Navigating Local KYC Compliance: A Guide for EU Fintechs

Local KYC compliance is a common stumbling block for fintechs looking to expand across the EU. Overcoming it requires not only regulatory expertise but a detailed understanding of each market’s cultural specifics as well. Fourthline’s got you covered with both.

Fourthline Forrester TEI thumbnailBy The Fourthline Team
Cover photo

For fintechs, EU market expansion isn’t just a matter of scaling up technology or attracting new customers. It involves navigating an intricate web of market-specific interpretations of broad EU-level Know-Your-Customer (KYC) and Anti-Money Laundering (AML) regulations.

As well as regulatory specifics, European countries also have cultural differences. To overcome them, companies should prioritize glocalization, in which you adapt global products to local markets. This will ensure you resonate with local regulatory requirements, cultures, and preferences. In Europe, these can vary as much as language. For example, did you know that:

  • In the Netherlands, the scanning of the NFC chip within the ID documents is a widely adopted onboarding procedure;

  • In Italy, a significant portion of the population still uses paper ID documents for verification, and companies have to handle both - paper and digital IDs;

  • In Germany and Austria, live video conversation with an agent remains a common verification method during client onboarding, although simpler alternatives exist;

  • France is among the most highly regulated markets where clients are used to stricter onboarding processes than other countries.

The risks facing your fintech organization from failing to acknowledge the regulatory and cultural differences between different EU countries.

Our 7 building block groups for seamless EU expansion

The best KYC compliance solution should be flexible and scalable by default. That is why our products come with a modular design based on a combination of seven building blocks:

  1. Documents: Document NFC, Document Liveness & Document Photo

  2. Biometrics: Selfie Audio, Selfie Liveness & Selfie Photo

  3. Location: Physical Proof of Address, Geolocation & Digital Proof of Address

  4. Authentication: Location, Biometric, NFC & Document Authentication

  5. AML: AML Screening, AML Monitoring & AML Investigations

  6. Signatures: Qualified Electronic Signature

  7. Payments: Bank Account Verification

Fourthline building blocks

With this modular identity platform, you can build a tailored KYC compliance solution that works across the EU and accommodates your specific needs and use cases. This helps unlock various gains, including:

Flexibility and scalability: Integrate what you need today and scale as you grow

The one-size-fits-all approach to compliance might work for your current KYC solution provider since it is less complicated and more profitable. But it won’t work for you because you will be paying for features that don't fully meet your needs.

Fourthline lets you tailor your KYC solution to your growth stage, budget constraints, acquisition strategy, and expansion goals. That way, you can accommodate the regional specifics of different European markets as you expand.

Another, often underestimated, trait of operating across several markets is the fluctuations in onboarding volumes during different times of the year in different countries. For example, in Germany and France, the period leading up to April, when individuals and companies aim to optimize their tax positions before filing, can see heightened onboarding activity. In Spain and Portugal, on the other hand, the end of the tax year is in May. Another example is January when people set financial goals for the new year and look into new investments and savings options.

Your compliance solutions provider should be flexible enough to accommodate these changes while providing a seamless onboarding experience with minimal friction.

One Director of Product Management and Operations at a fintech company, interviewed by Forrester Consulting for “The Total Economic Impact Of Fourthline”, a commissioned study conducted on behalf of Fourthline, said: “Fourthline has always been able to accommodate new customer inflow spikes operationally with very minimal delays that are maybe even not noticeable to the end customer and always within the agreed service-level agreements.

Studying the experience of another fintech partnering with Fourthline, Forrester noted: “Even when they went 10 times over the budgeted onboarding volume during a particular promotional event, Fourthline flexed up capacity on their end to meet the demand.”

Capitalize on regional know-how and market-specific insights

“An interesting yet less-known insight from the Dutch market is the popularity of the NFC technology among businesses and consumers not only for payment means but also during onboarding,” Bjorn op den Buijsch, Fourthline’s BeNeLux Regional Manager, explained. “Scanning the NFC chip within the Dutch ID documents is commonly used. Not only is it a safe verification method that perfectly fits for fraud prevention purposes, but it is also a great tool to optimize the user experience.”

Navigating the intricacies of different markets, including regional and cultural specifics, is a tricky yet crucial process. For that reason, it’s best to lean on the expertise of your KYC and AML compliance solution provider.

Fourthline’s regional managers will team up with your business and compliance teams to help align your onboarding flows to the specifics of your target markets and clients’ unique profiles and preferences.

[Fourthline knows] the local markets and local compliance rules. For example, in Spain, ID cards have a special hologram in one specific place. They warned us about this and explained how to tell customers that this might be a problem and how to mitigate,” said one Head of Business and KYC Operations at a Fintech company, interviewed by Forrester.

Gabriele Rosati on how Fourthline eases fintechs in navigating local KYC compliance when expanding across the EU.

Maximize conversions with tailored solution for each markets

Every European market is different. You can’t expect the same onboarding processes that work in Germany to work with equal success in Italy.

For example, video identification using a live conversation with an agent remains a widely used means of onboarding in Germany and Austria. But, as Gabriele explained, that’s not necessarily the whole story:

“While residents are used to video identification, and most regulated entities in both countries still apply it, it doesn’t mean it is optimal. It has its deficiencies. First, it is not UX friendly, and second, it is very costly.

According to Gabriele, the failings of video identification have kick-started a shift from this “traditional” way of onboarding clients in favor of more convenient, cost-effective, and user-friendly options.

Our solution is proving superior to the currently dominant ones since it is more UX-friendly and lowers the cost of compliance, on the one hand, while also helping our partners build compliant flows and ensuring stellar fraud-prevention capabilities on the other,” he said.

Building more convenient user onboarding flows helps our partners maximize conversions while remaining aligned with regulatory requirements in different markets across Europe and beyond.

On the other hand, failing to acknowledge and align with your target market’s specifics will negatively affect your conversions.

“We used to have a poor track record of conversions as there was a lot of paper-based validation required, especially in countries like France and Spain. But with Fourthline’s automated, AI-driven verification checks and their know-how of the local country-specific requirements, we have experienced a 25% improvement in customer conversions,” explained one Head of KYC and AML at a fintech bank interviewed by Forrester.

Stay on top of regulatory changes and ensure industry-leading fraud detection accuracy for safer operations

When expanding across different markets, it is imperative to fully understand and align with the local interpretation of the broad EU-level directives. You should also bare in mind local oversight specifics, such as accompanying legislation, standards, or regulations, relevant to your business.

This isn’t a requirement only upon entry. It is equally essential to ensure the continuous monitoring of local regulatory landscapes. EU-level legislation can come into force at different times across different markets. MiCA, for example, came into force in June 2023 but has an 18-month implementation phase to allow different markets and companies to prepare.

Fourthline is good at keeping us informed about the changes and whatever new regulations are coming in for each country, which helps us respond to these changes much faster, said one Head of Business and KYC Operations, interviewed by Forrester.

On top of that, partnering with Fourthline will keep you on top of the latest knowledge and best practices for fighting financial crime. Our experts work around the clock to identify evolving risk patterns and convert insight into crime prevention. They receive ongoing training from leading institutions and authorities to ensure they remain on top of their game.

We actively collaborate with law enforcement authorities like Europol or the French police to crack down on money laundering in Europe. This allows us to keep up with the latest developments and provide you with valuable knowledge for financial crime prevention.

Reduce regulatory barriers to entry and speed up time-to-market

“Before Fourthline, entering a new region was a long, drawn, tedious process taking anywhere between one to three months. Since implementing Fourthline, thanks to their existing reliance agreements and local expertise, we have added three new markets in less than two months with further launches already in the pipeline,” said one COO and Head of KYC at a fintech organization.

Entering a new market can be a complicated and financially-taxing process especially if you’re unsure of how to proceed or if your efforts will be worthwhile. But the right partner by your side can help.

We were looking for a partner to support our rapid growth in Europe. Fourthline’s extensive presence in Europe, their highly efficient onboarding solution, the flexibility of documentation they accept, and existing local license agreements make them an ideal partner for us,” explains one COO and Head of KYC at a fintech organization interviewed by Forrester.

Statistics show that compliance is a significant expenditure. On average, it tops 20 - 25% of the total cost of running the business for some financial services firms. And the industry expects it to potentially reach 30% due to evolving business, regulatory, and customer demands.

But with the right approach, you can turn compliance from an unavoidable cash drain, into a means of cutting costs and maximising ROI. For example, Forrester’s TEI study finds that Fourthline’s regtech solutions can result in:

  • 390% ROI

  • Payback period of <6 months

  • $13.3 million worth of improved organizational efficiency

  • $10.4 million worth of improved conversions

  • $2.7 million worth of reduced fraud exposure

These gains are accompanied by the opportunity to open new business avenues. As Delia König, Managing Director of Identity at Solaris said:

“Fourthline's compliance expertise across different European jurisdictions has made rolling out into new markets far easier, their deep domain knowledge allowed us to grow much faster than we otherwise could have.”

Read the full story of our partnership with Solaris.

Ready to simplify your expansion?

It can be disheartening if your financial products or services are not about to live up to their potential due to non-compliance at a local level. But, with the right AML and KYC solution provider, you won’t just ensure seamless client onboarding flows across the EU, you’ll turn compliance into a competitive advantage.

Get in touch to capitalize on Fourthline’s regional expertise and find out how to equip your compliance team with the right tools for seamless cross-market expansion.

Learn how Fourthline can help you master local KYC compliance.

Gabriele Rosati
Want to learn more? Talk to our experts

Get in touch with Gabriele Rosati, who brings years of financial industry expertise at Fourthline.