Validating a potential financial customer is hard

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It's difficult for many financial institutions to find new, screened customers. On average, according to Wells Fargo, financial institutions onboard 3% - 6% new accounts annually, with more than 30% of those as business accounts while the rest belong to individuals. It takes almost 27 days and seven emails in regulated markets to screen and approve a commercial client to create an account. The average onboarding cost is approximately $6,000 per account but can reach $25,000 for some clients with complex entity structures. Financial institutions incur additional costs as they meet the Know Your Customer initiative, which requires them to recheck the customer information for existing accounts periodically. 

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So, why does it take so long to validate a potential customer and cost so much? It's primarily because the validation process involves the manual collection of documents, third-party validation of information on those documents, and sometimes even retyping those documents. 

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Due to the length of time and the potential for rejection by the financial institution, many SMB customers are left weighing other options, such as loans from alternative lenders. Many of those loans are "unsecured," resulting in high risk and, consequently, a high-interest rate. However, the main competitive advantage of these loans is the turnaround time from "lead" to "funding."  Last year, more than 72 million alternative loans were disbursed worldwide.  

Alternative lenders' lead-to-approval ratio is 5% - 10%, which means that for every 15 screenings, only one loan is disbursed. Last year, 1.7M alternative loans were disbursed in the US, and 278,500 in the UK, implying alternative lenders screened 30 million loan applications in the US and UK. With that volume of transactions and the high risk of borrowers, automation, digitization, and fraud detection systems are needed to achieve the short turnaround times that alternative lenders provide.

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Today, small and medium businesses (SMBs) and their owners must present documents and complete applications as part of doing business with FIs and lenders. Then all that data goes through a detailed screening process that is manual, labor-intensive, error-prone, risky, and reliant on third parties. This process re-occurs every time they sign up for a new financial product from the FI they work with.

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For the past two decades, submitted info was verified against data purchased from public data aggregators such as D&B, Trulioo and private data aggregators such as Plaid. However, many of the most critical data sources, such as the IRS and utility companies, are impossible to access or aggregate as the data has a limited access mechanism.

Now that customers are becoming increasingly sensitive to privacy issues and the value of their data as governments are enacting laws like GDPR and CCPA to limit how data aggregators can collect and sell data, aggregated data has become incredibly inaccurate, with limited coverage and outdated as it relies on second-or third-hand data and screen scraping.

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What would a potential solution look like?

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What if SMBs or individuals could have a “verified financial identity” with all their necessary pre-verified and validated documents and data remaining in a secure and  portable 'vault'? The data in the vault would be immutable – no modification to existing data would be allowed. However, new data could be added to provide a more complete picture. 

The vault could be expanded to hold four types of data about customers, with each appropriately categorized to carry the right level of validity and associated risk of inaccuracy.

• Level 4 – Verified and directly from the source – Customer data that comes directly from validated sources. For example, credit history data could be downloaded directly from Experian by the customers themselves. Similar sources exist for county records in each state, loan records from lenders, etc. This data would be both verified and received from the third-party financial identity store and, as such, would carry a high level of authenticity.
  
  
• Level 3 – Previously verified data – Many institutions have existing verified customer data from different sources. Customers could download this data from financial institutions they associate with and safekeep it in their vault. This data would be deemed pre-verified by the source of the data and would also be authentic and verified.
  
  
• Level 2 – Paper documents validated by a notary – Almost everyone has a large amount of information in paper/pdf documents. Many institutions want a copy of this information after an approved third party notarizes it. While these documents are verified manually, they still carry a certain risk that the data could have been tampered with before verification.
  
  
• Level 1 – Unvalidated paper documents – Paper documents without validation and approval by a notary. While the risk of tampering is the highest on this type of document, it is still information that can be cross-checked against other data sources and prove valuable to financial institutions in validating a customer's creditworthiness.
  
  

Based on their needs, the customer (SMB or individual) would release some or all information from their vault to the FI. This process would offer a swift mechanism to send all the necessary data without recollecting everything for each institution. The institutions could assign the right level of authenticity to each item in the data and use it to make decisions.

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This verification solution already exists

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AIO’s financial verification solutions helps SMBs and individual customers communicate their verified financial identity to institutions. Customers can share required data from their AIO Vault with the financial institution, bank, lender, landlord, or insurer via direct communication with a single click. Customers maintain a copy of the complete set of information they shared, keeping  private and reusable for additional processes with the institution.

SMBs use AIO's Smart Vault technology to collect documents and data from many trusted sources in a fast, simple, and fraud protected way. AIO’s platform leverages the borrower's knowledge, willingness, and access to any digital data source to capture data and verify its authenticity. AIO's patented AI checks the correctness and validity of the documents and also detects meta-data anomalies that immediately flag suspect data as unreliable.

Building a trust layer for the business world while reducing friction is a must for every financial deal. Reusable, verified data reduces fraud and bad decisions. AIO provides the easiest, fastest way to verify any business's financial profile for financial institutions looking to manage risk at scale while minimizing friction.

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AIO Value Proposition

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AIO's solution reduces costs and increases productivity for financial  service providers. For example, lenders can scale up their processing capacity and boost efficiency by 37% by using AIO's platform to request borrowers' documents, to automatically read and validate them as well as cross-check the provided data. Complete, trusted profiles are delivered point-to-point, first-hand, cutting out any middlemen or third parties.

AIO's solution is key to a wide array of B2B interactions as it enables confidence in the legitimacy of businesses and their financial profiles, thus increasing approval speed and reducing risk.

AIO's patented technology utilizes AI and Machine Learning and allows for highly competitive pricing thanks to the lower costs achieved by not needing to integrate into data sources. 

Companies like UBS, Santander, Citi, and others are already experimenting with this technology and are starting to see extremely high potential in the KYC space. Finastra is also reselling AIO Vaults to its customers.