What is CIP verification? Why is CIP verification important? Will Dwolla do CIP verification for my business?
CIP verification refers to a Customer Identification Program (CIP), which every financial institution is required by U.S. law to implement. CIP includes collecting and validating information about the identity of customers opening accounts on your platform.
Dwolla’s CIP is for the benefit of our financial institution partners and can’t be relied upon by our clients to meet their requirements. If you have determined that your business is required to establish a CIP, you will still need to do so even if you are a Dwolla client.
When considering a payments integration, devoting time and resources to verifying your customers and the information they share reduces the chances of a return, reversal or failed transaction. Knowing your customers allows you to act quickly when suspicious activity occurs on your platform. Adding any payments capability to your platform brings risks. You are best equipped to know your own customers and determine your risk tolerance.
CIP verification refers to a Customer Identification Program, which every financial institution is required by U.S. law to implement. CIP includes collecting and validating information about the identity of customers opening accounts.
You may be familiar with the USA PATRIOT Act that became law in 2001 with the objective of criminalizing the financing of terrorism. The USA PATRIOT Act expanded requirements on all financial institutions and broadened information sharing between the government and financial institutions, resulting in the establishment of CIP verification.
CIP verification requires financial institutions to verify the identity of individuals who want to conduct financial transactions. Related, there are what are commonly referred to as Know Your Customer (KYC) obligations, which require a financial institution to have a reasonable understanding of the type of activity in which its customer will engage.
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Dwolla is a white-label payments API that powers account-to-account transfers for businesses.
Through our API, you gather the required personal information (and banking information) from your customers within your branded interface. You then pass the information to Dwolla through the API to fulfill our requirements for identity verification.
When a customer successfully completes CIP verification and adds a funding source, that user is created as a Verified Customer on the Dwolla Platform. (Learn more about the types of customers you can create.) CIP verification requires providing specific information about an individual or business entity, and verifying that information.
Verified Customer have the most functionality of any Dwolla customer type — they can do things like hold a balance (stored value) and enjoy increased transaction limits. In every transaction using Dwolla, at least one party must be verified, and in some cases both ends of a transaction may require this type of customer.
When you think of a transaction between two parties, your customer types can be arranged in a variety of ways, for example:
When integrating payments into your application, the more information you gather about your customers, the more comfort you can have that you’re not an easy target for high risk behaviors (or fraudsters!) You could choose to verify the identity of every customer you create on the Dwolla Platform.
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To create an individual as a Verified Customer, you will need to collect:
To create a business entity as a Verified Customer, Dwolla must collect the following:
In addition to the collection of the information listed, the business will need to provide information to verify the identities of its ultimate beneficial owners, which means any natural person who owns 25% or more of the business, and an individual who has responsibility for controlling, managing or directing that business.
Keep in mind, CIP verification simply verifies that the information submitted by the customer is that of a real individual, but does not verify the information submitted was by that particular person.
Let’s dive in a bit more.
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When integrating a payments API, you begin operating in a heavily regulated financial space; because of this, collecting the right information from the appropriate parties is imperative. Your business needs to be aware of your own legal and/or regulatory requirements for owning a CIP. It’s important to be aware of the industry you are operating in and the risk incurred when offering certain types of transfers.
It’s worth repeating that Dwolla’s CIP is for the benefit of our financial institution partners and cannot be relied upon by our customers to meet your requirements. If you have determined that your business is directly required to establish a CIP, you will still need to do so even if you are a Dwolla client.
Even if you are not legally required to establish a CIP, when adding payments capabilities to your application, it’s just good business to deeply understand the payments taking place and the people transacting on your application.
Working with payments always involves risk, and truly knowing your customers helps you reduce some of that risk. As you establish your business, investing in quality CIP and KYC processes can improve the safety of your operations.
Consider this: What would happen if a customer initiated a transfer that resulted in an ACH return and left you with a negative balance? By ensuring you know your customer, you should be able to contact them and recoup the funds.
Cyber crime is also a significant concern. The FBI reports that internet crime schemes steal millions of dollars each year from victims. Data breaches involving large companies like Target, Home Depot and Experian have made headlines in recent years, alerting the public that many consumers had personal information exposed. Malicious users can use personal data to set up an account on a platform and transfer funds without the account holder’s authorization.
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To succeed in payments, confidence is key. You want your customers to feel confident using your application to initiate or receive payments. So, what are some steps your business can take to further mitigate risk?
At Dwolla, we know what it takes to be compliant and productive in this space. We understand that security and compliance are ever-evolving. We take these concepts seriously at Dwolla and are committed to staying on top of the industry standard to help your business do the same.
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