“Oh yeah, it's awful” is no longer good enough. 2025 is the year KYB finally gets fixed.

Article

Liam Chennells

January 21, 2025

10 Min Read

Article Summary:

In this article, which will take around 10 minutes to read, there are 3 sections:

I’m starting by elaborating on an example I’ve touched on before to illustrate the requirement in competitive industries of being obsessed with fine margins.
I’ll give some context to just how bad KYB is (you probably know, but I want to be crystal clear).
Then wrap up with why I think that 2025 is the year it finally gets fixed which includes insight into the regulations that will contribute.

A reminder:

KYB (Know Your Business) is the process of verifying and continuously monitoring a business, including its structure, ownership, directors, and ultimate beneficial owners (UBOs), to ensure compliance with regulations, detect changes over time, and reduce risks like fraud or money laundering. It goes beyond initial onboarding by maintaining oversight to adapt to evolving risks and regulatory requirements.

1. Lessons from E-Commerce: Obsession with Constant Optimisation

Over half (56.1%) of internet users make an online purchase every single week. It is hard to find a more competitive industry than eCommerce. Whether it is large marketplaces like Amazon and Alibaba or Shopify-powered online stores of small business owners and everything in-between it is one of if the most competitive industries on earth.

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What do competitive industries have in common? Ultrafine margins between winning and losing and the constant hunt for the winners to gain an advantage: think about Formula 1 where 0.01 seconds can be the difference between winning and losing - every single optimisation that can be found and exploited is, constantly.

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So let's go back to eCommerce. It’s origin is obviously in physical stores which operate on simple principles: get as many people to visit a store, and spend as much money as possible as often as possible. For as long as physical stores have existed, that has been the case - it’s why the person serving you in your local coffee shop asks if you want a pastry. The challenge with physical stores is that they are limited by their very nature, but eCommerce doesn't suffer from the same challenge - anyone on earth can ‘walk in’ and buy a product in an online store.

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This brings us back to competition - it is estimated that there are over 30 million online stores worldwide. Each of us, using a device we hold in our hand, can ‘walk into’ over 30 million stores.

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Now comes the obsession - everything about the shopping experience has to be brilliant, or the eCommerce business will likely fail or at the very least not reach its potential. Conversion metrics during the journey alone include Conversion Rate (CR), Average Order Value (AOV), Checkout Abandonment Rate, Click-Through Rate (CTR), Returning Customer Rate, Revenue Per Visitor (RPV), Customer Lifetime Value (CLV), Exit Rate, Micro-Conversions, and Upsell/Cross-Sell Rates.

Picture the pressure of the following job:

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The person responsible for conversion on the Nike website, which I use because this level of pressure should be what an individual responsible for KYB should feel - it is so much more than compliance.

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It is estimated that the website has the following daily statistics:

5 million daily visits
Of those visits, around 625,000 (12.5%) add a product to their basket
Of those that add to their basket, around 125,000 (2.5%) make a purchase
The average purchase value is $150.

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Previously, I referenced 0.01 seconds being the difference between winning and losing in Formula 1. What happens if we reduce the ‘Add To Basket’ and ‘Purchase’ rates by 0.1% on the Nike website?

Original yearly revenue: $6,843,750,000
Reduced yearly revenue based on 0.1% change in metrics: $6,828,800,000
Difference: $14,950,000

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When you dig into these numbers, it very quickly becomes obvious that to be successful in this market, you must be obsessed with optimisation.

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Now let’s move back to compliance and within it, KYB. Pretty much the only places I encounter anything close to this level of obsession is in the neobanks' KYB operations and a handful of high-growth payments businesses. This means that there are whole industries that literally (and I try not to use the word literally if I can help it but it works here) have not even considered optimising KYB beyond the compliance fundamentals.

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Crazy when there is a blueprint and proof of the impact it has - both negative and positive.

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2. The KYB Status Quo: Cost, Complexity, and Missed Opportunities

We’ve got software that allows you to tell it what you want and it creates a movie in Ultra HD in seconds which looks like it was created in Hollywood and rockets which can fly to space and come back and land themselves, but we still have compliance teams manually transferring a customer's address into a spreadsheet.

KYB is in the same category for just generally being bad as government systems, think HMRC or the NHS in the UK or the IRS or DMV in the US, you know the ones where you want the system to work but it just doesn’t.

Strange because it is an essential component of businesses ranging from the most forward thinking and high-velocity companies on earth all the way through to even the slowest banks or credit unions.

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KYB is still widely viewed as a compliance checkbox rather than a growth enabler. I have a specific example right now of a business who have, with various levels of seriousness, flirted with the idea of a project to improve their

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KYB for the last 2 and a half years. Here are two of their performance metrics:

Time to onboard a customer end to end: 53 days
Customer drop out: 58%

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What does this mean? Over half of the business owners who want to sign up to use this company's services give up on their application and for those who do stick with it, they don't get their account for nearly 2 months. Also worth noting is that short of a project to fix this issue, the 'compliance team' (which is just people who move data from one system to another) has grown 6x to 80+ which of course carries great cost and isn’t improving the situation.

I do understand how many conflicting priorities there are to manage in any business, but these statistics are completely unforgivable and any board worth having would set a deadline for this to be fixed and a single executive made accountable. No longer is it acceptable to hide behind risk as an excuse for KYB being dreadful.

Think back to Nike. They are operating with Formula One standards. Some businesses I speak with, despite turning over hundreds of millions of dollars in revenue, are thinking about KYB like the Rainforest Sloth Grand Prix.

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3. Why 2025 is different?

Because of how good Detected has become. Seriously.

Yes there is a convergence of regulatory pressures, rising customer expectations and more C-suite awareness but, without technology which can deliver results none of that matters.

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Founded in mid-2020, I'd say by the end of 2021 and into 2022 we had something that could have a meaningful impact, but now we are in a league of our own.

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However, each of those points is important in isolation so is worth exploring before I talk about Detected.

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First up, regulatory pressures which came in 2024:

FinCEN (Beneficial Ownership Information Reporting): The U.S. introduced the Corporate Transparency Act, requiring most corporations, LLCs, and partnerships to report their beneficial ownership information (BOI) to FinCEN. This aims to combat money laundering and increase transparency in financial transactions. Reporting deadlines for existing entities was set for December 31, 2024.
Digital Services Act (DSA): The DSA came into force, imposing strict obligations on online platforms, including verifying the identity of business users (KYBC) and ensuring transparency to combat illegal activities. Platforms now play a critical role in monitoring and removing harmful or fraudulent content.
Digital Operational Resilience Act (DORA): Effective January 2024, DORA now requires financial institutions in the EU to strengthen their ICT risk management, incident response, and third-party oversight. While primarily focused on operational resilience, DORA emphasises the importance of robust compliance frameworks, indirectly tying into KYB processes.

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What’s coming in 2025?

Anti-Money Laundering Authority (AMLA): Launching in July 2025, the EU's AMLA will centralize anti-money laundering supervision, standardising rules across member states and improving coordination. Businesses must enhance their AML and KYB processes to comply with stricter oversight and reporting standards.
Markets in Crypto-Assets (MiCA): Also taking effect in phases through 2024 and fully into 2025, MiCA is the EU’s comprehensive framework governing crypto assets and service providers. It introduces uniform rules on issuance, offering, and trading of crypto assets, requiring firms to implement rigorous KYC/KYB checks. MiCA aims to increase transparency, protect investors, and reduce money-laundering risks in the crypto market.
Payment Services Directive 3 (PSD3): Expected in 2025, PSD3 will update regulations for payment services across the EU. It introduces stricter customer authentication measures, extends compliance to crypto and decentralised finance, and reinforces KYB for onboarding and ongoing monitoring of business clients.
iGaming Regulations: The online gambling sector (iGaming) will also see tighter regulations in 2025, driven in part by AMLA’s enforcement and various national reforms. Operators must enhance KYB to identify beneficial owners of affiliate partners, payment intermediaries, and high-value corporate customers. Failure to comply could result in major fines or loss of gaming licenses, making robust KYB a critical component of iGaming compliance strategies.

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2024 brought significant shifts with FinCEN, DSA, and DORA laying the groundwork for stricter compliance, transparency, and operational resilience. In 2025, the focus intensifies as AMLA centralises anti-money laundering efforts, MiCA takes full effect, iGaming regulations tighten and PSD3 strengthens payment service regulations. So get it right, or get in trouble is the message - nice and simple.

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Next is rising customer expectations

For this, I am going to start with an extract from a previous article: ‘To illustrate the point: There is a global bank I have been working with this year that sends customers a spreadsheet to complete and return when they want to sign up, and their product is competitive with Stripe: it doesn’t take a genius to realise that potential customers are not returning that spreadsheet, they are just going to head to Stripe’s website and sign up in 5 minutes.’

This is not going away and I can’t be more clear than this - IF YOUR SIGN UP PROCESS FEELS LIKE REGISTERING TO JOIN A MUSEUM NEWSLETTER CUSTOMERS WILL NOT FIGHT IT AND THEY WILL JUST GO ELSEWHERE.

We have no choice but to use the awful government systems, but the owner of a business signing up to use a new payment company's services does have choice - and lots of it, so if it is annoying, complicated or slow, they will simply find something that isn’t. Which is why PYMTNS said that ‘Compliance Moved From Cost Center to Growth Engine in 2024’.

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Lastly, C-suite awareness

It simply has to be the year that this happens. Regulation is tighter than it has ever been (which has financial but also reputational implications) and customers are going to vote with their feet and use a competitor if the process is better (remember the previous example ‘Customer drop out: 58%’) - which leads me to the final piece of the puzzle and the line I opened this section with: it changes this year because of how good Detected has become.

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There is no longer an excuse for doing this badly. In the second half of last year, Detected consistently came out on top in well-run RFPs. Head to head against the companies nobody got fired for buying and were previously regarded as the industry's best. We hear this a lot, head to head 'she said she's sat through roughly 25 demos so far and none of them hit the mark apart from us'...

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It is the best end-to-end KYB platform on the market and we have built it from the very first line of code.

You will notice a change in my tone. We have moved from challenger to leader and I am not paying a ‘quadrant provider’ to tell you that, I’ll use that money to continue improving the platform instead.

So like I said at the start of this section, there is a convergence of regulatory pressures, rising customer expectations and more C-suite awareness but now there is also a company which provides the solution required so...

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