As the world becomes increasingly digital, the finance industry has embraced the concept of "embedded finance" - the integration of financial services into non-financial products or platforms. This trend has led to the rise of fintech companies offering innovative solutions for compliance and KYC (know your customer) processes, which are essential for companies onboarding custmers in the finance industry.
As described on Wikipedia, these processes are designed to ensure that customers, agents, consultants, or distributors are anti-bribery compliant, are actually who they claim to be, and follow regulations. However, implementing effective compliance and KYC processes can be challenging, as they require a lot of time, resources, and expertise.
In 2021 alone, the financial industry was estimated to have spent $37.1B on AML-KYC compliance information technology (IT) and operations. [Source]
The finance industry has embraced fintech solutions to improve compliance and KYC processes. These solutions use advanced technologies such as artificial intelligence, machine learning, and biometrics to automate and enhance these processes. Some of the most common types of fintech KYC solutions include document and identity verification, risk assessment, and compliance automation.
Identity verification: This type of solution uses biometric data such as fingerprints, facial recognition (including mobile face-scan), and voice recognition to verify the identity of customers. This helps companies confirm that the person they are dealing with is who they claim to be, matches the identity from the document verification step, and can prevent identity fraud. Biometric authentication can also be used throughout a financial experience, for example by including a face-scan check during large withdrawals or major account changes.
Risk assessment: Fintech solutions can also be used to assess the risk of a customer or transaction. These solutions use algorithms and data analysis to evaluate factors such as the customer's financial history, their behavior, and the transaction itself. This can help companies identify potential risks and take appropriate action to prevent fraud or money laundering.
Compliance automation: Fintech solutions can also help automate compliance processes, such as monitoring transactions, delivering customer notifications, case management for disputes, and reporting any suspicious activity. This can save companies time and resources for your Chief Compliance Officer (CCO) or team, and reduce the risk of non-compliance with regulations.
Examples of fintech solutions in action include Cybrid's KYC API driven process (with pre-built UI SDKs) that uses biometric data to verify the identity of customers opening new accounts (cash account or USDC wallet), or using algorithms to assess the risk of transactions and flag any potential issues. These solutions can help any company in the finance industry improve their compliance and KYC processes and reduce the risk of fraud and money laundering.
One of the key advantages of a fintech KYC solution, like Cybrid, is the ability to improve efficiency. By automating compliance and KYC processes, these solutions can save companies time and resources. For example, identity verification solutions can quickly and accurately verify the identity of customers, reducing the need for manual verification processes. Risk assessment solutions can also help companies identify potential risks more quickly and accurately, allowing them to take appropriate action to prevent fraud or money laundering.
In addition to improving efficiency, fintech KYC solutions can also help reduce costs. By automating compliance processes, these solutions can help companies save on labor costs, as well as reduce the risk of fines and penalties for non-compliance with regulations. While KYC and compliance automation can help new fintechs just starting out, it can also help growth stage or mature fintechs in the finance industry improve their bottom line and remain competitive.
Fintech KYC solutions can help companies in the finance industry establish a strong culture of compliance and reduce the risk of costly enforcement actions.
In conclusion, fintech KYC solutions can support the growth of embedded finance by enabling financial companies to easily and securely onboard and serve customers in an increasingly digital world. With the ability to quickly and accurately verify identities and assess risks, financial companies can offer a seamless and secure experience to their customers and partners, helping them grow and expand their reach in the embedded finance market.
Cybrid helps stitch together the many necessary services required to successfully operate an embedded product - save time, money, and headaches by building with the Cybrid API platform!
If you are asking yourself "What is embedded finance?" then check out our blog post!