A guide to Know Your Customer (KYC) procedures in online casinos

If you've signed up to an online casino before, you'll probably have completed a series of checks known as a Know Your Customer (KYC) procedure. In some countries, it's legally binding, and the casino would be in serious trouble if they didn't do it.

KYC procedures are essential in the online casino world, in an industry that depends on security to survive. But what exactly are they, and how do they protect us?

In this guide, I'm going to tell you what you need to know about KYC, why it's necessary, and how it could change in the future. If you didn't already, you'll understand why you're being asked to take part before playing your favorite games after reading, and why it might remain a central part of online security for a long time to come.

What is Know Your Customer?

Know Your Customer is a method that businesses, including top online casinos, use to identify and verify their customers. They are often legally obliged to do this, but in a way that doesn't infringe on their customer's rights.

The KYC process involves the customer providing documents to prove their identity, and sometimes to demonstrate that they have sufficient funds. These might include the following:

  • Passport
  • Driving licence
  • Proof-of-address (i.e., energy or phone bill)
  • Bank statement

The need for KYC came from a changing consumer culture. In the past, it was more common for businesses to meet their customers face-to-face and know them by name. While fraud did take place, possibly through forged banknotes, it was generally easier for businesses to keep themselves and their customers safe.

Nowadays, we tend to do business long-distance, whether over the phone or online. While this is often more convenient for both parties, it also increases the chance of financial crime through hacking and/or hiding our identity.

The European Union (EU) was one of the first authorities to include KYC in its official regulations through its first Anti-Money Laundering Directive (AMLD1) back in 1991. The directive required EU companies to register customer details and keep records up to five years after their final transaction.

In the USA, the country's Patriot Act states financial institutions' duty to verify their customers identity through KYC, and to screen their customers against national lists of known terrorists. This was something that became more urgent following the 9/11 attacks as authorities tightened their grip on national security.

Nowadays, you'll find KYC in many industries as the business world becomes more and more digitized, along with the security hazards that this brings.

You'll probably need to use it to open an account at a bank or a website that requires deposits, like an online casino, so it's important to know what it's for and how it works.

How online casinos use KYC

Online casinos with recognized licenses are normally required to carry out the KYC process as quickly and as efficiently as possible. At a minimum, you'll need to prove your age, name and address, so that it can match them to official records, and prevent fraudulent activity, like playing under a false identity or money laundering.

There's also an important need to prevent children from playing: both legally and socially. We know underage gambling is against the law in virtually every country, but it's also a root cause of problem gambling and related issues later in life. It means authorities are keen to make sure gambling sites know the age of its players, and KYC is an efficient way of doing this.

This means you'll have to provide a passport or driver's license for your age and name, and a proof of address from within the last three months, such as an energy bill or bank statement.

In some cases, the casino may ask you for additional financial documents to verify your payment method, or the source of funds if you want to make a large deposit. This will often depend on where the money is coming from, so you may need a trust deed, pension or dividends statement, or perhaps a payslip, too.

Then, once the casino is satisfied with the documents – that they're accurate and in good enough condition to read – it should verify your account. This often won't take place until you request your first withdrawal, so you might still be able to deposit and play online casino games before the KYC check is complete.

Note: Remember that until this point, you won't be able to withdraw funds.

Also, the casino reserves the right to refuse or cancel your account if it feels that your documents are not up to standard.

Why KYC is necessary

KYC was created to tackle several different areas of financial misconduct that can both put players at risk and cost businesses millions of dollars of lost revenue. Here are some of its key purposes.

To prevent financial fraud and criminal activity

Money laundering is a huge problem across the globe. According to the United Nations Office on Drugs and Crime (UNODC), between 2 and 5% of the world's Gross Domestic Product (GDP) is laundered every year, which equals to between £616 billion and £1.47 trillion ($836bn and $2 tn).

To put that into context, $2 trillion is the GDP for the whole of Canada in 2021. Without measures like KYC and Customer Due Diligence (CDD) those figures would likely be much higher, as they check whether the source of funds is valid.

To guard against stolen identity

KYC is also very important from a user's perspective. Fraudulent activity often involves an innocent victim which, in the case of a betting site, might mean someone assuming a player's identity and withdrawing their funds. KYC might also prevent underage players from gambling illegally and potentially becoming addicted.

To stop multiple account creation and bonus hunting

How many email addresses can you create? For anyone with enough time, it's hundreds, if not thousands; and that's not to mention modern bots can set up several accounts at once.

This spells danger to betting sites who would be vulnerable to someone claiming multiple bonuses with their different email IDs without measures like KYC. Bonus hunting isn't as prevalent as it once was, but it would be a lot worse if players didn't have to prove their identity before claiming a bonus.

The saving to gambling sites is huge, and justifies the expense of setting up KYC security checks.

The above issues underline the need for KYC, but like with most security measures, it comes at a price. This is something we will explore in the next section.

The pros and cons of KYC in online casinos

The Know Your Customer procedure is a central part of online casino security as it helps sites prove their integrity and build a safe and honest betting environment. It helps gambling operators avoid taking on fraudsters in disguise – those users with bad intentions – and protects innocent players in the process.

Another important positive is the trust it builds between the player and the casino. If a casino has an idea who a player is, it will gladly welcome them and possibly target them with special offers like casino bonuses. From the player's end, they'll know that the site complies with strict security measures and will likely return to play again.

KYC also makes it easier for players to re-activate their accounts in case of login problems. If the casino knows who they are, they can help them gain access quickly, whether via a password reset link or other means.

Yet for all these upsides, there are some drawbacks to KYC, too. The process can be quite tedious for the player if they have to provide several documents. Some casinos go to great lengths to keep this to a minimum, but there's no escaping the fact that the procedure will take a short while. Also, multiple casino accounts (at different sites) mean multiple KYC checks, which add up to a considerable amount of time for some players.

Ever-changing technology also risks making KYC obsolete sooner than we may have thought. It's already clashed with many people in the world of cryptocurrencies, for example, in that it goes against one of the basic premises of crypto – anonymity. KYC demands the sharing of personal data, causing many crypto wallets to avoid it.

That said, with authorities continually working to update the KYC procedure, there's a clear desire for it to stay in place for the foreseeable future. Even in the crypto industry, the move towards the mainstream means that many platforms are seeking to protect against fraudsters, so KYC may well become part of their plans sooner rather than later.

KYC in the future

So, what will KYC look like in the future? If we assume that it's going to be a central tenet of casino security for some time yet, will advancing technology make it harder to use, or easier? Will it continue to be as effective?

While it's difficult to answer these questions, we do have an idea of what's in store. We know, for example, that Artificial Intelligence (AI) will change the way we use KYC, because it's already happening. Automated checks are now common among business such as banks, which use Enhanced Due Diligence (EDD), a process that uses compliance software to quickly identify high-risk transactions.

The challenge for businesses is to make sure that this is still as smooth as possible for the customer. The last thing they want is for people to walk away because of a heavy KYC procedure, so we can expect to see more streamlined services in the future – possibly with the help of technologies like video streaming, which has reduced client onboarding from a long, expensive procedure to a three-minute process.

If companies, including online casinos, can do this successfully, then we can expect to see KYC stay at the forefront of online security. If not, then watch this space for a new technology to come and take its place.

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