Modern businesses expect to be able to work with other businesses quickly and painlessly. In many B2B relationships, onboarding is as simple as two businesses agreeing to work together.
But many B2B businesses, including those that handle money or facilitate financial transfers, are legally obligated to perform due diligence when it comes to onboarding a business customer. To comply with anti-money laundering (AML) and other regulations, these businesses must subject potential customers to a set of regulatory requirements commonly referred to as Know Your Business (KYB).
KYB requires verifying the identity of a business plus running compliance checks on any ultimate beneficial owners (UBOs). These IDs are then run against government databases, sanctions lists, and other sources to ensure that the new business customer isn’t an identity thief or a financial criminal in disguise. That process is called Know Your Customer (KYC).
After talking to hundreds of businesses, we’ve noticed that some companies are actually leaving opportunities on the table when it comes to business identity verification.
Mistake 1: Making business customer onboarding too complex
The onboarding experience sets the stage for every interaction the customer will have with your business going forward. And most companies have taken this message to heart when it comes to individual customers.
For businesses such as neobanks and fintechs required to do due diligence, onboarding an individual customer is a science these days. Most individual customers can be onboarded in just a few clicks, and even companies that require extra steps, such as a driver’s license or social security number, have made the process quick and painless.
But onboarding businesses is a different beast altogether. Even though business accounts are often more lucrative than personal accounts, business onboarding can take days or weeks.
Why? Part of it is due to regulation. Businesses have been required to perform KYC checks as part of their Anti-Money Laundering (AML) efforts since 2001. But regulators only cracked down on businesses after the Panama Papers were released in 2016.
KYB is newer, and banks, fintechs and other companies that handle and transfer funds haven’t yet begun to view KYB efforts as an opportunity rather than another due diligence chore.
Mistake 2: Relying too heavily on documentary evidence only
The Customer Due Diligence (CDD) Rule that governs how companies perform business verifications on their B2B customers does not lay out specific requirements. Rather, it trusts each bank or institution to assess their individual risk and to create a business identification process that conforms to Bank Secrecy Act and Anti-Money Laundering Act requirements.
In other words, a small credit union serving customers in a single US county would likely assess their institution’s risk as lower than a fintech company that offers credit products to customers all over the world. But too often, banks, neobanks, fintechs, and other entities that handle the flow of money haven’t updated their processes when it comes to business identity verification.
That’s where documentary vs. non-documentary customer evidence comes in. For example, imagine trying to open a business bank account and the bank asks for your articles of incorporation, EIN letter and other documents that are buried somewhere in a physical filing cabinet. Business customers not only find providing these documents to be a chore, they often become one of the 74% of customers who doesn’t complete a transaction due to a difficult user experience.
There’s another way. Today’s business identity verification technology like Middesk allows for a more advanced, often non-documentary way to onboard business customers. Rather than create friction in onboarding, Middesk’s API quickly and painlessly verifies business customers against public information, including but not limited to:
- Secretary of State business databases
- Business address
- Business officers
- Terrorist and sanctions watchlists
- Other proprietary data - like a company’s articles of organization and annual report to assist in KYB verification.
Mistake 3: Misapplying compliance policies based on customer type
It can be difficult to know when to KYB and when to KYC. Take a sole-proprietorship for example. What if the owner of a Shopify store is a sole-proprietor, but they apply to your financial institution for a business line of credit? Do you perform a KYB check since they are doing business with you as a business, or do you perform a KYC check since they are the sole person involved in the business?
The line here can get blurry. We recommend a waterfall approach to verifying sole-proprietor business customers. One strategy for this could include double checking sole-proprietors against government databases in their states and cities, licensing databases, federal tax filings and other sources of data. From there, we recommend moving on to performing a KYC check on the individual operating as a sole-proprietorship. This process is ideal for conservative businesses who want to ensure all bases are covered.
The solution to business identity verification: Middesk
Complying with Anti-Money Laundering regulations can lead to a complicated B2B onboarding process, and a complicated onboarding process can lead to low conversion rates and unhappy potential customers. Conversely, a manual business identity verification process requires peoplehours and can miss important information, costing you customers.
Middesk takes the pain out of B2B onboarding, while still protecting your company. With Middesk, you recieve:
- Up-to-date data - Our proprietary technology refreshes daily to provide up-to-date data on every business.
- Increased conversion rates - Vet even hard-to-identify customers such as newly formed businesses or individuals with limited credit history. Convert leads quickly and onboard them as customers painlessly.
- Comprehensive due diligence solution - Our recent partnership with Socure enables any business to onboard another business with KYB and KYC checks.
- Reduced fraud - In 2020 alone, banks and other financial institutions lost up to $20 billion in fraud. Know your customers’ risk profiles and reduce your exposure to fraud and regulatory fines and penalties.
- Reduced operational overhead - Our customers see a 2-3X improvement in auto-approval rates and 75% reduction in document requests. This frees up your team for other tasks.
Want to learn how you can increase conversions and decrease manual processes with Middesk? Check out our Verification solution.