16 Sep 2022

Identity verification for Fintechs with KYC-Chain

The diverse and constantly evolving space known as Financial Technology – or more commonly fintech – comprises a wide range of companies and solutions that are providing new ways for people and businesses to access and use financial services. 

Fintech companies come in many different shapes and sizes. From challenger “neo” banks such as Revolut, blockchain-based decentralized finance companies such as BlockFi – and even traditional financial institutions that have embraced digital finance tools – fintechs are changing the way humans access, use and interact with money and finance. 

The Covid-19 pandemic has unsurprisingly accelerated the adoption of Fintech tools as people and businesses have increasingly transitioned to digital, cashless and paperless forms of carrying out transactions and making investments. 

As of mid 2022, the space is worth around US$180 billion and growing – and as it rises, so too do the instances of fraud, identity theft and exploitation of digital systems by financial criminals and other malicious actors: in 2021, payment fraud attacks against fintechs rose by 70%, in particular targeting digital and cryptocurrency wallets. 

Because of these increased risks, it’s especially important that fintech companies implement robust and up-to-date KYC, anti-fraud and anti-money laundering (AML) processes and technology, in order to keep up with the ever-evolving threats posed by criminals who are constantly developing ways to beat existing security systems. 

Only recently, what is widely considered to be one of the leading fintechs, Paypal, was the victim of a huge case of identity fraud after it found that around 4.5 million accounts on its platform were fraudulently created in order to benefit from sign-on bonuses offered by the company during its marketing campaigns. 

As a result of these revelations, the company slashed its profit and growth forecasts for the coming years, as it became clear that the fraudulently-created accounts would not be generating any additional income. 

UK-based fintech QPay recently had around £2 million seized by UK authorities after it was discovered that the company had been used by another US-based payment provider to launder around $150 million in illegal funds. Although QPay was not accused of being directly involved in the illegal activity, its failure to adequately vet its customer and understand its source of funding allowed the company to be exploited for illegal financial activity, effectively acting as an unwitting accessory to crime.

Fintech Regulations

As companies that provide financial services and access to digital assets, fintechs are highly regulated companies that need to abide by stringent national and international regulations – which include strict AML guidelines and reporting standards. 

These include – but are not limited to – the EU’s AMLD5 and AMLD6 regimes, the US’ FinCen regulations, and many other national and regional guidelines that are defined by global regulator the Financial Action Task Force (FATF). Regulators in the EU, the US, UK and beyond have all identified the fintech sector as the key battleground combatting money laundering and terrorist financing globally, and have developed wide-ranging and diverse regulations governing how fintech companies need to meet compliance standards and enact AML processes.  

While different regulators may have variations in how regulated fintech companies need to be carrying out AML, they all underline the need for robust and effective Know Your Customer (KYC) protocols. 

KYC forms the cornerstone of AML as having a verifiable understanding of the identity of a financial service customer is the first and most basic step in reducing the risk of money laundering. If a fintech customer is able to access financial services anonymously or using a fraudulent identity, they can essentially use those services with little accountability to the law. 

KYC for Fintechs

Fintech companies operate in a highly competitive and challenging environment that can be dominated by larger players and governed by stringent regulations. 

For startup fintechs with limited funds, attempting to meet compliance responsibilities through large, in-house human compliance teams can simply be impossible – as well as unnecessary. 

KYC-Chain’s proprietary compliance technology allows a wide range of companies – including fintechs and other Virtual Asset Service Providers (VASPs) – to easily, efficiently and securely onboard customers through a customizable, jurisdiction-specific and scalable KYC process. 

In parallel, KYC-Chain’s end-to-end workflow solution can be integrated seamlessly with a fintech’s signup process, integrating with seamless, customer-centric interfaces to offer continuity to customers accustomed to optimum digital experiences. The process is fast, scalable, and requires minimal input from human compliance teams. 

Are you a fintech and looking for a KYC onboarding solution to meet your AML compliance requirements? Get in touch and we’ll be happy to tell you more about how KYC-Chain can help. 

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