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Digital Identity, Security & Online Fraud

Identity verification may reduce 70% cost for digital lenders

Monday 19 November 2018 | 12:17 PM CET

An Autonomous NEXT whitepaper released by Mitek has suggested that AI-powered identity verification could reduce KYC and AML costs by up to 70%.

The whitepaper is entitled ‘European Digital Lenders: How operating efficiency is helping digital lenders attack a $150 billion annual origination market across the Eurozone in 2018’, and it looks into the state of the digital lending market in Europe. It concluded that even though European digital lenders are growing, digital share is still low relative to the addressable market opportunity. Moreover, efficient onboarding and servicing using digitised workflows, such as digital identity verification technology, are being used by both new entrants and incumbents to boost competitiveness. This also ensures regulatory compliance, improves speed, and reduces the cost of customer onboarding.

In addition, the report suggested that venture capital investment is set to hit USD 800 mln in Europe. The UK alone has originations of over USD 6 bln, and Europe-wide, the addressable market is USD 150 bln, having the current digital lender revenues estimated at USD 400 mln. While the onboarding times have been reduced in the digital world from six weeks to a matter of minutes, the acquisition costs remain at USD 300 per customer. A KYC and AML check could cost as much as USD 150 per customer when fully loaded for bank cost, however, the cost of their capital is preventing digital lenders from competing with incumbent banks on price. Still, as per the report, this cost isn’t likely to be reduced anytime soon.

As mandatory KYC and AML checks are still largely manual for digital lenders, this builds delays and inefficiencies into the onboarding and vetting process. One solution would be investing in digital identity verification, powered by AI technologies, as it provides an opportunity to facilitate the efficiency of the onboarding process in terms of both speed and cost reduction. The whitepaper found that digital IDV solutions can help reduce KYC and AML costs by up to 70%, as well as they could potentially boost the speed of these checks by 80%.

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