Challenges of Online KYB Verification in the Banking Sector 

KYB Verification

Last Updated on October 5, 2023 by Team Experts

The financial institutes, including banks, insurance companies, and others, must verify the customer as well as business before onboarding them. The banks relied on the Know Your Customer (KYC) under the Patriotic Act 2001 until in 2016, the American regulatory authority Financial Crime Enforcement Network (FinCEN) issued the Know Your Business (KYB) to validate the businesses before starting dealing with entities. The KYB measures are designed to protect banks and financial institutions from money laundering and other financial crimes. 

Reason Behind Creating KYB Verification Measures 

KYB is the business verification compliance process to identify the companies’ owners, shareholders’ structures, business operations, and potential risks associated with the individual entities. Like the KYC, KYB is designed to protect banks from counterfeit businesses and bad actors who are facilitating money launderers or terrorist financiers. The KYB assist the financial institutes to identify the banks when they start associating with other business. It is the ultimate tool for compliance with Anti-Money Laundering (AML) obligations and ensuring the client is trustworthy and authentic. A study conducted by the static analysis shows that the companies lost more than $4 million in a year due to not complying with regulations. Vital reasons to complete KYB verification are given below:

Enhance Business Relationship

In this digital era, businesses rely on other firms to proliferate. Mutual understanding and trust are essential to deal with other companies. While affiliating with other entities, banks should ensure the partners are legalized and monitor their vendor’s customers. To secure a stable relationship, constant business supervision is needed, which can be conveniently done by KYB verification. Business verification services enhance the identity verification measure and increase the authenticity of the results. 

Compliance With Obligations 

Organizations that are working in the business-to-business (B2B) industry must comply with regulations such as AML and CFT to prevent financial crimes. The KYB verification inlines compliance with these regulations. Digital KYB services accelerate this process and reap accurate results for the banks. AML practices are good for companies in safeguarding the interests of the businesses. Non-compliance results in significant disruption costs for poorly managed firms, frequently resulting in substantial customer loss and compensation costs.

Streamline Business Onboarding

For any corporate sector, onboarding new business is a benchmark, which can only done by building trust between each other and a smooth communications procedure. Online KYB verification is a quick technique to create an easy and smooth way to onboarding new clients. It also creates a positive impression on business entities before they get started. Effective KYB services boost sales as well as develop a good market reputation. 

Save Cost and Time 

Automated business verification solutions cut human resources and save time by increasing productivity through machine learning technology. It is a fact that machines are less prone to error than humans and work more effectively than human resources. When it comes to increasing sales, providing customers with a friendly environment, and preventing unexpected delays, businesses can only rely on online KYB verification. Banks mostly depend on constantly updating data to ensure a seamless partnership experience and better engagement during the onboarding process. KYB services save their time and cost by effectively completing this process.   

Challenges Banks Face During KYB Verification

Banks face various challenges during the shift from traditional business verification methods to online KYB verification. Given below are some challenges that companies face in digital verification: 

User-Hostile Platforms 

The biggest challenge for the banks is to understand what is KYB and how to use KYB service platforms to comply with rigorous regulations. Digital KYB verification is unknown to most financial institutions, and they often need to learn how to use it. However, many KYB service providers are available in the market after various technological updates, which process business verification through user-friendly platforms. 

Complication in Data Accessing

Gathering various data for business verification is complicated for banks, especially for verifying business which is registered in different states. Most of the time, the companies’ UBO Verification are located in distinct jurisdictions. It is challenging for banks to gather all the UBOs’ data and process their information through adequate techniques. Various bank branches also store the data in different structures. In this approach, it is challenging for banks to collect required documents. 

Compliance with Regulations 

Digital compliance is simple and fast compared to traditional KYB verification, but the problem is that most watchdogs have not created their databases. The inconvenient process of designing an online cross-referencing from the departments takes time. Banks find it challenging to retrieve data from various sources due to the lack of a centralized platform.  

Final Note 

Overall, digital KYB verification is an essential tool for banks to adequately conduct business verification. This prevents banks and financial institutes from money laundering and other illicit activities. Effective KYB service provider can help banks overcome these challenges and create a positive impact on their partners.  

Read more: Tips to Maximize Your Online Business Success

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She has over 7 years of experience writing about technology, education, digital marketing, general and business. Her experience in the tech industry (fieldengineer, wowtechub, techsprohub, techinfobeez) has taught her how to write engaging, informative content that makes complex issues accessible to a wide audience. Follow her on Linkedin

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