With the recent news that Smile Identity has raised 20 million USD to fund its Know-your-customer (KYC) verification services, now seems like an apt time to talk about KYC and why it is an important step in the onboarding process for any financial institution.
KYC checks keep the platform safe. One of the main reasons a company undertakes KYC is to identify any bad actors who have the intention to cause harm. As financial institutions, FinTech companies are of course by their nature responsible for handling and moving money. This, therefore, means that they have an obligation to ensure, as best as possible, that the money they are moving is not being used for bad purposes by having adequate KYC checks in place.
As part of the process of obtaining a license from the regulators, it is important for FinTech organisations to be able to show that they have adequate Anti-Money Laundering procedures and Counter-Terrorist Financing procedures in place to mitigate these risks. With money flowing through FinTech payment channels, it is vital to be able to identify who the individual or business undertaking these money movements is, for what purpose and who is ultimately benefitting.
KYC is designed to identify potential fraudsters and bad actors, and stop them before they even enter the building, thereby preventing them from undertaking their nefarious actions.
So what can you expect from a KYC onboarding process? It largely involves identifying and understanding the customer that is attempting to onboard. For individuals, this process usually involves something along the lines of providing a selfie, an ID document, and some supporting documents as well.
What are the common challenges for FinTechs doing their KYC onboarding process?
- The lack of uniformity in ID from county to county means that a fintech needs to be well-versed in local IDs bespoke for each country.
- It is a friction point. Lots of end users drop off during the onboarding process because it is laborious and time-consuming.
- It’s difficult to make the onboarding experience user-friendly.
FinTech companies, therefore, need to try and make something that is an uninteresting regulatory requirement into an engaging onboarding experience for the end-user. It is a difficult task but those that create an onboarding journey that causes the least amount of friction are well-placed to succeed.