Identity verification could reduce the cost of compliance by up to 70% for digital lenders, according to new analysis.
A white paper by Mitek – which was authored by fintech research practice Autonomous NEXT – revealed that the time was right for digital lenders to grow, if they continued to invest in digitalisation.
‘European Digital Lenders: How operating efficiency is helping digital lenders attack a $150bn annual origination market across the euro zone in 2018’ analysed the state of the digital lending market.
It discovered that while European digital lenders were growing quickly, digital share was still low relative to the addressable market opportunity.
The report also revealed that onboarding times had been drastically reduced in the digital world – from six weeks to a matter of minutes – but acquisition costs remain at $300 per customer.
A know your customer (KYC) or anti-money laundering (AML) check could cost as much as $150 per customer when fully loaded for bank cost.
It stated that the cost of their capital was preventing digital lenders from competing with incumbent banks on price and that this cost was unlikely to be reduced anytime soon.
However, the report found that digital identity verification had the potential to allow digital banks to catch up to traditional lenders on security.
“For digital lenders, mandatory KYC and AML checks are still largely manual, building delays and inefficiencies into the onboarding and vetting process,” said Rene Hendrikse, EMEA MD at Mitek (pictured above).
“The solution is investing in digital identity verification (IDV), powered by AI technologies, which provides an opportunity to massively enhance the efficiency of the onboarding process in terms of both speed and cost reduction.
“In fact, the report found that digital IDV solutions can help reduce KYC and AML costs by up to 70% – and could potentially improve the speed of these checks by 80%.
“Fintechs and digital lenders in particular need to ward off inefficiency and drive the best possible customer experience.
“Identity verification technology could give digital lenders the competitive edge they need, and may help them take market share away from traditional lenders.”
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