Knowing who you are dealing with is increasingly becoming a major focus for financial firms.
Investment in the RegTech space has grown tremendously since 2014. Back then, the worldwide industry attracted $923.4m, according to RegTech Analyst’s research. That number grew over the next few years, reaching $4.48bn in 2018.
During that period, know your customer (KYC) solutions attracted 34.5% of all investments going into the RegTech space, representing roughly $3.29bn in total.
A spokesperson from ElectronicID, the biometrics identification company, told FinTech Global that this increase is due to financial institutions, like banks and businesses, are opting to outsource their compliance efforts to a bigger extent.
“This expert and specialized businesses use the power of the latest technologies to create innovative solutions that are revolutionizing the financial sector and help businesses optimize their processes,” the spokesperson said. “KYC solutions adoption removes bureaucratic procedures and achieves a drastic reduction in costs.”
But why is this important for financial services to have a solution in place? “KYC regulations verify and identify a customer’s identity,” the ElectronicID spokesperson said. “Its implementation prevents money laundering, corruption or terrorism financing practices and ensures the onboarding process is compliant with the legal regulations. The financial sector must perform this process with the highest level of technical security, neglecting low-security identification processes.”
Moreover, there is virtually no region around the world that does not have a KYC law in place. In the EU, KYC is regulated by the Electronic Identification, Authentication and Trust Services regulation and the Fifth Anti-Money Laundering Directive, which is due to be updated next year.
Stateside, US firms are regulated by National Institute of Standards and Technology’s guidelines.
Even in places like Latin America, which is experiencing a growing number of FinTech investments, you can find similar pieces of legislation. The same thing goes for Australia, Africa and Asia.
However, KYC solution providers must also overcome many obstacles. For starters, they need to be tech-savvy. “One of the most significant issues is the process integration of the KYC procedure in different channels,” explained the ElectronicID spokesperson. “Leading KYC solution providers are able to adapt to the particular necessities of the different platforms used by companies to onboard their customers.”
Moreover, these enterprises must also ensure that their solutions fit any operative system, platform, device and application that also fit businesses structures is one of the biggest challenges.
So what is next for the KYC sector? “eKYC represents the next step in KYC processes,” argued the ElectronicID spokesperson. “RegTech companies must offer an online solution to KYC regulations so that companies move forward to the digital era and take advance of its benefits.”
Pointing at ElectronicID’s own solutions is leveraging machine learning and artificial intelligence to help businesses comply with regulatory demands, the spokesperson concluded, “Banks, financial businesses and other companies can decrease customer acquisition time from weeks to minutes. eKYC solutions are increasing customer conversion rates from less than 10% to 70% and saving costs for companies in these processes.”
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