Financial fraud, including identity theft, money laundering, and terrorist financing, has recently increased. This has caused the market for digital identity solutions to proliferate.

According to officialstatistics, in 2022, the digital identity solution market revenue volume was $22.9 billion, while according to experts, it will grow to $70.7 billion by 2027.

I decided to write this article because choosing a KYC provider is a critical issue for financial businesses. In addition to preventing abuse by fraudsters, a well-coordinated KYC system helps improve user conversions.

In this article, I want to elaborate on how to choose a good vendor and what mistakes you should avoid to achieve the best results.

Who needs KYC?

No institution that provides financial services or uses various financial instruments can do without the Know Your Customer procedure. These include:

• Banks and credit unions
• FinTech startups
• Insurance companies
• Securities market participants (broker-dealer companies)
• Online gaming and live broadcasting sector
• Gambling industry
• Crypto industry
• Money transfer services

Using KYC verification by all the above-mentioned subjects allows them to control financial risks and stay compliant with evolving regulations, as well as protect their clients from potential fraud.

Conversions - the key to a successful KYC

The conversion rate is the ratio of the total number of visitors to your resource to those who have completed any targeted actions. The KYC verification process is aimed at increasing this indicator. In other words, KYC service should help maximize the number of successfully verified users.

While conversions are key, the only caveat is that at the stage of choosing a vendor, these numbers can only be predicted. You can find out the real results only through your own experience – through your own flow of users. Usually, it is a good idea to go for a vendor that is not new to the market and has experience in your particular geography.

To increase conversions, you need to eliminate two mistakes that you can make during verification:

1. False positives. Cases in which forged documents have been recognized as genuine. Of course, when a client opens an account with such documents, it is illegal. This is a violation of the financial institution's rules, which will lead to problems with the regulator. Minimizing such cases at the very beginning of your activities is essential.

2. False negatives. Situations where the service identifies authentic documents as fake. It's important to reduce this indicator to increase the conversion rate since such an error could cause you to miss out on real clients to whom you could open an account, make a digital payment or provide other financial services to.

What should you do before choosing a KYC vendor?

If you have already determined a list of trustworthy client verification service providers, start by answering basic questions about your future cooperation.

Determine the volume of new customers

To properly assess the load that your KYC service provider will need to handle, try to determine the expected number of onboardings per day.

How many registrations, on average, are planned? What kind of customers will these be? Will the verification of an additional set of documents be required, or will it be possible to limit the standard requirements?

While automating the onboarding process as much as possible is usually a good idea, you should also prepare yourself for a certain share of applications to undergo a manual review on your side. Build your compliance and operations departments accordingly well in advance.

Define key issues to handle via KYC provider

I recommend you make a list in advance of the issues that you plan to solve by contacting a KYC provider. These could include:

• Improve the onboarding process and conversion rates
• Prevent fraudulent registration of accounts and financial transactions
• Speed up the review of applications through automation
• Budget savings
• Compliance with KYC regulations

It is better to discuss expectations from cooperation during the first contact with a potential partner.

Clearly define the client onboarding process

When the previous tasks have been completed, the customer onboarding process should be thought through to the smallest detail. Understanding all the verification stages allows you to automate the process as much as possible, thereby reducing personnel costs and increasing conversion rates.

What you should pay attention to:

• How the authorization process works.
• When you have to request an additional set of documents.
• When additional verification is required.
• Who and how will take care of manual verifications on your end.

I want to point out that customer identification is a complex process that requires decision-making at all stages. Automating it will speed up onboarding and make your service more attractive in the eyes of consumers.

What to consider selecting a KYC provider?

The competition in the market for KYC services is constantly growing. All companies differ in the ratio of automated and manual inspections, verification possibilities, geographical and document coverage, and other parameters.

That is why it is essential to identify the critical moments for cooperation and rely on them when choosing a provider.

Pricing

When choosing a KYC provider, it is essential to be guided not only by the volume and quality of services provided but also by the financial component of cooperation.

Be sure to pay attention to the forms of payment offered by the vendor. From my own experience, I can say that the most common choice is between two of them:

1. Prepayment. The client pays for KYC services before actually receiving them. This model is great for established companies that can predict the number of new users. Buying a package of checks allows you to discuss the cost of the service with the provider and increases the likelihood of getting a good discount.

2. Pay as you go. A form of payment that involves paying for the actual service delivered. This format is optimal for startups, including those not yet launched, which cannot predict the number of onboarding.

   
   

Tip: During negotiations, you can always lower the verification price. The price you're initially quoted is only the starting point from which you should start when concluding a cooperation agreement. Remember that the higher the number of checks you expect, the higher the  likelihood that you will get a discount.

Service charging model

Providers can use various approaches when billing for services provided. They can charge:

• Each successful verification attempt for the entire procedure or a particular session.
• All verification attempts regardless of their status.
• Some may allow several verification attempts during one onboarding session.

Tip: Choose a KYC service provider that charges for successful authorizations. After all, Know Your Customer is not easy, and not every client can get through it the first time. If you pay for all, even unsuccessful attempts, your costs can increase up to 2–3 times.

As an option, you can consider a provider that offers multiple verification attempts in one session.

Document coverage

Each region has its own requirements for the documents required for KYC verification. For example, a client's identity card is sufficient proof in Spain. French laws are stricter on KYC; here, sometimes, customers have to provide documents containing information about the counterparty ’s  line of business and confirm its income.

There may be a situation where the vendor is generally suitable for you but does not verify the necessary documents. This threatens the company with a lower conversion rate and, as a result, fewer users.

Tip: Before you sign a contract with a vendor, you must find out whether the vendor is checking the documents you need and which regions they work with. If your target audience is in the United Kingdom, the vendor’s experience with this country ensures they have access to the right databases to verify the country’s mandatory documents.

Additional authentication methods

In addition to document requirements, extra authentication methods are common in some countries.

For example, the NemID solution is popular in Denmark. It is impossible to authorize in most Danish financial systems without it. Therefore, if you plan to involve people from this country in your service, ensure that the vendor supports NemID.

Tip: In addition to the documents that the KYC service provider can verify, you should consider supporting additional authentication methods specific to your target country.

Experience in a particular geography and segment

Before signing a contract with a provider, analyze the segment you plan to work with and the geographic location of your potential customers. I recommend you only work with vendors with experience with the regions you need.

Tip: Check the official website and portfolio section to ensure the vendor is right for you. Alternatively, ask for a case study that describes working with a customer from a specific country.

Feel free to ask narrowly focused questions; for example, you can ask if the provider has any experience working with NEObanks from Western Europe.

Technology

Depending on your company's target audience, you need to choose a channel for attracting customers. For example, it could be a mobile app or a web solution.

Ask the provider whether they offer a software development kit (SDK) for mobile apps. Most advanced providers would usually insist on using their SDKs for higher performance and conversion rates.

Furthermore, you should clarify your potential partner's KPIs: they vary depending on the app you're going to use.

Tip: According to statistics, mobile devices account for more than 59% of traffic worldwide. So if you don't want to lose the lion's share of potential customers, cooperate with a provider who uses the SDK, and it can be easily integrated into your mobile app.

How do I test a KYC supplier?

Some providers allow you to test their services in the sandbox environment or even a test mobile application.

Use your own specific documents to test how well the service will work in different situations. Try to implement real data to test a provider more thoroughly.

Even though these tests are not ideal – they will give you a feel of how the user experience will look like and how badly particular test scenarios (e.g. light flashes on laminated pages) may affect the conversion rates.

Tech implementation

The last recommendation I want to share in this article is to use a tool that automates decision-making and reduces the cost of integrating a KYC service with your product.

There are a few such products in today's software market. I will focus on five of them, which, in my opinion, best meet the needs of customers:

1. ProcessMIX. It is a back-end low-code platform that allows you to define, deploy, execute, monitor, and maintain a variety of decision logic. ProcessMIX is extremely efficient - it speeds up the process of integration with a third-party system threefold. I highly recommend that you try this tool in a sandbox.
2. Decisions. This tool supports the full life cycle of corporate decision-making. It is indispensable for analytics as well as business rule and process management. This platform is based on AI/ML technologies, as in the previous case.
3. SMARTS Decision Manager. The system automates decision-making using business rules and deep analytics. Its special feature is that it can be deployed locally or in the cloud.
4. FlexRule. The comprehensive platform for automating decision-making based on the Decision-Centric Approach. It combines data manipulation, robotics, and business rules to get a company to market quickly and efficiently.
5. ACTICO. The product enables the use of intelligent technology to automate decision-making. Widely used by financial firms to manage risk and compliance obligations.

The integration will be done fairly quickly if automation is properly written and implemented using one of the services described above.

Summary

When choosing a KYC supplier, consider a few nuances:

1. Correctly determine the needs of your company to conclude the most favorable contract with the provider.

2. Consider the peculiarities of the vendor's work, including:

   • the documents they can check;
   • experience in working with the region you need;
   • service billing model;
   • support of additional authentication methods;
   • technologies used.

3. Get into your internal processes. Before you sign a contract with a provider, answer the question: how will you onboard your customers? Write down this process as accurately as possible.

4. Decision-making automation platforms like ProcessMIX can help. Using such specialized tools, you can easily integrate your product with your KYC provider and avoid errors on the backend.