Scott Steinberg, chief operating officer of Enigma Technologies, said there has been an evolution of know your business (KYB) practices — and there’s increased urgency to use technology to tackle “best practices” and satisfy existing and new laws.
Where KYB may have once been “an informal ‘sister’ or ‘brother’ of know your customer” initiatives, he told PYMNTS, “KYB has become much more important — and it’s something governments have signaled they care a lot about.”
Anti-money laundering (AML) and KYB mandates have been evolving over decades, stretching out from the late 1970s and the Bank Secrecy Act to this year’s INFORM Consumers Act, which mandates that online eCommerce marketplaces such as Amazon must conduct KYB checks to ascertain just who is selling on their platforms, he said.
The conversation came against a backdrop of rising fraud rates among financial institutions (FIs), according to PYMNTS Intelligence.
FIs, for their part, have been relatively unanimous in checking to make sure their enterprise clients have valid Secretary of State filings and are in good standing with the government. They also must make sure that corporate customers who are viewed as operating within high-risk verticals are taken through a different “flow” of KYB checks.
The third point of analysis involves making sure that the levels of individual beneficial ownership are well understood — and that none of those individuals are on a sanctions list.
Providers including Enigma can help automate data collection and analysis throughout these steps to ease the manual heavy lifting that might accompany approving and onboarding these types of would-be enterprise clients, Steinberg said.
Steinberg drew some distinctions between other providers’ auto approval and Enigma’s instant verification. Automation of the various data-gathering and analysis activities by providers might eliminate FIs own KYB workloads, but it might take days. Instant verification, by way of contrast, can happen within seconds and improves the customer experience.
The shift to instant approval rests with the collection of additional data points from a variety of data sources beyond the information that’s been traditionally collected by FIs, he said.
“The additional, external data creates another layer of defense for the FIs,” Steinberg said.
Enigma and other providers work directly with a variety of data partners and orchestration platforms through application programming interfaces (APIs) to tap those alternative data sources and screen for any red flags. After all, he said, “the cousin of KYB is to prevent fraud.”
Even with advanced technologies gaining wider use, Steinberg noted that there’s still a place for manual reviews of account openings and existing accounts.
“I don’t see that completely going away, ever,” he told PYMNTS. “It’s also specific to risky industries or risky activities,” he said.
That requires a human being (or team) to mull the nuances of what a business does and decide if an on-site visit or phone call can uncover more insight into whether a company may be an attractive client for an FI.
As he cautioned PYMNTS: “If that customer has to go through a lot of friction to be able to pass your KYB checks, there’s going to be drop-off in that application process. There’s going to be a drop-off in that signup process.”
With the aid of better, automated data processes, striving toward instant verification, Steinberg said, “the point of going through KYB is you want a financial decision and want to be able to work with this customer.”
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