Know Your Customer (KYC) software has become a cornerstone of modern compliance operations, leveraging biometrics and database checks. Know Your Business (KYB) on the other hand still remains relatively unsolved by software. Most KYC players have settled for outsourcing responsibility to third-party managed services, showing some reluctance to venture into this offering. It reflects key differences between KYC and KYB: more chaotic and varied datasets, the lack of “finality” in the evidence, and the amount at stake if elements are left ambiguous. Due to this ambiguity, KYB cannot be easily outsourced as a managed service. Because of its importance, enterprises cannot ignore it and are looking to work with innovative start-ups to find a solution.
Engaging with business entities presents unique fraud considerations: who is in control, where they operate, their credit history, and how they are structured. KYB processes have to both deliver reliably during onboarding and on an ongoing basis as they consistently change and evolve. Failing to get this upfront onboarding and monitoring right is a major financial, regulatory, and reputational risk. Increasingly sophisticated fraud — for example, synthetic identities — and a more turbulent global geopolitical environment has only made such firms’ KYB processes more urgent and complex.
We believe unlocking this KYB opportunity will be massive: the annual impact of global fraud now exceeds $1 trillion, according to LexisNexis. $46 billion is already spent on financial crime compliance in the US alone. KYB compliance also extends into many other sectors, such as marketplaces.
We’re seeing an array of emerging companies rising to this challenge. Today, next-generation providers are differentiating across several dimensions: the quality and flexibility of their workflows, the depth of their analytics and risk capabilities, as well as access to and standardisation of underlying business datasets. The strength of these platforms lies in both their usability for compliance analysts and configurability to map to specific processes, risk frameworks, and customer sets.
Europe is at the forefront of this KYB innovation. In the market map above, we have highlighted some of the exciting new solutions on our radar. While KYB represents a complex and multifaceted challenge, the right solutions will transform the compliance landscape and seize a multi-billion dollar opportunity.
- If you’re a founder innovating in this space, please do get in touch with Norman Fiore (norman@dawncapital.com), Dan Chaplin (dan@dawncapital.com), and Nils Howland (nils@dawncapital.com).
- For more on Dawn’s insights into this space, read “The Business in Knowing Businesses — the emerging European KYB landscape” here.
