KYB: Why accurate business verification matters for fintechs

This article is part of our Opinions section.

There’s no denying that fintech companies, driven by innovation and customer-centric services, are transforming the financial landscape, creating new opportunities to borrow, save, transact and invest like never before. It’s why fintech platforms are used by millions of businesses and people worldwide for the speed, accessibility and convenience they offer.

But with this transformation comes risk, including an increase in cybersecurity threats, data breaches and fraudulent activities across the sector. In fact, according to The Fintech Fraud Ripple Effect Report, 47% of fintech companies consider fraud to be their biggest challenge.

One of the most effective ways for fintech firms to counter these threats is by employing robust Know Your Business (KYB) checks. KYB checks are not just regulatory requirements; they are essential tools for protecting fintechs and their customers from the pervasive threat of financial crime. Let’s explore why.

What are KYB checks?

KYB checks involve a thorough verification process of a business’s legitimacy and the individuals behind it. This process includes examining the business’s registration documents, understanding its ownership structure, scrutinising financial records, and verifying its directors, people or entities with significant control and Ultimate Beneficial Owners (UBOs). The primary aim is to ensure that the business is legitimate and to identify any potential risks associated with it.

Mitigating financial crime

Criminals often use complex corporate structures and shell companies to hide their identities and move illicit funds. Without proper KYB procedures, fintech businesses and other financial institutions are vulnerable to these schemes, which can lead to significant financial losses and legal repercussions.

Thorough KYB checks can help uncover connections to criminal organisations, and sanctioned individuals or identify suspicious financial activities that warrant further investigation. This proactive approach not only protects the financial institution but also contributes to the broader effort of combating financial crime on a global scale.

Regulatory compliance

Regulatory bodies worldwide mandate KYB checks as part of their anti-money laundering (AML) and counter-terrorism financing (CTF) regulations. These regulations require financial institutions to have robust procedures in place to actively and diligently verify the identity of their business clients and monitor their activities for suspicious behaviour.

By implementing comprehensive KYB checks, fintech firms can ensure they meet these regulatory standards and avoid the consequences of non-compliance, which can include hefty fines and reputational damage. According to a report from the Financial Times, a staggering $5.8 billion in fines were issued against crypto and fintech firms in 2023 for non-compliance related to illicit money flows. 

Enhancing customer trust

Trust is a cornerstone of any successful business relationship, especially in the finance sector and this extends to fintech. Customers need to feel confident that their interests are protected and KYB checks play a crucial role in building and maintaining this trust. 

By demonstrating a proactive approach to risk management, fintech businesses can foster stronger, more trust-based relationships with their customers. In a competitive market, this trust can be a significant differentiator, attracting customers who value security and compliance, as well as the convenience that these new platforms offer.

Operational efficiency

While KYB checks may seem like a cumbersome process, especially when done manually, they can actually enhance operational efficiency and profitability in the long run. By identifying and mitigating risks early, fintech firms can avoid the costly and time-consuming consequences of dealing with financial crime after the fact. 

Advances in technology have also made KYB processes more streamlined and efficient. Automated solutions can more quickly, more deeply and more accurately verify business information, reducing the burden on compliance teams and customers alike, and allowing them to focus on more strategic and growth-focused tasks. 

The future

From enhancing operational efficiency and ensuring regulatory compliance to mitigating risks, preventing fraud, and building customer trust, accurate business verification is a cornerstone of successful fintech operations. 

As the fintech industry continues to grow and evolve, the importance of KYB will only increase, making it an indispensable tool for sustainable growth and long-term success. Investing in accurate KYB processes today is an investment in the future stability and prosperity of any fintech company.

Related reading

• The rise of fincrime: how technology can better protect financial firms and their customers
• Stephane Dehaies, CEO of Spendesk Financial Services: “I anticipate new partnerships and alliances between traditional banks and fintech innovators”
• The biggest challenges for Fintech in Africa in 2024