The current state of the economy and the increase in cyberattacks make launching a business already tricky. Starting a business in the fintech sector is considerably riskier because of the prevalence of fraud cases and terrorism financing in this sector. Furthermore, national and international compliance with laws is a common issue for fintech. As a result, these startups must put in place a know your business solution in order to validate the businesses they wish to collaborate with. It can be difficult for a startup entrepreneur to comprehend the necessity of business verification services.
This article demonstrates how crucial KYB verification is for fintech companies to overcome regulatory obstacles and win over investors.
Business Verification Services in Fintech Industry
At a Compound Annual Growth rate (CAGR) of 26.87% by 2026, the global fintech sector is projected to increase from its 2020 valuation of $7.3 trillion. This sector is vulnerable to security threats because of the high value of its transactions. Because of this, a fintech firm needs to conduct due diligence on its partners and clients before beginning any business dealings with them. This is why it is crucial to use business verification solutions to confirm the legitimacy of a company. In addition, regulators have made it mandatory for banks to adopt comprehensive business onboarding systems. U.S. laws like the Bank Secrecy Act and the Patriot Act were enacted to prevent financial and personal data theft, respectively. For the same reason, the European Union (EU) has adopted the Fifth Anti-Money Laundering Directive (5AMLD).
How Does Business Verification Services Work in Fintech
It can be time-consuming and costly for startups to undergo this verification process to ensure compliance with these regulations. However, using a service that verifies businesses is a far simpler option. Such suppliers typically offer an API that can be used to connect with the business’s existing software. As a result, there will be no interruptions in business activities, and the company can carry on as usual. Several items, but not limited to, need to be checked by the corporation throughout the verification process.
- Disclosure of Directors’, Beneficial Owners’ and Stakeholders’ Identity
- The company’s authorizations and accreditations
- Registering a Company and Confirming Its Location
Business verification services collect this information and verify it in a number of different ways. Internal audits may benefit from the usage of facial recognition and data consistency checks. Additionally, external ones provide cross-verification with several financial institutions to guarantee the highest level of safety.
Benefits of Business Verification for Startups
One of the simplest and most fundamental precautions a firm may take is to use business verification services. Following these procedures facilitates the monitoring of terrorist financiers and money launderers by national and international authorities. At the same time, there are several upsides for commercial enterprises as well. Due to their low costs and minimal overhead, business verification services are ideal for startups.
Navigating Regulatory Challenges
Both domestic and global payment networks are vulnerable to collapse in the absence of appropriate restrictions. It will lead to a global rise in criminal and terrorist activity. That’s why governments and banks demand every firm to use business verification services. Compliance with rules is the primary benefit of establishing a know your business policy. Therefore, the company is shielded from potential financial and legal sanctions from those bodies. As was previously said, it might be difficult for new businesses to establish guidelines for offering business verification services. It might also take a long time to complete if done by hand. Know your business solution providers can help you deal with these problems.
Gaining Investor Confidence
Finding investors is the most challenging thing for entrepreneurs, even more so than building the product or service itself. The current economic climate and the associated fraud risk have made investors suspicious of fintech industry applicants. They don’t have a lot of faith in the startup’s clients and business partners. Investors are reassured that the company is only dealing with legitimate parties due to the KYB process. As a result, entrepreneurs can improve their chances of receiving capital even in economically unstable times.
It’s not easy being a startup’s founder and running the business. They might, however, lighten their load by making use of business verification services. The KYB verification process is a set of rules enacted by financial authorities to detect financial crimes like money laundering. However, if the process is handled manually, it may use too many corporate resources. The verification process can be faster and more reliable when automated with a know your business solution. It’s an asset to public image and attracts reliable investors. Therefore, a fintech company must employ cutting-edge KYB solutions.