KYC/KYB (Know Your Customer/ Know Your Business) systems is a rapidly evolving
area of technology which must compensate for the constant increase in volume and
complexity of online financial crime. This, according to an extensive report from Juniper Research.
Juniper Research explains the role of KYC systems as: KYC Systems assist with the verification of a customer’s identity to help comply with Know Your Customer regulations .
Sometimes, KYC is taken to mean “Know Your Client”, particularly in the financial services and investment sectors.
KYC systems include tools used across the customer lifecycle, from “onboarding and due diligence, to offboarding.”
Juniper Research outlines the function of KYB systems as follows: KYB Systems are “used to identify and verify the identity of a business or organization.”
Know Your Business checks ensure “a company understands the corporate structure of a business client.”
Sometimes, KYB Systems are referred to or described “as Business KYC, Corporate KYC, or on rare occasion Business Onboarding.”
KYC regulations originated from years of unchecked financial crime.
This update primarily focuses on identifying new or “developing regulatory frameworks that are set to create technological and social shifts, and provides strategic recommendations for how vendors can stay ahead of these regulatory developments.”
While specific regions’ regulations are used as a form of illustrative and clear examples, our recommendations apply to vendors operating in any area; we anticipate similar regulations, “such as the EU’s AI Act or the Texas House Bill 1181, to arise in a large majority of jurisdictions, as these examples represent global shifts towards a more regulated KYC/KYB systems market.”
In the EU, the Artificial Intelligence Act was first “proposed in 2021 and has not yet been adopted.”
This law is aimed at responding to the risks and challenges “linked to AI technology use, and in 2025 the EU parliament will vote on the principles of the Act.”
The new AI act will use a “risk-based” approach to assess AI systems, providing technology vendors with guidelines for the EU region.
The EU will categorize AI-based systems on the level “of risk they pose to end users, with a set level of regulatory constraints for different risk levels.”
The framework will also prohibit some AI-based use scenarios, such as “real-time” biometric identification in publicly accessible “spaces for the purpose of law enforcement and social scoring.”
This will prevent scenarios similar to those that “have manifested in other countries, such as China, where facial recognition is used alongside a social scoring system to improve government tracking efforts.”
The EU’s AI act significantly impacts vendors “in the KYC space, due to its comprehensive regulation of AI systems that are classified as high-risk because they fall under areas such as law enforcement or management of critical infrastructure access to essential service.”
Stringent requirements for high-risk AI systems will “be met with rigorous obligations, including thorough risk assessments, strict data governance practices, human oversight, detailed documentation, and ensuring transparency and explainability of AI decisions.”
Over the forecast period, the total spend “on third-party KYC/KYB (Know Your Customer/Know Your Business) Systems will grow 70.5% in five years, from $30.8 billion in 2024.”
Growth is driven by the deployment of “advanced customer onboarding tools over digital platforms that accept government-issued identifications and comply with age-verification regulations.”
High-risk industries, including online dating and gambling, “are prone to elaborate fraud schemes, namely romance scams and money laundering; as such, they are primed for KYC/KYB deployments.”
Underpinned by a robust scoring methodology, the new Competitor Leaderboard ranked the top 19 KYC/KYB systems vendors, “using criteria such as the breadth of solutions, geographical spread, and future business prospects.”
The top five vendors for 2024:
- LexisNexis Risk Solutions
- Experian
- Entrust
- Socure
- Moody’s
The Juniper Research Competitor Leaderboard “found that leading players excelled in product range, curated through a strong succession of acquisitions of their rising competition.”
For example, LexisNexis Risk Solutions acquired BehavioSec, behavioral biometrics experts who leverage “typing and swiping behavior on phones, to authenticate identity and prevent fraud.”
This acquisition enhanced its TruNarrative platform and behavior intelligence “offering with exciting future prospects.”
