Compliance around Anti-Money Laundering and Know Your Customer (KYC) regulations is a challenge for many banks when it comes to on-boarding. A recent study by Thomson Reuters, covering 772 financial institutions (FIs) globally found the average time to onboard a new client currently sits 26 days. The longest reported time to onboard a new client was in Australia, coming in at a staggering 63 days.

But what about challenger banks? Not only are they grappling with understanding compliance from scratch, they also lack the deep pockets the incumbents have, not to mention decades of experience in understanding risk. With their tech DNA, businesses will expect them to onboard faster. They will expect sign up to be frictionless. What will it mean if they can’t deliver?

The challenge is amplified for those that decide to target the small business sector, thanks to the myriad of company structures (partnerships, trusts, partnerships of trusts…) that crop up. Often, it is not uncommon for the business owner themselves to not even understand the full structure and picture of beneficial owners across these complex structures. That means multiple phone calls to the customer by the bank representative and sometimes uncomfortable conversations, “yes I do need to ID your husband’s cousin’s wife”. Suddenly the transition from old world banking to new world Fintech just seems all too hard for the business owner.

A game changer for challenger banks and small business would be a digital identity passport. Something that allows them to move more easily between FIs, with less friction. This type of initiative is obviously in the interests of Fintech, but not necessarily in the interests of the banking incumbents. Government could have a role to play here. I would be interested to find someone tackling the full SME digital passport problem.

Some Fintech’s are trying to tackle the space. Most of them are focused on what they can change – improving compliance and due-diligence efficiency through smarter technology that helps capture the information required to complete the KYC check in a timely way.

Trunomi and Trulioo have garnered significant press to date in this field. Some more recent additions I have found include:

Paycasso (UK)

SimpleKYC (Australia)

There are plenty more compliance solutions out there, each having a crack at the problem from various angles.

KYC is an interesting element of the full ‘RegTech compliance killer system’ Bernard envisioned back in September 2015. Whether or not someone can deliver the killer end-to-end RegTech solution is yet to be seen. But certainly anything that helps small business make the transition from bank to Fintech would be a potential game changer for challenger banks. Getting customers, after all, is probably the first and most pressing problem they need to solve.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business.