The importance of business verification (KYB)

While it’s mandated that financial institutions comply with Know Your Business (KYB) regulations, every B2B company is a potential target for money laundering and other crimes. Last year, 98% of B2B retailers were victims of fraud attacks and lost an average of 3.5% of their annual revenues. Merchant fraud is often overlooked but has serious consequences—fraudsters use fake merchant accounts to impersonate legitimate merchants so they can accept credit card payments. They then use the stolen cardholder data to complete fraudulent purchases. Merchants, ATM acquirers and merchant acquirers sustained 35% of global credit card fraud loss in 2021. While merchant fraud hurts acquiring banks, acquirers’ losses make it harder and more expensive for legitimate merchants to open and maintain an account. To avoid accidentally abetting fraudsters, acquirers and merchants must perform KYB due diligence.

Meeting onboarding expectations

While businesses may not necessarily behave like consumers, they increasingly expect rapid, efficient digital interactions that are now table stakes in business-to-consumer transactions. Yet KYB compliance is a complex process, which traditionally involves excessive data gathering, paperwork, checks across numerous document types and the tedious process of inputting and referencing information across sources. In addition to verifying the business—partners, corporate customers and suppliers—KYB compliance requires businesses to verify the Ultimate Beneficial Owner (UBO) or the person who has an ownership stake in the business. Because there is no single repository of information needed to verify registration for US businesses, accessing UBO data adds another layer of complexity. This makes the onboarding process longer, which leads to a loss of new clients and higher operational costs.

Not only are these manual, drawn-out onboarding processes error-prone, but they are also susceptible to fraud. Thirty percent of retail, marketplace and manufacturing organizations that lost more than 5% of annual revenues to fraud take one month or more to onboard new businesses. Sometimes, the risk of abandonment leads businesses to forgo verification and accept the risk of fraud to speed up onboarding. According to a Thomson Reuters study, four out of 10 companies don’t employ digital verification at client account opening. However, focusing on faster onboarding without proper controls increases the risk, exposing businesses to fraudulent actors and their illicit activities.

Taking a modern approach to KYB

With businesses taking the brunt of the burden to decide what their business verification policies are going to be, the time has never been better to assess and modernize current KYB processes. Beyond taking a close look at vulnerabilities and potential areas of noncompliance, an assessment should also include identifying and automating tasks that are repetitive and can be delivered without human intervention. Modernization requires an investment in technology, making it possible to aggregate data from multiple sources and automate a large portion of KYB—instantly filtering out those customers that present a higher risk and fast-tracking trusted ones—to speed up KYB processes and perform compliance checks with greater efficiency and accuracy.

As customer expectations, fraud and regulatory pressures intensify, it will be imperative for every company to verify the identity of the business they work with efficiently and with trust.

Read our guide, Know Your Business: what you need to know, to learn about KYB, the importance of verifying UBOs, why a modern approach is essential and more, including a KYB process for you to follow.