How do you really know a business?
The credit score can be misleading, especially for a small business that has weathered the pandemic. A profit and loss statement shows the cold numbers but doesn’t tell the whole story of the dynamics that a business may have encountered on the way to the present moment. Add to this the fact that financial institutions can’t verify roughly 30% of the individuals who apply for accounts and services.
Markaaz CEO Hany Fam said in an age where “know your customer” and “know your business” initiatives are critical, financial institutions and other companies are at a loss about how to accurately identify risks and impostors that may leave them open to fines (for violating sanctions lists) or leave them vulnerable to schemes.
“All of this is due to a lack of holistic, comprehensive and actionable insights,” Fam told PYMNTS’ Karen Webster.
In the past, a banker would visit physical, brick-and-mortar branches. Today, we all have a digital footprint. Despite a transition from traditional information to newer signals (for example, social media, open banking integrations and consent-based access to deep financials), it’s still a struggle to identify businesses and their owners, he said.
All too often, a financial institution might look at the profile of the majority owner of an applicant firm and base its decisioning on the majority owner’s credit score — in effect mirroring the process of what happens when an individual applies for a credit card.
With the 30% of those applicants better identified and assessed, Fam said, that’s hundreds of millions of dollars of potential revenue coming in the door.
As Fam noted, it’s not easy to get all that data — beyond the typical profit and loss statements — into one place and set in motion a thorough decisioning process that’s fully informed by what a business is, what they do, the deep-seated relationships behind the scenes, and what their own financial supply chains look like.
The negative ripple effects hit smaller businesses, Fam said, adding that firms cannot get access to essential services, from credit and cash flow to insurance. The supplier who wants to ink an agreement with a large retailer may not be able to do so because the retailer cannot verify them, or it’s too expensive to verify them.
The critical ingredient that’s missing in the digital age is trust, he said. Businesses are taking ownership and responsibility for their data — and how the world sees that data.
Getting that data in place requires an ecosystem and partnerships in order to create a 360-degree view of a business, Fam said.
To cement that trust, there are various, disparate pieces of information that are collected, synthesized and offered through platforms such as Markaaz, including a broad range of 200 public data and even non-public (read financial) data “elements,” he said.
Among those various types of data are business health information tied to sales trends, while compliance information and reputation details span sanctions lists and even reviews on social media. More recently, information on diversity has become valuable to firms looking to work with different types of businesses tied to gender or ethnicity designations.
“We don’t interfere in the relationship between the banker and the client, or any two parties,” Fam said, as the onboarding process is accelerated. “But we memorialize those relationships, and we support trust with the best quality information and the highest level of security in how that information is shared between the parties.”
For financial institutions and FinTechs, the ability to “converge” all obligations and requirements around compliance and monitoring is nothing less than a game changer, he said.
Along the way, as Markaaz works with client firms and financial institutions, Fam said, enterprises gain an education into how their data is being used — and they can correct any “bad” data that’s out there (much as an individual might correct their credit report). The platform model also enables companies to perform due diligence on other firms — and even consumers — with whom they might want to conduct business.
On all three legs of the stool, there’s a trust-based model in place as open banking takes shape in the United States and artificial intelligence makes it easier than ever to automate that data collection, Fam said.
“Having access to all of your information by having [public] and even non-public information allows you to shop for the best deals, rates and highest levels of approval,” he told Webster.
Looking ahead, he said, we’re going to see “dramatic streamlining” of how enterprises identify businesses they will work with — and how they verify and onboard them. Cleaner data will lead to real-time analysis and monitoring.
“It’s credible data,” he told Webster, “and I have all the pieces that I would want to have in order to have a dynamic relationship rather than a static one.”
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