Implementing KYC as a start-up; What You Need to Know.

  • Nora Beqaj, Business Director at The Nest UK

  • 08.06.2021 03:00 pm
  • #startup #KYC

With nearly 9.4 billion euros invested in Financial Technology across Europe in 2020, it’s clear that FinTech, InsureTech and RegTech businesses are transforming the way we are all doing banking. These fast- growth, innovative firms are adopting often ground-breaking technological advances to provide consumers with greater accessibility, security and usability, all the time making it easier for them to manage and keep track of their money. 


In 2019 across Europe, almost three quarters of digitally active consumers had adopted some form of FinTech product. Cashless payments, increasing connectivity, open banking development and robo-advisors technologies are all sustaining this growth.

That being said, the FinTech industry doesn’t leave room for error. And that is why a smooth and compliant customer onboarding process - driven by a perfectly executed Know Your Customer (KYC) screening - is becoming more and more paramount. Certainly, KYC processes are increasingly seen as a competitive differentiator for firms, but they require knowledge and technological capability to support and implement and this is not always as simple as it sounds, especially if you are a start-up. 


The evolution of FinTech.


KYC is a regulatory requirement for banks (and indeed all regulated companies) to identify who their customers are. It is particularly important to financial companies, as it lets them put faces to their client names, thereby preventing illegal activities such as money laundering or tax evasion. KYC is a key element of a bank’s onboarding process for customers, no matter whether those customers are individuals or businesses. Traditionally, this onboarding was completed in person. Over the last decade or so, FinTech companies have transformed and evolved our expectations of a baking experience, into the fully digital experience we are accustomed to. And with the Covid-19 pandemic changing the way we all live and do business; one could say that this evolution came at a crucial time. 


KYC for start-ups. 


FinTechs have been leading the way when it comes to the governance and growth of KYC in the digital domain. Know Your Customer processes, when not related to a specific financial regulation, but rather to customer onboarding, are increasingly used across multiple industries, especially with the development of sharing economy platforms such as Airbnb, BlaBlaCar, and so forth. Platforms want to reinforce their reliability while simultaneously leveraging customer data to better serve them. Building trust between buyers and sellers is a key driver for these platforms, and a secured onboarding process through serious KYC checks guarantees a good reputation.


What you need to know when implementing KYC as a start-up.


  1. 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. In short, it’s a regulatory requirement, so there’s no avoiding it. Not only this, but it’s an important measure for your business to prove its legitimacy too. 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 personalised experience and better serve their needs in the onboarding process. The key element here is that KYC must be seen as an opportunity, not a burden.

  2. KYC is the first point of the customer journey and part of your overall customer experience. The main challenge for emerging FinTechs is that they need to offer a frictionless and engaging customer journey to optimise the customer’s experience. For example, new technologies, such as identity check, are now available via video chat. Smooth customer journeys that verify user identity in minute or seconds with immediate access is. The data speaks for itself here – in the UK, 25% of applications are abandoned due to KYC friction. You can’t afford to get this wrong if you want a streamlined journey that brings your customers from start to finish.  


  1. In addition to decreasing fraud thanks to KYC checks, matching customer experience and security will build trust for your organisation. There’s no doubt that trust is one of the most valuable assets for a financial services business.


We believe that these three dynamics are all central for KYC, and fundamental for start-ups wanting to differentiate themselves and augment growth sustainably in the long-term.


KYC challenges.


Missed or unprocessed regulations can cost time and money for all organisations, but specifically 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 comply with customer due diligence (CDD). Maintaining these checks and ensuring these processes stay up to date is a crucial step for compliance and for decreasing the risk of fraud and AML. 


Implementing these procedures and operating compliant KYC checks can be challenging for start-ups. As a result, they may look to collaborate with a professional player who can support them in their KYC journey. Up to 70% of KYC processing, particularly ID verification and fraud detection, can be automated. But the remaining 30% of manual oversight can easily be provided by a third-party outsourcer. Externalising this activity can be a great choice so that the start-up can rely on greater expertise and make use of better technology –All the while ensuring flexibility and scalability so they can focus on growing their business. 


The human touch.


Automation will never be 100%, and as such, firms should consider adding a human layer by utilising trained agents. These agents will manually review KYC documentation and data, under tight SLA, to not 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 layer that can double-check documents and correct potential mistakes will considerably increase the conversion rate and customer satisfaction.


To conclude, organisations must offer a frictionless and seamless customer journey to optimise the customer experience, and certainly KYC implementation is just the beginning of this. This process is a catalyst for technology and automation to enable operational efficiency. The technology ensures a robust identification process to accelerate activation, enhance customer experience and decrease fraud, underpinned by the human touch that adds an extra layer of reassurance. 


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