KYB Trends in 2024: Let’s Talk About It

Traditionally overshadowed by its counterpart (KYC), the Know Your Business (KYB) process is stepping forward and becoming a crucial tool for due diligence and risk assessment in business-to-business relationships. And yes, the importance of this process is continuously growing.

Before we delve into the trends of this year, it’s essential to understand the importance of KYB and why it should interest your company.

Did you know, for example, that the global KYB market size reached around $263.54 million in 2022 and is projected to grow to approximately $712.87 million by 2030, with a compound annual growth rate (CAGR) of about 13.28% between 2023 and 2030?

Do you want to be left behind? The answer is no. Therefore, with this article, we want to help you understand what exactly the automated KYB process is, the numbers that support the importance of its integration into your system, and the main trends the market offers for 2024. Shall we go?

What is KYB, and why should you care?

Know Your Business (KYB), which we might say is an extension of KYC processes, focuses on verifying the identity and assessing the risk of business clients at the time of onboarding and continuously throughout the business client lifecycle.

KYB, fraud, and risk are interconnected, but they are not the same.

Traditionally, KYB focuses on regulatory compliance, which can sometimes feel like a “box-checking” activity to avoid sanctions and fines. However, much of the data collected for KYB is also highly relevant for fraud and risk (later, we will delve deeper into key data elements).

To detect fraud accurately, it is important to know your company’s identity and pay attention to a series of real-time fraud signals (transaction details, behaviour/device information, etc.).

To assess risk (i.e., credit risk), it is important to know your company’s identity, including its payment history (generally through credit scores) and expected future cash flows (generally through historical cash flow data).

As business-to-business relationships become more complex, KYB has become essential for compliance and due diligence. Regulatory authorities, including the UK’s Financial Conduct Authority and the European Banking Authority, now require detailed due diligence in these interactions. This change raises questions about companies’ true controllers, revealing complexities beyond initial appearances.

Note that it doesn’t end here. Corporate structures often hide the real beneficial owners, complicating the onboarding process for fintech companies under anti-money laundering and anti-terrorism laws.

Identifying Ultimate Beneficial Owners (UBOs) is a key but challenging task due to different definitions and fragmented access to UBO records.

Complex, right? Well, KYB serves just this purpose: to know, verify, and ensure that the people and companies you come into contact with are completely safe.

KYB in numbers

But let’s discuss the numbers and analyze some key data that reveal KYB’s growth and relevance in the current landscape.

As we mentioned, the global KYB market is estimated to grow at a compound annual growth rate (CAGR) of approximately 13.28% from 2023 to 2030.

In terms of revenue, the global KYB market was valued at approximately $263.54 million in 2022 and is projected to reach $712.87 million by 2030. Not bad, right? This significant increase in market value underscores the growing importance of KYB in the business realm.

Indeed, the KYB market is projected to grow considerably due to the increase in incidences of money laundering activities. This phenomenon reinforces the need to implement robust business identity verification measures.

Considering the segmentation by end-users, it was predicted that banks would have the largest market share in 2022. This indicates the importance that financial institutions place on KYB as an integral part of their operations.

As for the segmentation by delivery mode, the cloud-based mode was leading in 2023. The choice of this mode highlights the trend towards digitalization and accessibility in implementing KYB solutions.

How regulations for UBOs in Europe have changed

What does the European Union say? The law is keeping up.

First and foremost, we want to emphasize the figure of the UBO. Ultimate Beneficial Owners are individuals who effectively own or control a legal entity or company. Therefore, identifying UBOs is crucial to understanding the true ownership of a company and thus preventing its misuse for illicit purposes.

In March 2023, the Financial Action Task Force (FATF) revised its guidelines related to beneficial ownership on a global scale. This update emphasizes the importance of nations adopting a “multifaceted strategy” in this area.

It is imperative that relevant authorities have access to accurate, up-to-date, and sufficient data about the beneficial ownership of legal entities. Moreover, these entities must ensure that both primary ownership and beneficial ownership details are in a timely manner.

A significant change in the regulations of UBOs in Europe occurred on April 24, 2023, when the European Parliament announced plans to finalize new legislation in conjunction with the European Commission, with the goal of curbing the use of the financial system for money laundering or terrorism financing.

These key amendments include revising the definition of ultimate beneficial owners, reducing the ownership threshold from 25% to 15% for most companies, and an even greater reduction, down to 5%, for companies in the extractive industries or those with a higher risk of money laundering or terrorism financing.

These changes in European regulations aim to strengthen transparency and due diligence in the identification of UBOs, which in turn will help prevent the misuse of companies for illicit purposes and comply with international standards for combating money laundering and terrorism financing.

2024 KYB Trends: Why KYB is Becoming Increasingly Necessary

So, what will happen in 2024? We want to leave you here with some insights, or rather some very interesting trends analyzed by Rohan Mehta, that you will surely find intriguing and that, above all, will help you understand even more the importance of KYB.

Fraud and Cyber Risk Continue to Grow

A worrying trend that has been consistently growing is highlighted: the increase in fraud and cyber risk in the business environment. A recent large-scale example of this was seen with the PPP program implemented by the government during the COVID-19 pandemic. Over 15% of the COVID-19 related PPP applications turned out to be fraudulent, totaling a staggering $76 billion out of $800 billion disbursed.

In this digital age, there has been an increase in the creation of synthetic business identities (e.g., fake Amazon stores) and the use of shell companies.

For instance, if a hacker backed by the Russian state wishes to open a bank account in the United States, it is likely that they will use intermediaries or shell companies. Although these intermediaries might pass compliance checks, more sophisticated fraud detection tools are required to understand the origin and use of the funds and thus prevent fraud or sanction violations.

Moreover, structural changes are introducing new challenges. Ubiquitous real-time payments (such as RTP/FedNow in the United States) require the ability to monitor and react in real time. Otherwise, payments will be held for days while compliance teams investigate money laundering risks.

The Number of Small Businesses Continues to Grow

Another relevant aspect of Rohan Mehta’s analysis is the constant increase in the number of small businesses. By the year 2021, there will be 330 million Small and Medium Enterprises (SMEs) worldwide, with 32 million of them in the United States.

Additionally, more than 5 million new SMB applications are filed annually in the United States. SMBs are more difficult to verify than large companies for various reasons. 29% of them do not have a website, and 80% are operated by the owner without employees. For these sole proprietors, much of the KYB process resembles the traditional KYC process. Reporting requirements are also much more limited for SMBs compared to public companies.

Small and Medium Enterprises Need Increasingly Digitalized Solutions

The expectations of Small and Medium Enterprises are aligned with consumer-like digital experiences. However, setting up commercial bank accounts can take up to 100 days, while today, most consumer bank accounts can be opened in minutes.

The business case for speed is evident, as fintechs, including Mercury, Brex, and Arc, captured a large portion of the deposits following the collapse of Silicon Valley Bank. Central money banks, especially Chase, also attracted rapid flows of SMBs during the period of regional bank collapses in 2023 (including Signature Bank and First Republic).

Outdated infrastructure or lack of KYB hampers the ability of B2B companies to move quickly and be open about who they work with.

These real concerns impact not only financial institutions but also software providers, retailers, social networking sites, travel/hospitality providers, and many other types of B2B businesses.

Why You Need to Integrate an Automated KYB Process Now

The Know Your Business (KYB) process is essential for ensuring the integrity and security of your business relationships, but it doesn’t have to be an overwhelming and slow task. Integrating an automated KYB process, like Silt, can make a significant difference in the efficiency and success of your business. Why?

• Save valuable time: Requiring and verifying documentation can be a time-consuming and resource-intensive process. Communicating with your clients to upload the correct and valid information and documentation can take a lot of time away from your team, time that could be invested in more important tasks. With an automated solution like Silt, you can eliminate much of this manual work and save up to 90% of your time.

• Grow your business: Automating the data collection process allows you to handle a larger volume of KYB verifications without needing to proportionally increase your human resources. This means you can grow your business more efficiently and scalably.

• Reduce fraud and fines: Solid verification of the identity of your business partners helps reduce fraud risks and protects your company. Complying with legal requirements, regulations, and compliance is essential to avoid regulatory penalties and fines. An automated KYB solution helps you maintain compliance effectively.

• Simplify analysis: With Silt, you can manage the onboarding process from one place. The dashboard contains verifications of the company’s people of interest and all their relevant information and official documents. This greatly simplifies the process and gives you an organized view of your business partners.

Don’t wait any longer. Consider automating KYB to boost your business’s success and security. How? Try our free demo.