Know your customer beyond the basics
HI-tRaC he author’s shorthand for Happiness Index, Infrastructure, Talent, Regulations, Access and Capital. The six pillars that make UAE a great place for a startup. This week’s article is about why global talent finds the startup and regulatory infrastructure in the UAE attractive.
Last week this column introduced regtech, a monetisable opportunity within fintech. To briefly recap, regtech is a blended word made from regulations and technology. Within the scope of regtech is the area of know-your-customer (KYC). KYC extends beyond just the basics i.e. anti-money laundering (AML) and anti-terrorism checks. The application of technology to information gathering and analysis in these two areas has the added benefit of leveraging the rich data for credit scoring as well as marketing.
$321 billion is value of fines imposed by regulators on banks globally since 2009. This information update versus last week’s article quotes the March 2017 BCG Report Global Risk 2017: Staying The Course In Banking. In addition, 200 new regulatory changes or revisions per day is the average number that the global banking system must understand and comply with. The bulk of the regulations deal with financial stability requirements. Another critical area is operational prudency or the answer to the question “Was it legitimate?”.
Given the rapidity of regulatory change and its diverse nature, the report indicates that finding cost-effective and scalable solutions for compliance with regulations across geographies will remain high on the global banking agenda.
On the other hand, bank revenues are being squeezed. Nimble and purpose specific fintechs meet customer needs, potentially disintermediating banks from the front end. The PSD2 in Europe paves the way for a bank-as-a-service model. Telcos faced a similar situation with “over-the-top” applications like Facebook and WhatsApp. In most regions, other than Middle East and Africa and the US, the economic profitability of banks is declining according to the BCG report quoted earlier.
Innovating with regtech describes the UK regulator, FCA’s, facilitating role in promoting regtech there. The FinTech Hive at DIFC, along with the DFSA is playing a similar key role in enabling the development of regtech in the UAE. As mentioned, Middle East banks are ahead of the global pack in demonstrating positive economic profitability growth since 2009. Through the application of further efficiencies via regtech, the UAE banks can pull away from the herd.
Norbloc is a company that can offer one such differentiated advantage. Norbloc is succinctly focused on the KYC vertical within regtech. Norbloc’s platform is designed to reduce the cost of KYC by approximately 50 per cent, by digitising efforts, reducing duplication of efforts and allowing for the first time, monetisation of KYC efforts. Globally the KYC business is worth $20 billion and growing rapidly according to Astyanax Kanakakis, CEO of Norbloc. Kanakakis is from Greece and is an excellently qualified scholar and businessman. He holds three degrees in Computer Science from University College of London, Imperial College and the London School of Economics. He also has an MBA from the Wharton School at the University of Pennsylvania. He joined Boston Consulting Group (BCG) in Germany after his Computer Science studies before being part of the team that started up their operations in Athens. His focus was purely on financial services. After his MBA, he joined the Risk Arbitrage desk in Lehman Brothers and left when that institution collapsed. His abiding love for Stockholm took him there, where he joined McKinsey & Co. Two well-known Venture Capital firms (VCs), Accel Partners and Creandum, brought Kanakakis in to head up the Bitcoin ETN subsidiary as well as start the blockchain practice of KnC Group, a Bitcoin Mining pioneer. When the KnC Group ceased operations, Kanakis joined up with two of his KnC colleagues, Sam Saatchi, the CFO and Vitalii Demianets, the Lead Architect to start Norbloc. Together they have 30+ years of blockchain and over 50 years of financial services consultancy experience.
They realised that there was huge opportunity in the KYC area. Every bank that they approached wanted the team to solve their KYC related nightmares through the application of blockchain and distributed ledger initiatives. In Sweden alone, the banks are spending upwards of $320 million per annum on KYC related activity. This number will only grow based on the increasing level of compliance related activity that regulators are demanding. The Norbloc solution is elegantly simple. Step one is to digitise the KYC process and reduce 20 per cent of cost. This is achieved in two major ways. First, by logging in to the Norbloc platform, the customers themselves populate the data that is relevant for their account onboarding and renewal. The next area is the elimination of keystrokes through API-based integrations that Norbloc has with statutory and other data gathering entities.
Step two is a natural corollary and will reduce costs by a further 20 per cent by eliminating duplication of KYC processes between banks. Norbloc is the first to legally allow banks to place their digitised KYC related information into a fully compliant blockchain-based platform. Now, banking customers can share their validated files with multiple institutions, while any change to the data automatically removes the attached validation stamp and prompts banks to review the updates. Multiple banking entities can access the same information about corporate and individual customers. Unlike credit bureaus and other such entities, the information is not controlled by any one single entity but purely by the customer.
Step three is creating revenue equal to about 10 per cent of prior costs. This step is facilitated by allowing the financial institution that validated the customer data in the first place to ask for a fee from other institutions accessing that same customer file. Norbloc is designed to be easily legally scalable across geographies and is GDPR and 4th AML Directive compliant. Selected out of a pool of 120+ aspirants for the Fintech Hive at DIFC’s pioneering batch of 11, Norbloc is well-placed to be serious contender in this space.