KYC or Know Your Customer based measures are quite the hot topic in today’s regulatory environment especially in banks, financial institutions, and Fintech related startups. Much can be discussed about KYC in general, but one element is not being discussed entirely. How to Perform KYC? More precisely should Fintech companies do it themselves or should they opt for external KYC service providers to vet the credentials of their incoming customers?
In a rapidly changing Fintech landscape, regulations witness continuous change and the inclusion of more industries and definitions. Companies and institutions are pressured to quickly adapt to changing regulations. Businesses are in the dilemma to either continue fulfilling compliance objectives through in-house departments or move towards external KYC services.
Challenges being faced by Businesses
In a highly competitive Fintech environment, the requirement for reliable KYC services is a hot-cake demand. There is a good reason for businesses to share such passion regarding effective KYC services. Changing regulations are the single largest hurdle being faced by Fintech companies with in-house departments. For the companies that do have in-house compliance and verification departments, the capacity to keep-up is proving to be cumbersome and resource-intensive. For businesses to undergo changes as fast as the regulatory requirements are unlikely, given the present predicament of limited resources that companies have. In order to integrate changes applicable in one jurisdiction requires significant learning, compliance overview, legal assessments, and manpower training. Things become even more tricky if the company falls under multiple jurisdictions and the data or funds have to be handled for clients living under different jurisdictions.
External KYC Providers Winning the Implementation Battle
As discussed earlier the challenges being faced by companies, most if not all factors, can easily be addressed by the help of external service providers. We are not directing companies to just implement third-party providers for diligence obligations. But rather we are pointing towards the need to understand the importance of global regulations and realize how external providers help ensure businesses in their compliance obligations with much less hassle.
Having external providers helps companies save in term of operating costs from running a full-fledged in-house KYC department. Shedding or reducing an in-house KYC department allows a company to run clean and focus on other core aspects of the business that require more focused attention and human resource. Third-party KYC service providers are automated and run on fully digital AI-based solutions that too with integrative support. Having a self-made KYC solution is an unachievable fantasy for most businesses when the cost of development and maintenance of such a system are considered. Matters take a logical turn when simply, the requirements of the business and jurisdiction can be outsourced to an adequate provider. External providers help ensure your business is ideally protected from fraud while maintaining reasonable amounts of diligence for successful business operations.
If regulations would be straight forward, it makes sense to have an in-house KYC department managing compliance requirements and associated activities. However, where advantages of external KYC services outweigh any capacity that an in-house department could have. Still continuing with in-house KYC facility would prove detrimental for business productivity. External KYC help will not only let your business run smooth but also meet any current and future obligations with ease.
Economics of Outsourcing KYC services
It has been proven time and again that the most complex business tasks that a company has to perform not only result into wasting of resources but also deviates the attention of upper management from their core business practices. KYC verification and identity authentication are also one of those processes that are detrimental to revenue streams of a business entity still they are not the basic idea behind the success of a business.
Verifying the credentials provided by an end-user – regardless of the personal or financial nature of the personal details – is a task that can be performed with much more accuracy by a third party service provider. There are KYC verification solutions from companies like Shufti Pro and Mitek Systems that are not only highly accurate but also costs only a fraction of what it would cost these online businesses if they take the route of hiring a separate staff of programmers to develop an identity verification solution.
The costs will also be higher for such a KYC programme if they plan to integrate both automated verifications as well as manual verifications with the help of human intelligence. The accuracy of such identity proofing solutions will always be a cause of concern for businesses whereas the third party KYC service providers not only take responsibility of the accuracy of the verification results but they also are responsible for smooth functioning of the verification system, making it nearly impossible to cheat such verification solutions.
So it is in the best business interest of online companies and businesses using digital channels to multiply their sales numbers to use an external KYC service provider as compared to performing these verifications on their own.