any risk watchlist, you will be prematurely warned. 

The major reason why KYB merchant onboarding should be conducted is to avoid connections with fraud and shell companies (dummy entities).

Money launderers and frauds establish shell companies that might look like a normally functioning and complaint organization from the outside. But they won’t really sell any goods or services nor have the infrastructure for it.

They mainly exist to facilitate hawala transactions, scam money from customers or conduct secretive illegal operations.

Such companies only exist at the paper level and any other company that gets caught in this organizational level fraud loses its money and reputation. These shell companies are omnipresent and you can spot them in any industry. 

Verifying critical documents and performing a foolproof KYB onboarding safeguard you from the risk of hooking yourself with double dealers.

What is the KYB merchant onboarding process in Singapore?

Every company should follow a series of steps while doing merchant onboarding to know them before you start working with each other. Following are the steps involved.

1. Application form

Prepare an application form to collect basic information about any company during the merchant onboarding process. The business customer should fill out this form and provide their personal and company-related information.

2. Ultimate beneficial owner identification

One of the important processes of KYB onboarding due diligence is the verification of UBO. There is a person behind every transaction. Similarly, every business transaction has a legal entity behind it.

Anyone who owns more than 25% shares is the ultimate beneficiary of that company. By going through their risk profiles, you can identify if they share a transparent relationship with the company and are not involved in baneful activities.

3. Document checks and AML/PEP screening

In this step of KYB merchant onboarding, you can do AML and PEP (Politically Exposed Person) screening. AML implies anti-money laundering. AML is also mandatory to maintain compliance with anti-money laundering regulations of Singapore.

Documents like government-issued ID proof, passport, company registration documents, income tax returns, company bank statements of the past six months, and credit reports.

You can also get it done from agencies or use automated AML and PEP check tools available online. 

PEP denotes people who are in publicly authoritative positions. With the PEP check, you can find if any politically influenced person is connected with the company.

You have to carry out this screening during the KYB onboarding to keep your company away from risks, namely fraud, bribing, corruption, or any unlawful engagement.

4. Ongoing monitoring

Conducting the initial check isn’t enough. You should continuously monitor them and keep the collected information up-to-date. AML blacklist screening should also be performed often and verify the transaction source.

In case of any suspicious activity, you will get a warning and take necessary action.

How can KYB be done effectively for your business?

Screening every single transaction and business isn’t practically feasible. But statutory regulations compliance cannot be washed away too.

To balance this, you need a streamlined KYB merchant onboarding process that happens automatically and quickly without interrupting your business functions.

1. Build an in-house verification solution

KYB onboarding is a complex process that deals with a huge chunk of data. If you are doing it manually, you will need a huge team of compliance officers, IT experts, and analysts.

They will create watchlists for each screening category, prepare forms, and collect information while onboarding business partners.

Then They verify every merchant with the help of collected data and documents and look for potential fraudsters and criminals who might be associated with the company.

2. Outsource to a KYB service provider

Doing them manually can take hours to get a business verified and finish KYB merchant onboarding. It can affect your partnership and also your organization’s outcome. Instead of building a huge team, you can rather have it outsourced.

There are many well-reputed KYB onboarding service providers in Singapore who can wrap this up in a short time without a high amount of supervision.

3. Subscription-based identity verification software

Apart from outsourcing, you can employ a KYB merchant onboarding tool that’s available online. These tools have a company and directors' database as well as screeners.

You can also still have a compliance officer who would work with the merchant in collecting documents and getting the basic information.

The KYB onboarding can be performed in the application which will have multiple checklists and screeners with customization options.

The whole merchant onboarding process will be done seamlessly, occupying a lesser amount of time. But there will be monthly subscription charges and plans that you can choose and pay.

Overall, in conclusion, KYB merchant onboarding plays an important role in securing your business interests and holding up your reputation in the industry.

Otherwise, the chances of falling prey to a dummy company’s money laundering strategies are so high.

Notwithstanding the industry you are from, a well-planned merchant onboarding system should be your entry screening point before forming any strategic relationship with other businesses.