Unifying the sprawl of identity and financial data — Why we invested in Sikoia
Customer onboarding is a painful process for Fintechs and their clients. 38% of financial services customers drop out of the onboarding process due to the volume of information required¹, demonstrating that having an efficient screening process can be a clear competitive advantage. Below, we run through some of the common blockers to achieving an efficient onboarding process:
1. No data source has perfect coverage and integrating multiple data suppliers is complex
The identity and financial data landscape is fragmented, with hundreds of data sources across data types, client segments and countries. Screening teams may tap into local bureau data, BVD for business data, Codat for accounting and e-commerce data, TrueLayer for open banking, Experian for credit info or Mistho for payroll, to name a few. They may also complete identity verification checks, search for any PEPs and sanctions matches, and adverse media coverage.
FinTechs and financial institutions consequently use multiple providers to support their client decisioning and often require primary and secondary providers for important data types. Each data source has associated costs and needs to go through onboarding, integration, testing, and maintenance, which may come against limited tech capacity and budgets.
Even with a selection of data sources in place, compliance and risk users are often unable to combine them efficiently to optimise for their business and risk criteria.
In the example of an individual opening a bank account, an alert may come up during customer onboarding if the screening software detects a sanctioned individual with a similar name. A compliance analyst then needs to manually check the customer’s details to confirm that they are different people. Alternatively, this alert could be treated by automatically cross-checking identity verification data.
In the case of a business loan application, an underwriter may request documents about the business, its directors, their corporate set up, financial activity and business plan, as well as complete identity verification and sanctions screening checks. This information is typically a partial, point-in-time picture, and it may take days if not weeks to be reviewed. Alternatively, information about the business and related individuals could be automatically pulled and augmented with open banking, accounting and e-commerce data, with a majority if not all of the screening being automated.
2. Although financial products are increasingly digitalised and automated, onboarding processes are lagging behind
The data retrieval and decisioning methods used by financial services providers to screen clients are largely incomplete and manual. Due to patchy data and limited internal system connectivity, reviewers typically manually switch between data sources, interfaces and evaluation criteria to complete their assessments. Only a third of AML and customer due diligence professionals use an automated system to manage customer screening workflows².
Internally developed tools are sometimes introduced, however their capabilities are limited and hard-coded to current requirements. Their rules-based decisioning tends to generate a high volume of cases that are reviewed manually.
The state of financial industry decisioning is well summarised by KYC & AML technology and operations spending, that reached $37 billion in 2021³, including:
- a whopping $26B costs associated to operations, as processes remain largely manual
- $11 billion in technology spending (+13% YoY), of which 45% goes to KYC and customer due diligence, 35% to transaction monitoring and 20% to sanctions screening
3. Legacy KYC and AML providers never prioritised efficiency and UX
Compliance software historically provided poor user experience. KYC and AML incumbents are primarily data companies with limited software and automation capabilities. They have been good at building databases of companies or individuals, often manually; however they struggle to serve this content to customers in a helpful or actionable way.
Engineers at financial institutions often deal with vendor APIs that are unreliable, lack documentation and are brittle. Vendor software may not match user workflows and sometimes functions like a Windows 98 program. This has led to inefficient processes within compliance teams that slow down onboarding decisioning.
4. Regulatory requirements are continuously evolving
Compliance is only getting increasingly complicated, with rising regulatory requirements and widespread use of sanctions. The number of live OFAC sanctioned persons and entities grew from 921 in 2000 to 9,421 in 2021.
Detecting connections to politically exposed and sanctioned entities requires extensive research and data analysis techniques. Ownership structures and transaction flows are often complex and opaque, and run across multiple jurisdictions.
The risk of failing to detect undesirable entities and suspicious activity is costly. Global AML fines surged by 50% in 2022. Financial institutions were fined $5bn for AML infractions, breaching sanctions, and failings in their KYC systems and processes⁴. As regulatory scrutiny is rising, FinTechs are reminded to apply high compliance standards, regardless of their stage, and a number of investigations are ongoing.
These changing criteria require compliance officers to move from client reviews at onboarding during annual reviews to continuous monitoring. The resulting high screening volumes are testing the limits of inefficient systems and processes. Changes in client behaviour, such as the shift to digital channels and the fast growth of e-commerce, also require instant decisioning.
These issues have a significant impact on the financial industry, affecting both the client experience and bottom line. Screening, when done right, becomes a key differentiator.
Enter Sikoia
Having spent significant time with identity screening and underwriting teams in our previous roles, we were impressed when we first saw Sikoia’s platform. It brings together key data sources and features into a single unified data platform and API. Their offering significantly improves the decisioning processes of FinTechs and financial institutions across business and consumer use-cases.
The data integrations and API marketplace bring together key international providers while following high data privacy and compliance standards. They cover credit scoring, open banking, accounting as well as KYB, KYC and identity verification, AML, PEPs and sanctions, public records and online data. New data sources are constantly being added.
The platform’s data model normalises diverse data feeds and standards. Its orchestration layer prioritises data across providers, addressing data gaps and conflicts while providing an audit trail. In a unified view, Sikoia provides verified and enriched customer, business and asset data.
Sikoia offers a low-code workflow builder that enables users to quickly add automated workflows. They notably cover consumer or business onboarding, verification, credit scoring and ongoing monitoring, and are tailored to users’ underwriting requirements and risk thresholds.
Sikoia cuts through the identity and financial data noise by providing a single comprehensive client view to facilitate decisioning. We have already seen time and cost savings with multiple data sources being daisy-chained, to fill in the information gaps in onboarding, reducing the need for manual input and enabling straight through processing.
Besides its comprehensive platform, we were impressed with Sikoia’s incredible founding team. Alexis Rog, Stephen Simmons and Alastair Bulger bring together a unique combination of financial services, credit screening, risk and data science experience. They are complemented by an excellent early team with Marie Kyle, who joined as CPO and brings strong FinTech experience, and Panos Veranoudis, Head of Engineering, who has wide-ranging experience as lead software engineer in financial services and risk data.
Within a few months of launching, the team built a complex and high-quality platform that brings significant efficiency and financial benefits to its clients. Their long-term vision is compelling and their data coverage and product suite is continuously expanding.
Sikoia’s platform is set to transform financial institutions’ client management throughout the lifecycle, from onboarding and underwriting to ongoing monitoring. By enhancing key processes, it enables users to better capture revenue opportunities and improves financial performance. Here at MassMutual Ventures, we use Sikoia’s extensive identity and financial data to improve our own business verification efforts as part of our due-diligence process.
We look forward to supporting Sikoia on their mission to make client onboarding and risk assessment simple.
[2] Thomson Reuters, AML and CDD Insights Survey, https://legal.thomsonreuters.com/content/dam/ewp-m/documents/legal/en/pdf/reports/2022-thomson-reuters-anti-money-laundering-insights-survey-v2.pdf
[3] Celent, IT and Operational Spending in AML-KYC, https://www.celent.com/insights/428901357
[4] FT, Global AML fines surge 50%, https://www.ft.com/content/7a4821e6-96f1-475c-ae55-6401e402061f
