Decoding KYB Data Providers: The Pros, Cons, and Key Considerations
When considering KYB data providers to meet compliance needs, it helps to understand how they operate and the trade off between using private data vendors and government registries.
Primary Data Providers
Primary data providers are typically government agencies that manages incorporated, unincorporated, and non-profit entities. Depending on the jurisdiction, it could be a standalone organization such as UK Companies House, a tax agency such as Federal Revenue Service of Brazil, or a department within a state / provincial government such as California State of Secretary.
Pros
The obvious advantage of using a primary provider such as UK Companies House or UK HMRC is that they are the governing bodies. While data accuracy is subjected to entities filing information on time, they are generally consider the most accurate data sources.
The other advantage is the the per inquiry cost should be lower than what the data vendors charge. A KYB verification request could involve more than one vendor and everyone involved would add their cost to the final price.
Cons
From my personal experience, a lot of government registries are stuck in the medieval age. The bad ones will only provide a website for manual search which could be scraped depending on CAPTCHA implementation. The ugly ones do not have a website nor API. You are either forced to use designated agents or contact the agency directly to order copies of the business extract.
While in the Pros section I mentioned the cost per inquiry should be the lowest, that may not be the case in some jurisdictions. One example is Singapore's Accounting And Corporate Regulatory Authority. It has a "use it or lose it" model similar to free minutes in an international call feature. Depending on your use case, a data vendor could be cheaper per verification, since there is a pool of customers using the API credits.
Secondary Data Providers
These are government agencies and organizations that have direct dealings with entities that you are trying to verify but they are not governing agencies.
Pros
Cons
There is a degree of legitimacy to secondary data as they prove some kind of business activity is happening. In jurisdiction such as United States where most state governments do not provide an API, secondary sources could be a good alternative. However, you may need to use a private data vendor to access some of these secondary sources.
Private Data Vendors
As the name implied, these are organizations that resell data from data sources which they are connected to directly or via another vendor.
Pros
In regards to Beneficial Owners, a data vendor with access to multiple countries can attempt to determine the ownership structure by looping through the declared shareholders. This address the issue of non existent Beneficial Owners registries or registries with limited access. However, this is considered a "best attempt" approach because not all jurisdictions have ownership information and it is possible to end up at a dead end during the search process. The other problem is the cost associated with pulling all the entities' profile in the search path.
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Cons
In my experience, data vendors may not extract data in real time using a web scraper. It could take up to a year or more to extract all the profiles in a particular registry. Vendors that provide a composite profile may not extract information from their sources at the same time, which leads to inaccurate information.
When it comes to pricing, you should not expect it to be available upfront like government registries. Terms and conditions will probably be disclosed after some kind of NDA is signed. During contract renegotiation, you can expect vendors demanding price increases to satisfy their sales and margin targets. If a particular data product is provided by an upstream vendor, you could be hit with more than one price increase.
Key Considerations
The decision to use primary, secondary, private data vendors, or a hybrid approach is essential a "buy vs build" decision with time, financial budget, and functionality being the key considerations.
Time
In the single country use case, development time is the same between integrating a business registry's API and a vendor's API. However, if a web scraper is involved, it is probably more time efficient to use a vendor instead of building / buying and maintaining one yourself.
Another consideration is the data coverage. For example, Netherlands Chamber of Commerce KVK only offers basic company information while a private vendor in Netherlands could offer Beneficial Owners discovery. Again, if the vendor offers both, it might takes less development time to integrate a single vendor's API.
The time consideration gets complex when dealing with multi-countries coverage. Essentially, you are trading discovery, development, and maintenance time of integrating all the sources yourself with the cost of using a single data vendor with a wide coverage.
Financial Budget
The financial aspect of deciding between "build or buy" can be broken down into two parts: cost over time and opportunity cost.
Let's look at cost over time first. In the case of multi-countries coverage, a single vendor with a wide coverage offers lower immediate development cost but potentially higher transactional cost in the long term. You should evaluate the cost continuously to determine the best course of action:
Since most data vendors use a volume based pricing, going direct integration in some countries would risk a transactional cost increase due to dropping into a different pricing bracket. In the worst case scenario, the vendor might not renew the contract and force you to find multiple individual data vendors to fill the gap.
Now let's look at opportunity cost. It is simple, all the time and energy needed to research, integrate, and extract data could be spend on developing your product or service. When you look at your staff's salary in terms of dollars / hour, then time converts into financial cost. Are you in the business of figuring out where the data comes from or just consuming the data to satisfy your own product / service needs?
Functionality
I already mentioned UBO discovery and multi-countries coverage as functionalities that private data vendors could offer. There are two other functions that they could offer:
KYB and KYC orchestration is the ability to extract Persons of Significant Control from KYB and direct them into a KYC process. Essentially, once the business information is verified the system will trigger an information collection process to validate personal information.
Instead of just returning the business profile, data vendors could provide a match/no-match signal for each of the attribute (name, address, unique identifier). The result can feed into a verification rule engine where you can define the "is verified" conditions. For example, your rule requires the business name, address, and unique identified having a matched status with at least two data sources.
Both of these functionalities could be built in house to meet your exact needs but again there is a time and cost trade off.
Conclusion
There is a lot of "it depends" when deciding between getting data directly from the sources, from a data vendor, or a hybrid of the two. This article is meant to provide some "food for thoughts" when making a "build vs buy" decision. In regards to data vendors, I recommend asking the following:
If you have questions or want to chat, you can reach me via direct messaging.