KYC and AML Compliance: Key Differences and Best Practices

Imagine never needing to chase payments or worry about late fees again. Customers often forget due dates for credit card bills or subscriptions, which can negatively impact your business’ cash flow. However, with auto debit, these issues are a thing of the past.

The volume of digital payments made across India have surged, with the total valuation rising from Rs. 2071 crore in FY18 to Rs. 13,462 crore in FY23. Auto debit transactions have been a key driver behind this and are used extensively for making seamless recurring payments. Curious about how auto debit works and why it’s essential for your business? Let’s explore!

What is Auto Debit?

Auto debit is a payment facility issued by debit/credit card providers where funds are deducted from your bank account on a recurring basis.

Whether it's loan repayments, subscription fees, or utility bills, this facility lets you automatically transfer funds on a fixed date every month or year. This is one of the most convenient and hassle-free payment forms as you do not have to worry about the strain of missed EMI’s and can ensure proper cash flows.

It also eliminates the administrative burden of issuing reminders and manually collecting payments.

How Does the Auto Debit Facility Work?

With auto debits, you give permission to a company to collect payments directly from your bank account. You activate the auto debit facility through your bank’s website or application. Once activated, you can set the standard instructions for payment. The payment deductions take place without One-Time Passwords (OTPs) on the scheduled date.

However, to avoid any payment interruptions or possible overdraft charges, you’ll need to ensure that your bank has sufficient balance for a successful transaction deducted automatically.

You can also adjust payment dates or set a maximum limit for debits, providing flexibility in managing your finances.

How Are Automatic Debit Payments Different From Bill Pay?

Be Cautious About Sharing Bank Account Information

When it comes to managing your bank account or conducting business or transactions with other entities, safety is typically a major concern.

In FY24, the Reserve Bank of India (RBI) reported bank frauds amounting to more than 139.3 billion Indian rupees. Thus, the importance of safeguarding your bank account information cannot be overstated. 

To safeguard your account, consider these steps before providing authorization:

Verify The Company

Before you provide your bank information, verifying the legitimacy of the entity you are dealing with is essential.

You can start by researching the company by checking out its website, reviews, and business registrations. Additionally, when sharing information with them online, look for secure data transmission, such as Secure Sockets Layer (SSL) certification.

Know Your Rights

You have the right to protect and decide how your financial information is used. Be aware of your rights under regulations like the Information Technology Act (IT Act) and the Digital Personal Data Protection Act (DPDPA). Neokred’s Blutic platform helps you stay ahead of the DPDPA act’s compliance requirements. You can seamlessly manage user consent lifecycles, build user trust with transparent data collection declaration, and get free guidance on data collection and retention plans. Your bank may also offer fraud protection services to safeguard your transactions.

Monitor Account Balances

Ensure you have enough balance in your account before authorizing payments. While some banks offer overdraft facilities, they usually come with significant fees. Similarly, if your account lacks sufficient funds, you may incur an NSF (Non-Sufficient Funds) fee. Regularly monitor your account balances to avoid these unnecessary charges.

Review Your Agreement and its Terms

Before authorizing a payment, read the fine print and understand all the terms and conditions related to recurring payments and how your bank account information will be used. It’s important to understand how you can stop payments or cancel agreements as well.

E-Mandates and Auto Debit Card Payments

E-mandate is a digital payment service introduced by the RBI and the National Payments Corporation of India (NCPI). It allows individuals and businesses to authorize recurring payments from bank accounts.

With e-mandates, customers and businesses can seamlessly manage recurring payments such as SIPs, loans, insurance premiums, etc. as this system eliminates the need for manual labor, paperwork, constant reminders, and late payment charges.

For automatic debit card payments, e-mandates allow you to link your debit card to a merchant and authorize them to deduct fixed or variable amounts of money on a recurring basis. The maximum limit for a transaction via debit card e-mandate is Rs. 15,000. For amounts above that, OTP authentication will be required. In this case, the maximum single transaction limit is Rs. 1 Lakh.

Key RBI Guidelines for Auto Debit Transactions

On October 1, 2021, the RBI announced new guidelines for auto debit transactions to control recurring payments made through debit cards, credit cards, and other prepaid methods. They were also established to ease transaction processes for customers and businesses and to protect them from online frauds.

Here are some key highlights to keep in mind:

Informing Customers in Advance

Banks are mandated to notify customers of recurring payments 24 hours before the due date. After receiving confirmation from the customer, banks can proceed with the transaction. 

Additional Factor Authentication for Transactions above Rs. 15,000

Additional Factor Authentication (AFA) adds an extra layer of security to prevent unauthorized users from accessing your accounts. Once customers receive a pre-debit alert from their banks for recurring payments above Rs. 15,000, they will have to approve the transaction through an AFA in the form of OTPs.

Customers have the option to complete transactions of higher amounts such as insurance premiums or education fees without the need for approval via OTP.

Implementing One-Time Registration

Under the new guidelines, customers are only required to register once, after which they can conduct recurring transactions without an AFA. They can also specify the amount and validity period for subsequent transactions during the registration process.

Providing Opt-Out Options

Customers now have the option to opt-out of any transaction. They are also allowed to view, modify or cancel auto debit payment transactions from their accounts if they cannot make a payment on time.

How to Initiate a Direct Debit from Your Bank Account?

Direct debit is a way of collecting recurring payments directly from your customer’s bank accounts and this form of payment collection is highly advised as it is efficient, cheaper, and offers you higher control in managing your cash flows.

Here’s how to get started:

Step 1: Contact Your Bank

The first step is to get in touch with your bank and let them know that you’d like to join the direct debit scheme.

By verifying a few factors such as your company’s administrative capabilities and financial situation, the bank will decide whether you are eligible to accept direct debits.

Step 2: Choose a Direct Debit Company

The next step is to pick a payment aggregator or a payment service provider to process the payments received. You can choose a suitable platform considering several factors such as pricing, scalability, software interface, ease of use, and customer service provided.

Integration with your accounting software is also another key feature to look into, which is where Neokred shines at - it streamlines payment processing and management giving you maximum convenience and security in the processes. 

Step 3: Get Direct Debit Mandates From Your Customers

Once you’re all set up with your bank and payment provider, you can start collecting payments from your customers.

However, before that, you’ll need to acquire a Direct Debit Instruction (DDI). This document, signed by the customer, authorizes you to collect payments from their bank and it will be valid until it is canceled.

What are the Benefits of Autopay Options?

Autopay options are highly convenient for customers as they can set up auto-payments for their rent, cable, mortgages, to name a few.

Based on the initial authorization and payment details issued by the customer, businesses can automatically charge their customers every month for the services they provide.

Similar to customers, businesses also benefit from automatic payments. See how:

Offers Maximum Time Savings

Manually collecting payments or sending frequent follow-ups to your customers can be cumbersome and time consuming for your Accounts Receivable team. But when payments are set on auto-pilot, the administrative burdens of your A/R team are significantly reduced.

Enhances Customer Satisfaction

Put yourself in the customer’s shoes—late fees and repeated follow-up calls for overdue payments can be frustrating. As a business owner, it’s important to recognize that constant reminders and late payment notices could strain your customer relationships. Auto-payments solve this issue by allowing customers to enter their payment details once and authorize future transactions, removing the hassle of missed payments.

Provides Consistent Revenue

When billing your customers on an automated basis, you consistently receive payments as per the predetermined billing date. That means no waiting around for your customers to make a payment or to send them a follow-up. Since these payments are processed immediately, your business is more liquid. You can fast-track payment processing further with Neokred’s intelligent scheduling that clears the queue of pending payments to avoid any delays.

Promotes Increased Spending

According to a study conducted by Duke University, it was found that both residential and commercial customers increased electricity usage after switching to auto-payments. Although this may seem strange and highly debatable, automatic payments could encourage customers to spend more, assuming they aren’t too concerned about how much they spend on a regular basis.

For example, if you have an OTT-based subscription service, your customers may be willing to upgrade to a higher tier so their family members or friends can also access it.

The Bottom Line

Auto debit simplifies payment processing, allowing businesses to focus on growth rather than chasing down invoices. Whether it’s subscriptions or regular bills, auto debit can keep your cash flow stable and reduce administrative headaches.

Neokred makes auto debits easier with multiple early payment options, automated payment reminders, and real-time payment confirmations. To know more about our platform’s capabilities, contact us today!

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Did you know that 4 out of 5 organizations globally have reported fraud in the form of business identity theft? This statistic comes from the collective responses of 705 professionals across various industries such as banking and healthcare.

As India undergoes a digital transformation in its business ecosystem, Know Your Customer (KYC) and Know Your Business (KYB) play crucial roles in preventing fraud and other illicit activities that threaten the economy.

If you are a business owner looking to enter into partnerships or deals with other companies, KYB is the solution to address your suspicions on whether the company you’re about to go into business with is legitimate or not. Ready to know more about KYB? Let’s dive in!

What is Know Your Business (KYB)?

Know Your Business (KYB) refers to the process of conducting a due diligence review of a business that a company is dealing with. Unlike how KYC (Know Your Customer) deals with the verification of individual customer identity, KYB is exclusive to businesses to verify their authenticity before onboarding them into potential dealings or partnerships.

The primary objective of KYB is to ensure that the entities in question are not involved in any fraudulent activities such as money laundering, corruption, or terrorist financing and they are screened against blacklists and sanction lists accordingly.

Know Your Business verifications are also mandated to be followed in compliance with national AML (Anti-Money Laundering) guidelines where due diligence is conducted to verify the legitimacy of business partners.

Who Needs KYB?

The KYB process is typically required by law for businesses involved in financial transactions or regulated industries. Here are a few examples of entities that might need KYB:

1. Financial Institutions: Banks, credit unions, and other financial bodies need to verify their identities with corporate clients to comply with AML regulations.
2. Payment Service Providers: Companies that offer e-wallets and payment gateways need to carry out KYB checks to ensure the legitimacy of businesses using their platforms.
3. Cryptocurrency Exchanges: Crypto exchanges must conduct KYB checks to prevent any illicit activities that take place when buying, selling, or trading cryptocurrencies and other digital assets.
4. Insurance Companies: Insurers are required to conduct a thorough business verification process to verify the identities of businesses when issuing policies or handling claims.

Differences Between KYB & KYC

The table below highlights the key differences between KYB and KYC.

Why is KYB Verification Important?

The global KYB market is projected to reach a valuation of about $712.87 million by 2023 from $263.54 million in 2022, reflecting a 13.28% CAGR. This market is rapidly growing, especially considering how common fraud has become. 

With that being said, here are some of the reasons why KYB is important for your business:

1. Prevents Fraud: KYB can help keep your business away from fictitious or illegal entities. By verifying the identity and authenticity of the company and its owners, you ensure you’re entering into a commercial relationship that is legal and legitimate. 
2. Ensures Compliance: In many countries, KYB is a legal requirement mandated by anti-money laundering norms. These regulations ensure KYB compliance by preventing illegal activities such as corruption, trafficking, money laundering, and terrorist financing.
3. Builds Trust: Following proper KYB procedures maximizes trust in business relationships. Verifying the identity of a partnering company and its owners is pivotal to boosting confidence and trust. With increased trust comes more transparency and integrity in relationships.
4. Protects Reputation: Entering into business with illegal or fictitious companies can severely damage your company’s reputation and finances. Hence, KYB can indirectly preserve your goodwill as it protects your business from dealing with fraudulent companies.

What is a KYB Solution?

A Know Your Business (KYB) solution is a software tool that is used to verify the identities of a business and its owner and assess the risks they may present to the company. However, business verification is not the only function of KYB solutions as now companies are looking to streamline the verification and onboarding processes through automation.

Hence, a KYB solution not only aims to ensure compliance with regulations in the verification process but also aims to remove the manual burdens involved in KYB.

Requirements for KYB Compliance

When establishing a relationship with a corporate customer, regulated companies must conduct due diligence procedures in accordance with AML regulations. Here are the requirements:

1. Company Information: Information includes Name, registered number, registered office, board of directors, senior management, legal and beneficial owners, description of the company’s activities, etc.
2. Company Documents: Documents include articles of association, proof of legal existence, proof of registered and physical address, documents detailing beneficial ownership structure, and audited financial statements.
3. Identities of Beneficiaries: Documents include proof of identity, proof of address, declaration of trust, etc.
4. Geographical Considerations: Checking the company’s compliance with local regulations and cross-border operations.
5. Industry-specific Requirements: Includes regulatory filings , professional licenses of key personnel
6. AML Screening: Involves performing a risk assessment of corporate customers and conducting ongoing monitoring of business relationships.

7 Steps for an Effective KYB Verification Check

Here are the seven steps companies can take to perform an effective Know Your Business verification:

Step 1: Collecting Business Information

Businesses start by collecting details such as company name, registration number, tax identification number, and address.

Once collected, they can use an API webhook to generate a KYB case from within their internal systems. The information collected is saved in their internal systems, making it easier for compliance teams to begin verification processes.

Step 2: Auto-verifying Registry Data Against Business Information

At this stage, compliance teams confirm if the collected information matches with the register by auto-validating the information obtained. They can cross-check with official government databases as well to confirm the company’s legitimacy.

Step 3: Assessing the Accuracy of Registry Information

Compliance teams manually add additional information regarding beneficial ownership obtained during the verification process and generate a comprehensive summary of the case. This promotes transparency and prevents hidden ownership risks.

Step 4: Getting Dynamic Risk Scores for the Company

KYB systems can offer real-time updates on changes in the risk profile of the corporate customer.

Once it receives an update, it alerts compliance teams to conduct an evaluation. The risk scores can also be used to further automate due diligence throughout the onboarding process thereafter.

Step 5: Conducting Sanctions and Watchlist Screening

Compliance teams screen the business and its owners against global sanction lists, criminal watchlists, and politically exposed persons (PEP) to ensure they aren’t involved in any criminal activities.

Step 6: Make the Decision on Whether to Onboard or Reject

Here, the final decision takes place where the business decides whether to onboard or reject based on the risk levels. 

Step 7: Perform Ongoing Monitoring

One thing to remember is that KYB is not a one-time process. Once the corporate customer is onboarded, they are subject to ongoing monitoring, which includes frequent reviews and monitoring of any changes in ownership, structure, or financial status that could impact their risk profile. 

The Importance of Automated KYB Verification Checks

Regulated companies are mandated to follow a robust KYB process that ensures compliance and risk management. However, traditional KYB methods can be cumbersome and time-consuming, with verification and onboarding taking days or weeks to complete. This can hamper customer experiences and even slow down business growth.

Automated KYB solutions help here by transforming the onboarding process, which is beneficial for businesses and compliance teams alike.

These solutions play the following roles:

Improving Accuracy and Reducing Human Error

Manual KYC checks are susceptible to human errors due to the risk of overlooking some key information that is important to assess a business’s risk profile.

And in AML compliance, such risks can have costly consequences such as compliance breaches, fines, and reputational damage.

Automated KYB systems have the ability to consolidate and cross-check information from multiple sources, ensuring ease of access and accuracy for your compliance teams.

Enhancing the Speed of KYB Verifications

Traditional KYB methods require manual verification of business information, which is time-consuming and can take days and even weeks. However, automated KYC solutions have the power to speed up the verification and onboarding of new businesses.

Such speed not only gives your clients a strong start but can also help you generate revenue more quickly and maintain a long-term business relationship.

Compliance teams also save plenty of time and can focus on other high-value tasks that need their attention.

Real-time Monitoring and Updates

Risk profiles of companies can change over time, potentially increasing non-compliance risks and threats of financial crime. This is where automated KYB solutions come in to conduct real-time monitoring of your clients to ensure they are complying with AML regulations. 

The solutions ensure that business information and risk profiles of your clients are accurate and thoroughly updated.

Through real-time monitoring, compliance leaders can also swiftly react to sudden or short-term changes in a business’ status or risk profile such as global sanctions, negative press, political exposure, etc. 

Get Started on Know Your Business (KYB) with Neokred

With frauds becoming more prevalent, mastering the concepts and processes involved in KYB is no longer an option—but a necessity. KYB is not just a regulatory requirement, but also a vital tool that protects yourself and your business from non-compliance risks and frauds.

If you’re wondering how you can streamline business identity verification and make it more simple, look no further. Neokred specializes in KYB and KYC. As your trusted partner, we ensure you stay ahead of regulatory norms while minimizing risk and maximizing growth. If you’d like to know more about our platform’s capabilities and services, contact us today!

Over 40% of consumers now prefer online channels for financing major purchases, like cars. This shift points to a larger trend: younger generations, particularly Gen Z, are moving away from traditional bank visits in favor of digital-first solutions powered by Banking as a Service (BaaS).

This generation demands for advanced financial services that align with their tech-savvy lifestyles — enhanced identity and credit protection, robust data security, automated financial guidance. Traditional banking methods often fall short of these expectations, creating a gap that needs to be addressed.

In this context, BaaS bridges the gap. It seamlessly integrates banking and financial services in your day-to-day apps, changing the way we shop.

In this guide, we’ll explore how BaaS and embedded banking are revolutionizing the banking experience for businesses and end users alike.

BaaS, Explained

BaaS enables companies to integrate financial services traditionally offered by banks into their existing platforms. This integration allows Non-Financial Companies (NFCs) to offer banking functions like issuing cards and granting loans directly to their customers.

BaaS products include, but are not limited to:

• Card issuing
• Lending services
• Buy-now-pay-later financing
• Payment processing
• Direct financing options on merchant websites

BaaS providers collaborate with banks to offer services through banking APIs (Application Programming Interfaces — technology that allows different systems to essentially talk to each other).

These APIs allow end users to access banking services via the BaaS platform while still maintaining their relationship with their trusted bank.

The BaaS Value Chain

The BaaS ecosystem consists of four key components:

Configurations of BaaS

Historically, banks owned the entire value chain, from building products to distributing them through their channels (like branches). BaaS, however, focuses on 1-2 parts of this value chain. Based on this, companies can use four strategies to offer their products:

1. Providers: NFCs simply provide banking licenses and products.
2. Providers-Aggregators: NFCs integrate their services with BaaS providers to offer enhanced solutions.
3. Distributor-Aggregator: NFCs combine services from banks and BaaS providers to create unique products.
4. Distributor-only: NFCs distribute pre-built financial services tailored to their customer base.

Embedded Payments and Finance

When NFCs use the services of a BaaS provider, it’s called embedded finance.

This concept builds on ‘embedded payments’ — platforms providing services like payment gateways, wire transfers, and ACH access through a payments provider. The scope is limited to payments only.

A BaaS provider simply enables them to add even more financial services to their platform, boosting their unique selling proposition (USP).

The evolution from embedded payments to embedded finance represents significant growth in the capabilities of non-financial companies — from SaaS 2.0 to SaaS 3.0.

What BaaS is Not

It’s easy to confuse BaaS with open banking, platform banking, neobanking, and FinTechs. However, key differences set them apart.

BaaS vs. Open Banking

Open banking is a system where banks allow NFCs to access customers’ financial information (like transaction history) with customer consent. While both BaaS and open banking use banking APIs, they apply to different aspects of the financial ecosystem:

BaaS vs. Platform Banking

BaaS and platform banking are closely related since both use banking APIs, but there’s an important difference:

BaaS vs. Neobanks

BaaS serves as the foundational layer that powers other companies' financial services, while neobanks are the direct providers of banking services:

BaaS vs. FinTech

BaaS can be a facilitator for FinTechs, helping them deliver financial services without needing to become licensed banks:

How Does BaaS Work?

Let’s take an example of Buy Now, Pay Later (BNPL) offered by Amazon at the point of purchase to understand how BaaS works.

Recently, Amazon started offering BNPL options, which allow customers to purchase items and pay for them in installments over time, typically without interest if paid within a specific period.

To offer this service, Amazon integrated banking services directly into its checkout process. This allows customers to get instant approval for small loans at the point of purchase, without leaving the app or applying for a traditional credit card or loan.

By leveraging Banking as a Service, Amazon seamlessly provides these financial services. Customers can split their purchases into manageable payments, making larger items more affordable, without Amazon having to become a bank itself.

Behind the scenes, BaaS  connects Amazon’s platform to a partner bank’s services through APIs. When a customer selects BNPL, the BaaS infrastructure quickly performs credit checks, approves the loan, and sets up the payment schedule — all within seconds during checkout.

Common Use Cases for BaaS

BaaS creates diverse opportunities for businesses by streamlining financial operations, speeding up payments, and enhancing customer financing — all while improving the overall user experience. Here’s how Neokred’s Collectbot ensures this:

• Banking API Integration: Collectbot simplifies banking API integrations for different purposes with comprehensive documentation and support.
• Comprehensive Payment Solutions: Collectbot helps businesses accept payments across multiple channels (cards, net banking, UPI, wallets) without building their own banking infrastructure.
• Virtual Account Numbers (VAN): Businesses can create unique accounts for various functions — such as escrow services, merchant settlements, and KYC verification.
• Advanced Payout Systems: Collectbot handles complex operations like refunds, vendor payments, and reward disbursements, all while providing real-time reporting and analytics.

Plus, Collectbot offers tailored business solutions across different sectors:

• FinTech companies can leverage escrow accounts for P2P transactions
• E-commerce platforms can simplify marketplace seller payouts
• Subscription businesses can manage tiered subscriptions and prorated billing

Benefits of Banking as a Service

BaaS fosters collaboration between banks, NFCs, and customers, creating mutual benefits. 

BaaS’ Benefits for Banks

• New Revenue Streams: Banks earn revenue from API transactions and FinTech partnerships.

Cost-Savings: Outsourcing technology reduces development costs and operational expenses. 

• Enhanced Customer Insights: Collaboration with NFCs provides data on new customer groups, enabling personalized offers that boost sales as 80% of consumers are more likely to make a purchase when offered personalized experiences. 

BaaS’ Benefits for NFCs

• Faster Market Entry: NFCs bypass banking regulations by integrating with BaaS providers, launching financial products faster. 
• Increased Customer Trust: Leveraging a bank’s reputation enhances trust and also helps NFCs gain valuable customer insights.
• New Opportunities: NFCs can build new products by using various banking APIs, opening additional revenue streams.

BaaS’ Benefits for Customers

• Improved Experience: Customers enjoy embedded financial services within platforms they already use.
• Personalized Financial Solutions: Niche financial products designed for specific needs.
• More Options: Increased competition leads to a broader range of financial products.

The Rise of BaaS

BaaS is now a $7 trillion industry which has unsurprisingly reshaped financial services. Here are four primary factors driving the rise of BaaS:

Evolving Customer Demand

1. An increasing number of customers are seeking integrated, user-friendly financial services that cover their entire financial journey.
2. Plus, SMEs find their needs unmet by traditional banks and FinTechs are targeting this segment with tailored solutions.

FinTech Industry Growth

1. India’s FinTech adoption rate is 87% (compared to the global average of 64%). Thishigher adoption rate is fueling growth in this space.
2. BaaS allows FinTechs to enter the market quickly without having to meet the central bank’s stringent compliance requirements.

Regulatory Environment

1. Changes in the regulatory environment have also created a more favorable landscape for BaaS. Many jurisdictions now require banks to make their APIs public, encouraging competition and innovation.
2. Banks are also adapting to meet new regulatory requirements and ensure customer satisfaction.

Banking Industry Transformation

1. The industry itself is undergoing transformation thanks to shifts towards digital and mobile-first banking solutions.
2. Forecasts of declining banking revenue and profitability push banks to seek new income streams through BaaS partnerships.

Neokred and BaaS

As BaaS continues to evolve, it faces several challenges. Traditional banks must overhaul their technology and rethink their role in the financial ecosystem. Organizations also need to develop a well-defined API strategy that balances easy integration and business value with minimal complexity.

One such API is created by Neokred — its innovative BaaS solution, Collectbot, offers a comprehensive suite of banking APIs that enable businesses to seamlessly integrate banking services into their platforms.

Are you ready to transform your business with cutting-edge banking services? Schedule a demo to explore how Collectbot can empower your platform with seamless financial integration.