November 5, 2018
The world of financial services has seen a transformation over the past decade. The emergence of technologies has brought several efficiencies in the way banks and FIs operate. Customer experience has now become the epicenter, while the tech-innovations are trying to solve several other problems which include high cost, low speed, complex processes, security concerns, and unmitigated risks. One of the major functions which see all these challenges on a regular basis is customer onboarding.
While the CX of the retail side of customer onboarding has been relatively well taken care of with some interesting innovation around newer forms of ID verification and authentication techniques involving OTPs and Selfies, the corporate side is where the challenges are a bit more complex and are yet under-solved. KYC/AML has been the focus of regulators ever since the global financial crisis happened. The emergence of RegTech as the disruptor brought tons of startup-driven solutions in the KYC and AML space, which use AI/ML, Blockchain, RPA, biometrics, APIs, etc. However, again, most of these solutions solved problems focused on – or should we say limited to – the retail customers.
Corporate onboarding has traditionally been way more complex and cluttered as a process. Post-GFC, the regulatory mandates have been increasingly stringent, and regulators are continually revising rules. Newer directives such as the UK’s MLR17, the EU’s 5MLD, FinCEN’s CDD, and MAS’ Notice 626 are pushing banks to up their KYC game. The increased use of economic sanctions on targeted individuals and even specific individuals due to foreign policy has made the KYC scenario complicated and non-compliance with the regulatory mandate has cost banks a hefty sum of penalties. As per several estimates, since 2008, more than $26 billion worth of fines have been levied in the cases of AML/KYC sanctions violations. In order to solve the challenges associated with KYC/AML for corporates, there is a new wave of tech solutions offered by new-age startups which are now being termed ‘KYB’ (Know Your Business).
The challenges associated with KYB are multi-fold, and include the following:
Manual, paper-laden processes
Silos of disparate databases and sanction lists
AML checks at every stage (onboarding, transaction, trade) cause friction in customer experience
Complexities of international verification due to lack of standardized processes across jurisdictions
Identification of ultimate beneficial owner, especially in cross-border transactions
Need for real-time AML monitoring
The upcoming KYB solutions leverage APIs, Blockchain, and other emerging technologies to solve these problems and bring a structured approach in the way business verifications are done in this day and age. According to a recent study conducted by One World Identity (OWI), the global KYB addressable market size has been growing at a significantly rapid pace with a CAGR of 16%. As of 2017, the addressable market size was estimated to be worth $5.6 billion and is expected to reach $11.8 billion by the year 2022. The vast market potential, the growing API wave around the world, as well as the maturing of AI technologies is set to attract many more FinTech/RegTech startups into the foray, which will enable banks, FIs, and businesses around the world to onboard corporates in a much easier, risk-controlled, and faster way.