Adapting Compliance Tech for the Digital Era — Part 1
Every single day, thousands of new users register for digital services and go through a compliance routine. While many see it as an unnecessary hassle, without compliance, cryptocurrency exchanges and many financial services would not be able to bring their operations into the digital space, as governments would have no recourse for fraud, digital crime and other unsavory activities that plague the global economy today.
The issue is compounded when users direct their dissatisfaction with existing processes to the exchanges and platforms that are serving them. The unfortunate reality is that these services find compliance and regulations to be troublesome and inconvenient as well, but are able to do very little about it. With the high-risk nature of compliance and potential to (even if accidentally) flout regulations, companies would rather outsource the technical scope involved in KYC to veteran companies, rather than develop their own technology.
It’s no wonder that these companies providing compliance services are also extremely paranoid in their provisions. Any innovations or improvements have to be thoroughly screened and tested before they can hit the open market. Thousands of companies are relying on the same few players every single day to onboard users, and each and every one of these applicants could be somebody that could result in millions of dollars in fines.
At Oobit, we believe that readily available technologies can be applied to change compliance for the better.
We’ve examined and consulted with some of the most prominent in the industry, and found that there are areas for innovation that would maintain the same standards we’ve come to respect in Know-Your-Customer (KYC) and compliance technology. Here are some did-you-know facts that might surprise you:
- Did you know that most digital KYC applications you go through are currently manually handled?
Whether it’s an exchange, payment processor, or other platforms, a lot of technology still involves the same old cheap, manual labor often vilified in the media. There’s a good chance that the checks involving ascertaining the passport image against your submitted photo are being done by A) low wage labor in 3rd world countries, B) at huge expense by an in-house compliance team set up just to compare different faces or C) just ignored entirely and accepted with huge risk. None of it is automated, and while some may think that automation in this scenario is a bad idea, the reality is that getting a human person to compare two faces often results in biased and inaccurate results.
2. Did you know that your personal data could be compromised at multiple points in the submission process?
Digital compliance providers vary in both accuracy and execution. Some solutions are installed as an all-in-one module with minimal vectors of attack, while others require the in-house team to integrate by connecting their platform to the provider’s API, or only handles a specific part of the process (such as only comparing submitted data against a criminal database). The more parties are involved in the building of the solutions, the more likely it is that the submission process could be compromised both internally and by external parties looking to take advantage of the complicated setup.
Companies offering the full suite of services know this and tend to charge higher for the full solutions. Bootstrapped startups, for instance, would definitely not be able to afford these prices and have to resort to hacking together multiple individual providers to get the job done. When the problems do start coming, these compliance companies are protected against liability by the mere fact that they were not in charge of the execution.
At the end of the day, the entire process of even integrating the submission form onto a website is fraught with danger for both the platform and the users risking their identity.
3. Did you know that each time you submit your KYC to a different platform, that platform is charged between $2 up to even $30 for performing their due diligence on your identity?
Each time you submit your KYC, exchanges, platforms, and services have to pay a fee to get your identity verified and checked against various databases and watchlists out there. The fee could range widely from just a few dollars to validate you are who you say you are, to as high as $30 to do tedious background checks against a variety of databases on the market. Every person they thoroughly check could save them millions of dollars in fines and prevent the possibility of a shutdown — especially by their payment processors or governmental jurisdictions.
Strangely enough, despite the fact that your identity never changes and is pretty much the same data submitted each time, each different platform is being charged these fees repeatedly, for the same checks — and each of them paying the price for compliance that could be done in a more efficient manner. We think that there’s definitely a better way to share these costs throughout the players in the market today, and save time and money for all the parties involved (including the users)
Stay tuned to Part 2 where we introduce the concept of Multi-use KYC submissions, as well as the technology we have implemented to streamline and transform the way compliance is conducted.
