Guest Blog by: Shane O’Neill, Principal Solutions Architect, Horizon8

As the corporate world embraces the new normal post-Covid 19, regulated entities are examining the challenges and opportunities that come from operating in an almost exclusively online environment.

Businesses are re-evaluating their digital transformation strategies, and identifying ways to streamline revenues, improve client service, and offer greater security to customers. Due to the restrictions put in place during the Covid-19 pandemic, there is an ever-increasing need to embrace digital technologies and the potential increased efficiencies and cost-savings they can bring. Regulated entities (including financial institutions, gaming, gambling, and telcos among others) are responsible for identifying suspicious behaviour, reducing likelihood of Anti-Money Laundering (“AML”) fines, while reducing the costs of compliance.

As  fintech becomes a greater part of daily life, fraud prevention, AML and compliance will become ever more important. The traditional Know Your Customer (“KYC”) landscape is slow, resource intensive and expensive. As lockdowns continue in various parts of the world while others are steeling themselves for a potential second wave of the virus, an end-to-end digital solution that can seamlessly blend AML and KYC is timely.

Thomson Reuters’ Cost of Compliance 2020 report highlights that one-third (34%) of financial institutions surveyed expected the size of their compliance teams to grow this year, this figure is declining year-on-year. Other research found that fines for AML and KYC violations across the world in 2019 amounted to 60.5% of all fines charged (over $6 billion), and sanctions related penalties amounted to nearly $4 billion, or 38.7%.

From FATF recommendations to the Singaporean Payment Services Act and the various Anti-Money Laundering Directives (with 6AMLD due to come into force in December 2020), countries around the world are preparing to implement or enforce more stringent regulations. This means that financial institutions will be required to obtain and provide much more information about their customers and clients than in previous years. This increased burden will have a dramatic impact on the amount of communication required between parties, the addition of which will slow down processes, increase costs and restrict fluidity of trading and tax requirements which may lead to fines. The streamlining of communication between involved parties is essential, and one way to achieve such a method of communication is to develop the technology that would support the provision of digital identities shareable amongst a digital community.

What if accessing customer data was as simple as connecting with them on LinkedIn? Onboarding in the financial sector is a process rife with delays and frustrations for businesses and prospective customers alike. Regulated businesses have a legal obligation to ensure their customers are who they say they are, but banks and other institutions require different data points, including nationality, date of birth, and proof of address.

Some people view KYC as a necessary evil as it can be burdensome for business but, nevertheless, it is something which businesses must follow. Requiring individual customers to supply this information every time it is needed is cumbersome and time-consuming from the customer’s perspective, and as a manual process it is expensive, repetitive, and inefficient for businesses.  What if the whole process could be streamlined from its current average timeline of about two weeks to just minutes? What impact might that have on drop off rates in the onboarding process?

Covid 19 is a catalyst for regulated entities to embrace digital technology. The increased urgency and demand for innovation has been building for close to a decade, but the onset of the Covid 19 crisis has brought it to the forefront of business leaders minds. Creative thinking, entrepreneurship and innovation in the digital identity space are crucial.

Horizon8 has developed Valid8Me, a solution that allows onboarding businesses to fulfill their KYC requirements and the challenges they pose, whilst empowering individual and corporate customers to hold full control over their data. More information about Valid8Me and its privacy by design approach will be available as part of the official launch in the coming weeks.

Research has shown the extraordinary cost and time burden of KYC due diligence on both the onboarding business and the customer, with some estimates ranging from an onboarding process of 30 to 34 weeks, costing up to $25,000 for each client. Some onboarding businesses may be severely impacted should the KYC burden continue to drain their resources.

Protecting customers from financial crime whilst improving user experience represents a win-win for the future of fintech. Digital acceleration during Covid 19 presents the finance world with a unique opportunity; to reduce the burden of compliance while empowering customers to take control of their data.