What are opportunities and challenges associated with digital KYC in the private markets?
The global e-KYC industry was valued at USD 447.53 Million in 2021 and is expected to reach $1,964.73 million by 2029, according to a study by Polaris Market Research.
There’s already a myriad of e-KYC providers in the market.
They are all promising accurate and secure KYC in seconds with their own take on a digital solution.
Outside the private markets, investors are familiar with digital KYC in other areas of their financial lives such as online trading platforms, banking and loan applications to name only a few. Despite its prevalence across financial services, e-KYC remains underutilized within the private markets.
What’s holding digital KYC back in the private markets space?
With significantly larger sums of money involved, the regulatory bar is understandably set higher in what’s deemed to be a professional investors’ space. Put simply- there are more hoops to jump through than just the process of proving who you are.
For a retail investor, not only do private market funds need their tax information, proof of ID and proof of address, this generally also needs to be certified by an independent person – something that’s not required when opening a bank account. These requirements are further enhanced if they are classified as a higher risk individual.
Combined with the global nature of the private markets, and the regulatory nuances that exist across different jurisdictions, these factors make digital KYC as a standalone solution inadequate for the private markets.
A holistic solution is required.
At IDR, e-KYC forms a part of a wider digital onboarding solution.
As a managed service, we address the complexities of the data-gathering process through a technology-enabled solution that’s underpinned and handled with day-to-day support from our team of KYC analysts and AML experts. We gather all the required data digitally at the get-go (subscription, KYC and tax status), onboarding investors just once.
The upshot of this is a universally accepted investment passport, which investors can then use to invest across their entire portfolio. In this way, our one-and-done approach facilitates the click-of-a-button type investing experience that non-institutional investors are familiar with elsewhere.
A digital future.
Digital KYC offers a real opportunity for the private markets to address investor frustrations associated with the onboarding process arising from repetitive requests for information and the sharing of sensitive information.
It also helps solve a growing issue of scalability. Preqin predicts the private capital markets will double in size by 2027 to $18.3 trillion, from $9.3 trillion in 2021, driven in a large part by retail investors. One result of this will be more investors per fund. To avoid bottlenecks at the onboarding process, there’s a real need to go digital in a safe, central and standardised manner.
Thus, if done correctly, the ability to harness e-KYC as part of a wider digital onboarding solution which understands the intricacies of the private markets investment lifecycle is a game-changer for fund managers and investors alike, as the asset class continues to grow and evolve.