KYC for the rest of us

Onbord thinks more businesses should 'know their customer'

Hello there,

With fraud having risen in recent times, companies arguably need a much better understanding of who they do business with.

Financial services companies have to do this by law, but Onbord has created automated ‘Know Your Customer’ checks designed to appeal to a much wider range of businesses. Scroll down to read all about them.

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Unusually for startups featured in this newsletter, Onbord is raising money through investment platform Seedrs, so I asked founder Edward Cahill to talk about that decision, too.

– Martin

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Onbord thinks more businesses should 'know their customer'

‘A criminal in a spotlight, stealing money and being caught in a net’ as generated by DALL-E 2

KYC–Know Your Customer–rules are an essential part of the financial services world. But in the battle against fraud, wouldn’t it be better if a wider range of businesses were able to run background checks on the people they serve? That’s the idea behind London-based Onbord. 

“We use technology to stop bad people doing bad things to good businesses,” CEO Edward Cahill snappily explains. 

“Our thesis is that KYC is fundamental. When you're dealing with somebody, you should know who you're dealing with. Forget about what the regulator tells you, it's just good business practice.

“It is something that's a lot more common in finance… but it needs to be done in all sorts of sectors. It should be done in wholesale, it should be done in legal… there's broad applicability to that particular problem.

“If you get the first line of defence correct, most other things are much lower risk. If you're going to deal with somebody, you know who they are, you check that they're not a fraudster, they're not a criminal, and if you've got that, you're pretty good. So that's what we're trying to do.”

A little data goes a long way

Onbord is set up to serve small and medium-sized businesses by combining anti-fraud, credit decisioning, and general anti money-laundering checks in one system. Cahill says the system runs between 60 and 70 checks on individuals, and close to 150 on businesses.

To check an individual, Onbord just needs a name, email address, and ideally a mobile phone number, Cahill says. For businesses, it needs a trading address, trading name, legal business name, and an email address of a primary contact.

“It's not that many pieces of data,” says Cahill. “The non-intuitive piece of data is where the people are and what they're trading as. If we don't know that, then we can't properly find the digital footprint of the business. In theory, we could run it with just a legal name, but lots of our clients are a little bit surprised we ask for those two extra data points… 

“We're putting together a physical footprint, a legal footprint, a tax footprint, and a digital footprint of a business. So we have a very, very good view of a company, very fast. And I think if you don't ask for the trading name, I don't see how you can do that.”

Cahill says the tests Onbord runs are binary, such as ‘does this person own this mobile phone?’ ‘Is this person in possession of that mobile?’ ‘Is the passport or ID document a legitimate document?’ ‘Do they live in a high risk country?’

“Often, people put credit over on one side and then they put anti money-laundering somewhere else. And probably they don't even do any fraud checks,” says Cahill.

“We're doing all of those things in one system, which I think makes it very powerful… If you didn't have our system, some of it you could research yourself, but it would take you a lot of time and effort… We're using a lot of public sources as well, so some of it would be discoverable. It’s just the average person would never do it.”

Model citizen

Cahill founded Onbord in 2019 after 25 years in the banking space. “I finished university on a Friday and I started working at UBS investment bank on the Monday,” he says. ”I quickly realised that my skill was building credit models. So I've built all sorts of risk models for banks, across all sorts of things from consumers to businesses.”

But Cahill says he eventually realised that these kinds of models generally didn’t account for fraud - it was just seen by banks as something that happened to them. What if credit models were designed to defend against fraud?

“Everybody talks about technology democratising this and that, but the reality is technology has democratised fraud. So your average small business is more exposed than ever to external attacks.”

Cahill says that Onbord has so far proved particularly popular with medium-sized law firms, who see the benefit in cutting down the amount of manual KYC their staff have to do. He says FCA-regulated entities like fintech companies and loan providers are also using the product, as well as cryptocurrency funds and others.

“What we wanted to do from the beginning is prove the system could work across verticals… and we’ve done that.”

With such a broad addressable market, there are plenty of companies that could be thought of as competition to Onbord. 

“The incumbents in this market are the credit reference agencies–Experian, Equifax, TransUnion–along with LexisNexis in the finance world,” says Cahill. “New offerings have emerged doing various different things and approaching the problem in slightly different ways. 

“So on one level, it can seem like there's a lot of people doing what we're doing. But at another level, there isn't anybody doing it the way we're doing it, because most of the people are really targeting the big banks... If you can get HSBC to adopt to your onboarding technology, you probably don't need to do much else… 

“But at the medium sized enterprise level, most of the time when we're pitching, we’re pitching a company that is really doing it manually with some kind of search function… but it's not automating the process.”

Onbord’s investment plans and roadmap

Onbord is now a team of five, and has been funded to date via a $750,000 round led by Bebo co-founder Paul Birch in 2019. But now as they look to raise more, Cahill has turned to investment platform Seedrs. 

Onbord is the first startup I’ve covered on PreSeed Now that has taken this approach. I generally associate Seedrs and its rival Crowdcube with the kinds of rounds that are more about either generating publicity, or crowdfunding from a group of enthusiastic members of the public. 

But Seedrs has a separate section for high net worth and sophisticated investors, and it’s through this that Onbord is raising. Why did Cahill take this approach?