One of the processes that a fintech company has to undertake under global regulation is user screening. The provisioning of the KYC principle is the most critical compliance requirement that institutions in the financial sector need. KYC sets out to make it possible for businesses to understand the identities and risk profiles linked to their customers.
As fintech continues its rapid evolution, more consumers will access financial services through digital channels. This portends some unique challenges with regard to identity verification and fraud prevention. Since people register themselves online from any part of the globe, a fintech company must have robust and resilient screening solutions for validating people’s identities at the time of onboarding.
This article will explain how the user screening process helps improve KYC compliance in fintech.
Importance of KYC User Screening
Customer screening forms the fundamental basis of all KYC programs. It involves fetching and authenticating the documents to identify a customer during the process of background screening and checking government IDs, proof of address, and verification of employment, among other things.
A 2019 study found that more than 75% of financial institutions provide user screening for identity attributes requiring regulatory compliance. Screening services help in the verification of identity by checking the provided information against the entries on the public and proprietary watchlists. These types of services become essential in defining regulators’ expectations for due diligence by both banks and fintech companies.
Components of an Effective User Screening Process
Most of the customer onboarding processes include identity verification, sanctions screening, and PEP screening. Screening against sanctions means checking whether or not a customer’s information is in various global sanctions lists issued by governments; that is, whether the customer is engaging in an activity that is considered illegal and attracting sanctions for it.
Automating User Screening Workflows
It can slow the onboarding processes down with an overreliance on manual user screening. According to a 2020 study, fintechs that have automated more than 60% of their screening workflow have about 40% higher customer acquisition rates than others. Automation empowers instant validation of uploaded IDs, running worthy sanctions and adverse checks in parallel, and rating risks for users as a collective.
The best screening vendors are the ones providing APIs, easy customization, and support to enable seamless integration of their tools into the existing architecture of FinTech. Remote and contactless companies with digital solutions are a robust yet very time-saving way of screening users online.
KYC Requirements Across Multiple Jurisdictions
As fintech companies go global, they must comply with KYC regulations in many jurisdictions. Over 65% of fintechs reportedly operated in 3 or more jurisdictions in 2021. User screening services keep records of international sanctions lists, PEP definitions, and ID authentication sources for various jurisdictions.
Advanced user screening software that has a wider geographical area can collect customer data according to the requirements of the local law. Such user screening services allow a fintech company to adapt its screening workflows according to the customer’s country of origin.
Lowering Risk Through Continuous Monitoring
Initial user screening carries the initial long-term risk, but ongoing monitoring is still crucial. Constant monitoring through background screening will alert financial firms in case of any negative news about their existing customers’ time.
Leading screening platforms offer machine learning that auto-flags suspicious user behavior, thereby making transactions that have to be undertaken. Customer review provides a way to ensure that stale profiles are refreshed from new sources of information. Such vigilance lowers exposure to money laundering, among other problems that initial onboarding may miss.
Streamlines the customer onboarding experience
Global user screening enables customer experience and conversion for fintech companies. Background screening software, which conducts identity verification and approval times without reducing matters of security, can result in frictionless onboarding. A study conducted in 2018 found that almost 20% more users completed applications when the screening process took under 5 minutes rather than over 15 minutes.
User screening solutions deliver identity-proofing services that make use of digital IDs and biometrics to enable complete online onboarding. This contactless option allowed for a high increase in remote customer sign-ups during the pandemic. Comprehensive circumstance screening facilitates easy access while remaining compliant.
Meeting Regulatory Expectations
Regulators demand consumer protection and transparency in the financial sector. Non-compliance with global anti-money laundering and KYC standards can cause a fintech company to be fined and lose a license. In user screening, such tools are helpful in collecting identification attributes that are acceptable to regulators for audits.
The best-in-class screening software is certified to meet the technical requirements of the EU AMLD5, FATF, and other such regulations. Advanced features like the checks on digital identity and the authenticity of government-issued credentials and the monitoring of adverse media through multiple curated databases give the verifiable audit trail of the due diligence exercise performed in the screening.
The application of user screening tools for proper identification of the customer will stand very valid in reducing much of the supervisory burden. Rest assured, your onboarding process meets the regulatory expectation of high-risk sector supervision.
Ensure your fintech company meets all compliance requirements through robust user screening. Click here today to learn how our customizable screening solutions can help automate your verification workflows while enhancing your platform’s customer experience.
