You’d better know your customer (KYC) – How outsourcing can help FinTechs succeed
The development and investment fever in FinTechs (and other InsurTechs and RegTechs) is not slowing down. With $125B raised in VC funding globally, (2.8x more than in 2020), these new players are transforming the way we use financial services. They are adopting the right technology to provide users with greater accessibility and usability, making it easy to manage and keep track of their money. In Europe to date, almost three quarters of digitally active consumers had adopted some form of FinTech product in 2019 and cashless payments1), increasing connectivity, open banking development or robo-advisors technologies are still steady trends sustaining this growth.
The FinTech industry doesn’t leave room for error: from a slick customer onboarding process to regulatory compliance thanks to a perfectly executed Know Your Customer (KYC) screening.
KYC processes are increasingly seen as a competitive differentiator, but they require knowledge and technological capability to support and implement.
What is KYC?
KYC is a regulatory and mandatory requirement for banks, and on a wider scale all regulated companies. It is the process that allows businesses to identify who their customers are. This is particularly important to financial companies, as it lets them put faces to client names, preventing illegal activities like money laundering, tax evasion, or terrorist financing. KYC is a key element of their customers onboarding process, should they be individuals or businesses. Traditionally this was completed in person, but over the last decade or so, FinTech companies have transformed and evolved the ways we all do banking, into the digital age.
KYC for start-ups
FinTechs have been leading the way when it comes to the governance and growth of KYC into the digital domain. Know Your Customer processes – when not related to a specific financial regulation but
to rather to customer onboarding – are increasingly used across multiple industries – especially with the development of sharing economy platforms such as Airbnb, BlaBlaCar etc. Platforms want to reinforce their reliability while simultaneously leveraging customers data to better service them. Building trust between buyers and sellers is a key driver for these platforms, and a secured onboarding process through serious KYC checks is the guarantee of a good reputation.
Out of the regulatory obligation, they need to make sure their clients don’t use their business for illegal purposes, which would put non only their business and reputation but also other people at risk.
So why is KYC so important and what impact can it have on FinTech, InsurTech or RegTech start-ups?
- The compliance obligation should be integrated from the start and embedded in the onboarding process with a level of automation completed with human fall back in order to have an optimised customer journey.
This will help reduce regulatory and compliance risks, and make sure they are ready to scale. It’s a regulatory requirement so there is no avoiding it, and it’s important for your business to prove its legitimacy. The KYC process supports in safeguarding clients and your platform, helping to ensure you are not onboarding someone that’s involved in money laundering or other financial crimes. Gathering insightful data can also help a start-up provide its clients with a personalized experience and better serve their needs in the onboarding process – KYC must be seen as an opportunity, not a burden.
- KYC is the first point of the customer journey and part of the overall customers experience. The main challenge of emerging FinTechs will be to offer a frictionless and engaging customer journey to optimize the experience. For example, new technologies such as identity check are now possible via video chat.
Slick customer journeys that verify user identity in minutes (if not seconds) with immediate access is invaluable and a total game-changer.
- In addition to decreasing fraud thanks to KYC checks, matching customer experience and security builds trust: with no doubt the most valuable asset for a financial business.
These three dynamics are all part of KYC and fundamental for start-ups wanting to differentiate themselves and augment growth sustainably for the long-term.
Great impact can also bring great challenges, particularly for start-ups.
Missed or unprocessed regulations can cost time and money for start-ups. Combining international and local standards, KYC law is a complex and ever-evolving ruleset, including Anti-Money Laundering (AML) and Anti Financial Crime schemes. Regulators demand that financial services providers continuously update and regulate their customers profiles to ensure they are complying with the proper customer due diligence (CDD).
Maintaining these checks and processes up to date is a crucial step for compliance and decreasing the risk of fraud and AML. Implementing such procedure and operating compliant KYC checks can be challenging for start-ups, hence collaborating with a professional player can be the right solution, and externalizing this activity an interesting choice. This is the opportunity to rely on expertise and readiness to implement a scalable and flexible process.
KYC, a catalyst for technology and automation processes
Companies must offer a frictionless and seamless customer journey to optimize the experience and KYC implementation is just the beginning.
This process is a catalyst for technology and automation to enable operational efficiency. Technology ensures that there is a strong identification process to accelerate activation, enhance customer experience and decrease fraud.
Up to 70% of KYC processing, particularly ID verification and fraud detection, can be automated. The remaining 30% of manual oversight can easily be provided by a third-party outsourcer.
The Nest, through The Webhelp Group, supports businesses end-to-end with a unique combination of technology and human support, allowing economies of scale and a reduction in operational complexity. We have created a business practice dedicated to outsourced regulated and KYC processes in order to help our fintech clients scale their activity.
But automation will never be 100% achieved and one should consider adding a human layer with trained agents. They will manually review KYC documentation and data, under tight SLA, in order not to break the onboarding process. Imagine how frustrating it can be to receive an error message when nearly at the end of the onboarding process after having completed all the steps, only because the technology cannot recognize your ID! In this case, having a human fall back allowing to double check documents and correct potential mistakes will considerably increase the conversion rate, as well as the customer satisfaction.
How can The Nest by Webhelp support FinTech start-ups in their KYC?
KYC can be time consuming and risky if you are unsure where to start. Outsourcing, as managed by The Nest by Webhelp for multiple start-ups is a solution worth considering – especially if you are experiencing a scalability or technological capability issue.
We will bring our KYC experts to work in collaboration with you to build the right solution for you, based on our 2 main assets: technology and human.
We already support the leading banks and Fintechs in Europe, contact us to know more!
- EY Global Fintech Adoption Index 2019