In a market where data is available in abundance, ensuring that its security is maximised and KYC strategies are most impactful is often a challenge for sports betting companies. As the sports betting market grows and matures exponentially, the topic of KYC remains prevalent as operators seek to maximise security and engagement.
KYC is an abbreviation which stands for “Know Your Customer.” Sometimes, it also stands for “Know Your Client.”
Traditionally, KYC policies were put in place by banks and other financial institutions. Their purpose largely revolved around the prevention of money laundering and similar schemes. Many other types of companies also need to be wary about the potential for customers to abuse their services with criminal intent. This is particularly true on the internet. For that reason, it is now commonplace for online businesses in a variety of sectors to put KYC policies in place – including sports betting companies.
The KYC process
The first step in the KYC is usually the registration of a customer on the sports betting platform. The customer will fill out a registration form which includes a few personal details such as his name, age and address. Further steps can then be, for example, the verification of the email address before the customer can make a first deposit and start placing bets. Before performing the first withdrawal, the full KCY process usually needs to be completed, including the provision and subsequent verification of customer documents. These documents are used to verify the customer’s identity.
Which data and documents are recorded by the customers depends primarily on the legal requirements of the respective country, but can also vary from provider to provider. Basically, the more data customers have to provide initially (especially when registering), the greater the barrier to registering on the platform. However, additional information that goes beyond the legal minimum can be particularly beneficial for targeted marketing. So a middle ground has to be found here!
Challenges for sports betting providers
1. Preventing money laundering & fraud
Criminal enterprises often use gambling for money laundering, fraud, embezzlement and corruption. This poses a real and serious risk to the industry. The sports industry is particularly vulnerable to money laundering schemes and by far the biggest issue with sports betting is the ability to launder large amounts of money through its channels. Fraud is also increasingly becoming more sophisticated and blurring the boundaries with money laundering. Sports betting fraud involves the fixing of results or odds to deceive bookmakers.
Breaching AML (anti money laundering) regulations can not only land you in hot water with the regulator, affect your reputation, and lead to financial losses, but the authorities have the power to suspend or revoke betting licenses. Non-compliance can have devastating and serious consequences both for businesses and individuals.
2. Regulatory changes & increased security requirements
Recent developments, such as the European Union’s 4th AML Directive, highlight the challenges faced by financial institutions and sports betting companies in ensuring KYC compliance in a continuously evolving regulatory landscape. With the implementation of GDPR, companies have to follow stringent requirements regarding the management and storage of data. Companies deviating from the regulations will be heavily fined for the data breach. To cope with the regulatory changes in data security and compliance, like GDPR, the need for automation is high. An increased investment in technology is required to ensure that automatic data onboarding, managing of sensitive data and data enrichment processes are being handled securely.
3. Software & Automation
Risk analysis and KYC software are on their way to become the primary tools to manage financial & customer data. The software will support risk analysts and security managers in identifying the potential threats and eliminating any adverse impact on the business.
GDPR implementation also requires an increased investment in technological developments. Digitalised data onboarding, managing sensitive data and data enrichment processes will be required to meet the requirements of GDPR.
New corporate KYC solutions leverage APIs, AI/ML, biometrics, and advanced optical character recognition (OCR) technologies to solve KYC/AML problems and bring a structured approach in the way business verifications are done in this day and age. The vast market potential, the growing API wave around the world, as well as the maturing of AI technologies, will enable businesses around the world to manage customer data in a much faster, easier and risk-controlled way.
With increasing digitalisation, regulations and best practises for KYC, the European lending ecosystem is in a state of flux. The continuous evolution of frameworks that regulate cumbersome KYC processes makes it difficult for businesses to meet customers demands.
Sports betting providers need to ensure compliance with local and regional laws, as well as ensure that customers have a smooth onboarding experience – and all of this must also be financially feasible for the business. Moreover, a strong dose of digitalisation is needed to improve processes to facilitate the scalability and cost-efficiency of an operation.
According to best practice, sports betting operators should monitor their customers regularly to receive real-time alerts or notifications to changes in risk profile and personal information. Moreover, this practice also helps them in performing continuous monitoring of politically exposed person (PEP), sanction and criminal watch list sources for the updated information. Based on customer risk profiles, there may be some sets of data that operators should monitor more frequently than others.
Bookmaker NEXT: an example for the implementation of KYC processes
Arland’s software Bookmaker NEXT offers a simple solution for handling KYC processes.
Different KYC sets can be created and adapted to the target markets. With a simple level system, customer information can be gathered step by step, thereby reducing the onboarding barrier. Each KYC level can be further linked to additional authorizations for the customer (e.g. deposit, place bets, payout, etc.).
Customer documents are simply uploaded by players, after which they can be edited and verified by qualified staff directly in the system.
For compliance with the German market, Bookmaker NEXT is further integrated with the player blocking system OASIS.