After five years building a successful career in banking, I recently took the leap and joined Onfido, a global identity verification startup. It might seem like a surprising move, but there are closer parallels than you’d think. Having entered finance post-2008, compliance has always been prevalent in my work, and as banking goes increasingly digital, it’s becoming even more of a concern. So what if the ‘3 C’s of Credit’ that every banker learns could be applied to this new technology?
Complexity in Compliance
I'd often heard older colleagues reminisce about how ‘quick and easy’ it used to be to get deals done in the ‘old world’ – a world in which regulation was, allegedly, less complex. As I navigated the myriad compliance requirements in my day-to-day, this fabled ‘old world’ was a foreign one to me. To close a commercial real estate deal, I had to ensure that personal and business IDs and tax returns were verified before last minute loan bookings; to open foreign bank accounts, I had to ensure a company’s overseas officers truly were who they said they were. The seemingly simple action of verifying identities in person to meet with compliance requirements was made arduous by the fact that ID verification was just one requirement amongst hundreds to close or maintain a transaction.
The Move Towards Digital
Regularly meeting clients in person is essential in banking, not just to establish the client’s identity, but also to build and maintain solid, trusted relationships. However, with much of banking – consumer banking in particular – going digital, identity verification and compliance processes need to move in line to create the same trusted relationships that have traditionally been built upon repeated personal interactions.
Financial institutions have recently seen the financial and reputational damage that can occur when this trust is eroded by insufficient fraud control in both their consumer and corporate groups. A more robust, standardized, and digital approach to compliance can help prevent this erosion of trust.
Enter ‘RegTech’ – Regulation Technology
In my very first week in banking, I learned, as most bankers do, the ‘3 Cs of Credit’– the principles upon which good lending is based. I believe that these same three principles: ‘character,’ ‘capital,’ and ‘capacity’ can serve as the backbone of RegTech in order to restore and build further trust in banks.
The 3 Cs of Compliance
Character: In Identity Verification terms, ‘character’ refers to a person’s level of trustworthiness. This trustworthiness can be assessed by verifying two things: firstly, that they are who they claim to be and secondly, that they have no adverse history.
To do this robustly in an online world, Onfido has a layered approach which combines database checks with document and facial verification. Additionally, a comprehensive Sanctions check is essential to ensure that the person is not on any watchlists.
Capital: The complexity of compliance often calls for manual processes. Many companies hire armies of people which comes at a significant cost. In 2013, the top 6 global banks spent $70bn on meeting compliance requirements.
As the name suggests, RegTech removes the need for those manual processes, making compliance more cost-effective and allowing subject matter experts to focus on what matters most.
Capacity: With 80% more internet users today than 5 years ago, and an eightfold increase in FinTech companies over the last decade, the number of people signing up to online financial platforms is growing rapidly. Thus, one of the biggest challenges facing financial services is the rapid and seamless onboarding of users.
By replacing manual processes with automated ones, RegTech is designed to sustain these large volumes. At Onfido, our core document and facial verification technology is built on machine learning, becoming both more efficient and effective with scale.
Business goals and compliance requirements have not always existed harmoniously side-by-side. Today, with the emergence of Regulatory Technology, businesses can meet their compliance requirements without the headache whilst ensuring a seamless and rapid onboarding for their users, and they can do it entirely online.
So rather than reminisce about the world gone by, I look to the future with optimism. As a RegTech company, our mission here at Onfido is not only about making compliance less complex to navigate for businesses; most importantly, it’s about helping people – the young, the old, the unbanked – gain access to financial services when in the past they would have been stopped at the door.