Voice of the Industry

Navigating the digital onboarding maze

Friday 21 June 2024 08:32 CET | Editor: Alin Popa | Voice of the industry

Will Charnley, Managing Director at Liminal, shares insights on integrating tech and adopting risk-based strategies. 


Digital transformation has revolutionised the financial landscape, offering unprecedented convenience and accessibility to consumers and businesses worldwide. Yet, this shift towards digital channels has introduced significant challenges, particularly for Business and Entity Verification (BEV). Essential for ensuring compliance with Know Your Customer (KYC)/ Know Your Business (KYB) and Ultimate Beneficial Owner (UBO) regulations, BEV plays a critical role in the banking, payments, and fintech sectors. However, as regulatory expectations evolve and customer demands rise, financial institutions must contend with the complexities of digital onboarding, balancing regulatory compliance with seamless customer experiences.

Traditionally, banks, payment providers, and fintechs managed BEV internally through in-house compliance teams, relying on manual processes for verification. Recent developments, such as establishing the Global Legal Entity Identifier Organisation (GLEIF) and introducing UBO registries by entities like the Financial Crimes Enforcement Network (FinCEN), signify positive changes in the regulatory landscape; however, solution seekers cannot rely on them solely to meet their demands. 

Despite these developments, business verification challenges persist. A recent Liminal market survey found that banks, payment providers, and fintechs engage in high levels of manual review, with 58% indicating that over a quarter of their verification processes require manual intervention. Stale business records pose compliance and fraud risks, with 88% of respondents citing outdated or inaccurate data as a primary driver of complications. Access to global business data remains problematic, leading to an 86% increase in onboarding times for cross-border businesses.

Customer demand for business and entity verification solutions is evolving, too. In the same research report, Liminal found that 90% of customers want to use BEV solutions for fraud detection and seek comprehensive solution capabilities beyond mere compliance. While government initiatives offer opportunities, customers lean toward third-party solutions, highlighting the need for efficient and effective vendor product capabilities.

In addition to rising challenges, financial institutions' compliance costs have escalated significantly; according to a 2022 report by Fenergo, financial institutions in North America, Europe, the Middle East, and Asia incurred over USD 4.2 billion in fines related to anti-money laundering (AML) compliance. Balancing regulatory compliance with a smooth customer experience is essential, as cumbersome verification processes can deter customers, resulting in higher abandonment rates. The increasing complexity of onboarding, driven by global regulatory tightening and stricter UBO identification standards, has made operations less efficient, affecting 84% of buyers with longer onboarding durations. Furthermore, the growth of cross-border transactions intensifies these challenges, with 86% of financial institutions noting longer onboarding times for cross-border entities, per Liminal's data.

Banks, payment providers, and fintechs embrace emerging technologies and best practices in KYC/KYB to address these challenges. One such trend is adopting advanced technologies, such as artificial intelligence (AI) and machine learning (ML), to automate and streamline BEV processes. According to our research, 80% of financial institutions invest in AI-driven solutions to enhance compliance and reduce manual intervention.

Another key solution is the implementation of risk-based approaches to BEV, wherein institutions assess the level of risk associated with each customer and tailor their verification processes accordingly. By focusing resources on high-risk customers while simplifying the onboarding journey for low-risk individuals, financial institutions can achieve a balance between compliance and customer experience. Using biometric authentication methods, such as facial recognition and fingerprint scanning, can enhance security while improving the user experience.

To optimise digital onboarding processes for BEV, financial institutions can enhance their approach by integrating technology and adopting best practices for risk-based strategies. The key to this optimisation is creating a seamless omnichannel experience that allows customers the flexibility to choose their preferred onboarding channels. Beyond this, institutions need to focus on the quality of their data, prioritising the freshness and reliability of sources, especially from vendors. Selecting vendors with expertise aligned with the institution's regional or vertical markets can also significantly improve onboarding accuracy and effectiveness. Furthermore, evaluating vendors' ability to enrich incomplete datasets is critical. Implementing robust data governance and leveraging analytics can further refine these processes. Collaboration and information sharing within the industry are vital, keeping institutions abreast of new threats and regulatory shifts enabling them to adjust their compliance strategies swiftly and effectively.

The BEV market is poised for significant growth, with a forecasted Total Addressable Market (TAM) of USD 5.5 billion by 2028, representing a Compound Annual Growth Rate (CAGR) of 6.1%. Automation, AI/ML advancements, Integrated Identity Platforms (IIPs), and continuous KYC/KYB are key market trends shaping the future of BEV. In evaluating the vendor landscape, it's clear that comprehensive BEV solutions are in demand. However, many vendors need more robust automation, better data quality, and a more substantial global presence. The top point solution players in this space offer robust fraud and KYC solutions, while larger platform companies outperform point solutions in meeting customer demands for more product capabilities.

This editorial was initially published in the Emerging Technologies and Trends in Identity Verification, KYC, and KYB Report 2024. The report dives into the latest practices and technologies that enable financial institutions and regulated entities to reduce fraud, build trust, navigate evolving regulatory and compliance requirements, and cut operational costs. You can download your free copy here.

About Will Charnley

Will Charnley is the Managing Director at Liminal, where he leads strategic oversight and executes critical business initiatives that help customers navigate the digital identity landscape.




About Liminal

Liminal is a market intelligence and advisory firm specialising in digital identity, financial crime and compliance, and cybersecurity solutions.

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Keywords: digital onboarding, KYC, KYB, compliance, risk management
Categories: Fraud & Financial Crime
Companies: Liminal
Countries: World
This article is part of category

Fraud & Financial Crime


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