How to turn KYB into competitive advantage

Know your Business, the process that validates businesses when they want to borrow, presents challenges to lenders. But it can also add customer value to become a competitive advantage.

Roger Vincent, Trade Ledger’s MD for the UK and Ireland, joined a webinar with advisory firm RegTech Associates to discuss Know your Business (KYB), which validates business credentials to prevent money laundering. Roger and experts from DueDil, Stripe and the SME Finance Forum addressed some of the challenges financial institutions experience when it comes to KYB for SMEs. The webinar also highlighted tools and technologies to overcome those challenges.

Let’s start by distinguishing between the more familiar process of know your customer (KYC) and know your business (KYB).

KYC vs KYB

KYC involves verifying information about consumer customers, to prevent money laundering and ensure ethical treatment of customers. It’s key in the finance industry.

KYB is the business equivalent. It focuses on the validity of an entity, to prove it exists, and identify its ultimate beneficial owners (UBO), the people who financially benefit from the company’s operations. Like KYC, KYB checks take place at the onboarding stage and throughout the lifetime of the relationship.

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Click the 'play' button to view the recording, or scroll down to read more.

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What are the challenges of SME KYB?

The problem with KYB is that it leads to friction in the customer journey. As Roger explains, one of the main causes of this friction is the way banks function in silos. Some of it is enforced, for example ringfencing retail banking from riskier operations, but each bank typically has separate teams responsible for risk management, compliance, onboarding, digital and legal. To complicate matters further, the technology they use reinforces the departmental silos because they rely on different solutions.

In terms of SMEs, banks struggle to gather the kind of data they need to conduct KYB checks.  That leads to high dropout rates of around 60% during the application process and a prolonged onboarding experience taking up to 90 days.

Benefits of a streamlined KYB process

Roger suggests turning KYB into a competitive advantage by treating it as an activity that adds value, rather than purely a compliance exercise. For instance, gathering as much data as possible in the first interaction allows you to target customers with the most suitable products. And once you have permission to access that data, you can continually monitor the borrower’s growth and risk profile. Onboarding and in life monitoring become one blended experience.

KYB also gives you a single view of your customer, provided you store the data centrally. That empowers relationship managers to make proactive decisions. Trade Ledger’s lending platform connects to accounting software in real time. One of the platform’s tools monitors unusual transactions, so if a business generates a large quantity of invoices in a very short period of time for a single counterparty, the lender receives a notification, enabling them to investigate further, as that activity may be an early indicator the company is in financial distress or the invoices have been created fraudulently. Taking this a step further, proactively monitoring a customer’s data means a bank can tell when an SME needs working capital, and it can recommend securing finance against outstanding invoices.

To find out how Trade Ledger can help you remove silos and turn KYB into a competitive advantage, get in touch today.