How to Select the Right KYC Onboarding Solution

It wouldn’t be an exaggeration to say there are hundreds of KYC onboarding solutions in the market. Literally hundreds.

From algorithmic forgery detectors to specialists who corroborate one’s identity via a video call using nothing more than their eyes; from tailored-to-the-client to off-the-shelf solutions; from the very cheap to the extremely expensive; the market offers almost every kind of KYC onboarding solution imaginable.

So how should you decide which KYC onboarding solution to use?

In a previous blog post we’ve explained the difference between the different KYC onboarding solutions – the “Data Finder”, the “Workflow” and the “Ultimate” solutions. In this blog post we’ve identified 3 parameters that will help you know your KYC onboarding solution (pun completely intended).

These parameters, we believe, can help anyone to select the right KYC onboarding solution for their needs – be it a bank, an investment firm, a crypto exchange, a payment provider, an asset manager or any other company or professional.

But first, a quick glossary of the three letters that you’ve read – and will keeping reading a lot about in this blog post – KYC.

What Do We Mean When We Say KYC?

As we’re talking about a KYC onboarding solution, it is helpful to point out what KYC actually means.

Now, if you’re reading this (and you are), you probably already know that KYC stands for “Know Your Customer” or “Know Your Client”, a term that depicts the rules and regulations that mandate financial institutions (and many other companies and professionals) to perform certain actions before accepting a client.

 You may also already know KYC isn’t just an acronym, but also a “code word” for everything around the onboarding process, especially if it’s compliance-related. As such, the term KYC engulfs:

• KYB – “Know Your Business”, which is, in fact, know your customer, when your customer is a business.
• AML – “Anti Money Laundering”, which is the name given to a long set of rules, regulations and measures meant to prevent money laundering.
• CFT – the same, just combatting the funding of terrorism.
• Regulatory-mandated classification of clients, financial products and financial services – almost all countries require financial institutions to categorize clients according to their level of knowledge and experience, as well as their financial situation and investment objectives. Directives such as MiFID II and national laws such as the Dodd Frank Act created a very elaborate classification mechanism, which is (or at least should be) at the heart of every KYC process.
• Client Risk – knowing your client means not only knowing them from a regulatory standpoint but also knowing if you actually want them to be your client. Therefore, the risk that comes from the client itself to the onboarding entity is inherent to the KYC process. Or, as we tend to say, the regulatory-mandated classifications are there to protect the client from being exploited by the financial system; the AML/CFT measures are there to protect society from the exploitation of the financial system by criminals and terrorists; and the client risk assessments are there to protect the onboarding entity from the clients themselves.

Anyhow, now that we know what makes up a KYC process, let’s see what makes a KYC onboarding solution great.

Parameter no. 1 – Compliant to Regulation

A good KYC onboarding solution needs to be, in itself, compliant to the relevant regulation.

That is NOT to say, that the KYC onboarding solution provider needs to be regulated. RegTech companies are NOT regulated as RegTech companies (although some, regretfully, use their certification as payment provider and the likes to present themselves as if their RegTech activity is also regulated as such – which is not the case).

What we mean is, that the KYC onboarding solution needs to provide the minimal features required by the local regulator; and by the regulators in the countries of the intended clients (as, when onboarding a client, one needs to adhere not only to the laws set in one’s own jurisdiction, but also in the client’s place of domicile).

For example, in Hong Kong the local regulator requires the identity verification process to adhere to standards similar to ISO/IEC 19795 (Biometric performance testing and reporting) and ISO/IEC 30107 (Biometric presentation attack detection). For a Hong-Kong regulated entity, choosing a KYC onboarding solution that doesn’t maintain a similar standard will of course make no sense.

Therefore, before choosing a KYC onboarding solution, it is important to make sure the solution it provides actually covers the requirements and/or standards set by the local regulator (if set).

Parameter no. 2 – from Pain-Point to Profit-Centre

A good KYC onboarding solution can add value to your enterprise in a myriad of ways.

First and foremost, it will save you from fines, customer complaints, transaction reversal, lawsuits, loss of reputation, loss of license, and all the other less-than-pleasant results of incompliance. This is not to be taken light-headedly: fines are increasing both in numbers and in sums, and authorities are now offering nearly imaginary rewards to whistle-blowers ($200 million!), making it increasingly harder to hide systematic gaps in compliance.

Secondly, it will improve the customer experience, making onboarding faster and smoother, thus allowing you to onboard more customers. In other words, a good KYC onboarding solution will take a pain-point in your operation and turn it into a competitive edge over other firms, thus making onboarding a profit-centre.

Thirdly, and building on the motif of profit, a good KYC onboarding solution will allow you to onboard clients you would not have been capable of onboarding without it. The knowledge accumulated in RegTech companies, or in the onboarding solution itself, is sometimes invaluable. For example, if you’re a small or medium-sized financial institution, you might not know the regulatory requirements regarding onboarding clients in a certain jurisdiction. The provider of your KYC onboarding solution, however, provides services to many and much larger institutions, and therefore the chances are that it can provide you with both the knowledge and the technical means to onboard clients in that jurisdiction.

In short, a good KYC onboarding solution will help you transform your onboarding from a handicap to a competitive advantage, and will, especially in the long run, more than justify its cost.

Parameter no. 3 – A RegTech Solution Needs to Make Regulation Feel Like Tech

It’s a fast-paced world. We wrote about in our blog here.

In this fast-paced world, financial institutions no longer onboard clients; clients onboard THEM – so if you don’t have the smoothest of onboarding processes, supported by the most user-friendly and efficient KYC onboarding solution, you are in danger of alienating clients from the outset.

What this means is that online onboarding to financial institutions needs to feel like online onboarding to any other website, from a dating website to a local barber shop (meaning, it needs to be done in minutes and without much effort from the client). This, while still remaining fully compliant. Reg, and Tech.

This is hard to achieve, of course; but this is exactly the problem RegTech companies are designed to solve – RegTech companies are made to bridge the gap between regulation and technology. If a KYC onboarding solution provider is incapable of providing you with a streamlined, minutes-only onboarding process that is also completely compliant, it’s not a RegTech company; it’s just a Reg company. 

For example, one of the slowest parts of the onboarding process is the Client Categorisation, Suitability and Appropriateness. This, traditionally, requires the opinion of a legal or compliance officer. However, as in the majority of cases, the opinion is based on a pre-determined policy, it is possible to automate this process. This, on the one hand, will allow your legal and compliance teams to focus on other tasks, less repetitive and tiring, and will increase their satisfaction and productivity; and, on the other hand, will immensely speed up the onboarding process.

Your KYC onboarding solution should provide you with a solution that makes your company feel and operate like a FinTech company, not an old-fashioned bank.

If you find a KYC onboarding solution that fulfils these three parameters, you’ve found the right KYC onboarding solution for you.

We, of course, know exactly which KYC onboarding solution answers these conditions, and much more; but that’s hardly surprising, coming from us…