Business Verification: The first step of digitizing SME financing

Almost 29% of the frauds in the industry of financial services occur due to Know-Your-customer or KYC / Due Diligence failures states a recent report by PwC on Global Economic Crime and Fraud Survey 2022. This is a significant discovery highlighting the importance of adequate measures that should be enforced during KYC checks. One may understand from McKinsey’s Global Banking Annual Review that small and medium-sized enterprises (SMEs) represent about one-fifth (about $850 billion) of overall global banking revenues, a figure that is expected to grow by ~ 10 % annually over the next five years. With this background, lenders must take optimistic, yet a cautious approach to evaluate SMEs for driving sustainable business with lower NPAs. In case of small businesses, verification, as part of due diligence process, helps in establishing trust that translates into a robust credit profile. Empowering the SME through a holistic digital verification process imbibing different dimensions of business assumes a pivotal role. Access to finance can open new vistas for growth and progress for over millions of SMEs in Asia.

Credit Analysis in times of digital proliferation:

While dealing with sensitive financial matters, financial institutions shoulder responsibility to assess legitimacy of borrowers, their origin, veracity of their operations. Business verification involves gathering enough information to establish the authenticity of the SME customers in the most efficient manner. A recommended process should swiftly identify companies with dubious backgrounds and directors with questionable record with clarity on related parties and Ultimate Beneficiaries etc. This critical step helps to eliminate the risk of money laundering, theft, and other un-acceptable monetary practices in banking and financial services. With real-time response delivering transparent insights lead to seamless onboarding with greater precision, business verification carves out as a critical process to enable lenders.

Headwinds for the Process across SME lifecycle:

Business verification must allot appropriate priorities to attributes of the applicant company and the identification of any connected entities and its owners. Over the years, banks have evolved and have embraced verification services, however, few prominent issues that have emerged from the process. The absence of key details such as company formation, stakeholder identity and their relationship greatly impact the level of transparency of the business. There are also several instances of corporate identity theft and fudged records which leads banks into the traps of bad loans. Bank’s ‘risk addressal’ often results into a tedious and process leading to scepticism from SMEs. With rising expectations for frictionless business-to-business (B2B) customer experiences, verification processes can negatively impact client acquisition and further intensify competitive pressures.

Transforming verification with DigiAlly:

Digitization of business verification can largely impact how banks and financial institutions scale operations while onboarding new SMEs as clients. The mission of DigiAlly is to empower Asian Financial Institutions to build innovative, high-growth, and low-risk SME businesses by strengthening financial ecosystem's credibility. It aims to ease the way fiscal assistance is provided to SMEs to hike up the swiftness of the process, limit expenditures and assist in expansion in the scale of the business. Proactively identifying higher-risk businesses nullifies costly and resource-intensive deeper due diligence while equipping SMEs with more confident approvals along with safeguarding the customer experience, wiping out redundant friction and delays will pave way for growth for SMEs. Digitizing SMEs is the next wave that is engulfing industries globally, hence creating trust with SME is a foundational step to get closer to this grand vision.