Compliance Truths: How Compliance Officers Ensure They Know Their Customers

New companies face a balancing act: they need to launch their products and scale their services while meeting industry regulations and staying afloat. As a result, not every fast-paced startup has a Chief Compliance Officer.

That’s where Matt Mehlman comes in. As a consultant and fintech specialist with iLEX Consulting Group, LLC, it’s his job to join fintech organizations in the role of a compliance officer or outsourced CCO, contributing the expertise his clients need to continue their growth while staying within the established compliance guidelines.

A key component of Mehlman’s role involves ensuring his clients know their customers. Know Your Customer (KYC) policies exist to help companies fight fraud, money laundering, and terrorist financing — and if they’re not properly enforced, companies can incur fines, sanctions, and reputational damage. Fintech startups are especially susceptible to this: if auditors find they’re not doing their due diligence, their product will be discontinued, effectively shutting down the business.

Cognito’s modern identity verification service and watchlist screening have been built to ensure regulatory compliance is as frictionless for businesses as it is for their customers. Mehlman explains why it's one of his first choices for the fintech innovators he works with everyday.

Keep the importance of KYC front and center

The reason why fintechs tend to outsource compliance responsibilities is simple: founders, developers, operations, and marketing teams are familiar with the sales and technology aspects of the business, but they may not be as knowledgeable when it comes to regulatory compliance. “My role is to be that sort of ‘bank in a box,’” says Mehlman. “I understand the rules, and I can help take the compliance weight off the company.”

As a result, there’s one principle that Mehlman and his fellow compliance professionals keep top of mind: “You can make multiple sales to get your name out there — but it takes just one compliance mistake to get yourself shut down.”

While a traditional bank might be able to bounce back after facing fines or sanctions, Mehlman notes that once a fintech owner’s app is gone, so is the business. “While they work on fundraising, marketing, and targeting customers, I work on compliance and keeping them safe,” he says. “They know the business can keep running while they go out and do the important work of building their brand.”

Choose a KYC solution that makes life easier for you and your customers

KYC friction is a huge blocker when it comes to fintech adoption for end users. 89% of customers already report having negative KYC experiences with their regular banks, according to Thomson Reuters. Convincing them to switch to a fintech startup — and break out of the mindset that a bank has to be a brick-and-mortar business — can be challenging enough without the added burden of difficult, document-heavy onboarding.

The first time one of his clients adopted Cognito, Mehlman couldn’t believe the difference it made for end users. “By reducing friction, our numbers went up immediately. Auto approval rates went from 40% to above 85% — that’s a huge jump. And for me, that means less time in front of a computer and looking at a manual review cue piece by piece.”

No matter your vertical, choosing a KYC partner is a matter of maintaining balance. “We wanted as much as possible to be automated,” says Mehlman of his work with a recent client. “We wanted to be a seamless, frictionless experience for the client, their end customers, and the specialist doing the day-to-day KYC.” That’s why he suggested his client use Cognito. Whether or not you have a consultant like Mehlman in your corner, source vendors that make the KYC process manageable for your end users.

Reduce manual processes to reduce risk

As Mehlman found out firsthand on a project, vendors can be hit or miss. “With other vendors, we weren’t receiving the best data or the right results, and a lot of processes were manual, leading to longer wait times and onboarding issues for end users,” he says. “As the client specialist working, I was spending six hours a day just doing KYC and not any other of my roles.”

Working with Cognito immediately streamlined Mehlman’s workload. On the client side, the Cognito team connected with the tech team to facilitate a seamless integration into the onboarding flow for their apps. “At any company, it’s great when you can switch a vendor and there’s no downtime or impact on customers,” says Mehlman. “Cognito made the changeover super simple, and their API documentation gave our engineers immediate access to start integrating from day one. By the end of the week, I had everything up and running, which was amazing.”

The Cognito platform automatically collates reliable data from regulated sources to complete KYC-compliant customer profiles, and can start the process with as little as a name and phone number. “Not only is their data detailed and easily parsed by my client to generate great results on our end — enabling us to build our own customer service dashboard—but Cognito gives us the ability to look at the raw data on their own user-friendly dashboards so you have everything you need to know right in front of you.”

This makes it easy for Mehlman to flag when information is missing or doesn’t match. “With previous vendors, I wouldn’t know what failed or what didn’t verify for the customer’s identity. It was all tied together so if the date of birth was off by a day, it caused their SSN to fail, even though the SSN was right. Cognito scores each individual aspect, which is great because I can target what needs to be verified.”

Mehlman notes that KYC compliance can sometimes seem more like an art than a science, with multiple variables that must be accounted for. Cognito’s solution puts the science back in charge, with high-quality data to streamline processes and help organizations know their customers better.

“The real need it solves is giving time back to everyone in the process — to me, to the client, to their customers — so that we can all get on with other things,” says Mehlman. “It’s way better data, with way better results. To more than double your numbers is incredible.”

Find out more about our reinvented watchlist solution, and how Cognito can ensure your business knows its customers.