Banks that did not digitize their business customer onboarding before the pandemic were forced to rethink their operational strategy when their physical branches closed or reduced operations in 2020. The result has been a greater reliance on business recognition technology, which shares many similarities with know-your-customer technology, although the underlying standards have some important differences.
While many banks treat customer recognition standards as compliance check boxes to be met, business recognition standards are more than just a matter of compliance – they are a tool for managing risk and improving banks’ partnerships with business customers, which has implications for risk.
According to David Wilford, chief legal and compliance officer for private payments ecosystem Global Primex, the documents filed with the secretaries of state include important information that KYB vendors including LexisNexis Risk Solutions, 4Stop, Refinitiv, TransUnion and others can use to collect data on individuals. owners have collected from other sources using KYC technology.
But these documents do not provide enough information to give banks a complete picture of a business customer.
“Know your customer is more like checking the box and understanding the regulatory requirements,” Wilford said. “Know your business is more like understanding your customer’s business. It’s not just getting a corporate document, it’s asking: What are you selling? What’s your monthly volume? What kind of customers do you have?”
Businesses that before the pandemic would have sent an owner or representative come into a branch to apply for services and answer those kinds of questions now often need a digital offering to do the same. That’s according to Heidi Hunter, chief product officer at identity verification and fraud prevention firm IDology, who spoke with the publication of BAI not-for-profit financial services immediately following Start her company’s offer to recognize your business.
“We have this rapid acceleration where consumer expectations have increased,” Hunter said. “These consumers are also business owners.”
According to Hunter, most financial institutions rely on Google searches to identify businesses and beneficial owners. While that can identify a business’s location, whether it’s active and how consumers review the business, Hunter said it’s not a way to identify the fraud risk a business poses or whether it has conducted appropriate transactions with financial institutions. other financial.
Hunter attributed some Wage Protection Program Scams as examples of business recognition failures. She specifically pointed out the case of a man from New Jersey who was sentenced to 64 months in prison for fraudulently obtaining $5 million in PPP loans.
“He needed bank accounts to raise those funds,” Hunter said. “There were liabilities and related issues at the banks that gave him the accounts that the deposits went into. Obviously, this was not a legitimate business and it disappoints me because there are good people who really needed that support.”
The technological underpinnings of KYB and KYC systems are almost the same, according to Leslie Bailey, vice president of financial crime compliance at LexisNexis Risk Solutions. Both typically involve the reference of data sets by sellers of consumer data to—in one case, the individual consumer and in the other, the owners and officers of a company. The way banks can benefit more is by combining multiple sets of consumer and business data to gain deeper insights into a business’s identity, she said.
KYB can use the same tools as KYC, and this is especially true when it comes to proving the ultimate beneficial ownership of a company. But validating legal business documents, business purpose and some other aspects of business often require specialists to perform manual work and investigations, according to Miles Paschini, chief executive of FV Bank, a challenger bank based in Puerto Rico. Although KYB and KYC technology are very similar, Paschini said KYB “hasn’t progressed as far” as KYC.
“If you’re validating a US business, you can reasonably automate some of the tasks, but if you’re doing business onboarding for non-US businesses, it’s a very fragmented process,” Paschini said.
Banks familiar with customer recognition technology can expect many of the same benefits that come from automating this process when they automate their business recognition process, according to Hunter. And this goes beyond accelerated account opening.
“By having more of an automated process … you’re able to streamline your process, provide increased security because more data factors are being checked, and reduce the time it takes to give people a better sign-in experience,” Hunter said.