Small and midsize businesses (SMBs) play a significant role in our economy. Currently, there are more than 330 million SMBs worldwide. In the United States alone, SMBs total 33 million, and over 5 million new business applications are filed in the U.S. each year.
For companies working with SMBs, efficiently and accurately identifying and verifying information is critical. Business verification ensures regulatory compliance and fosters successful partnerships. However, the very nature of SMBs complicates the verification process. Approximately 29% of SMBs do not have a website, and over 80% are owner-operated. This makes it inherently more difficult to verify SMBs versus larger corporations.
As companies work to maintain Know Your Business (KYB) compliance, verification errors, mismatches, or the inability to find a match can cause them to either lose significant revenues or prevent legitimate SMBs from accessing important opportunities.
Understanding the importance of SMB verification
Accurately verifying SMBs is critical for companies looking to grow while adhering to regulatory standards. Effective SMB verification helps mitigate risks, avoid legal penalties, and build trusted, transparent relationships with SMB clients and partners.
In the current regulatory environment, where compliance is tightly monitored, companies must be aware of the following requirements and the role data verification plays:
KYB requirements
KYB is a process that requires companies to verify the identity and assess the risk associated with potential customers, partners, and suppliers. This involves checking their background, ownership structure, financial status, creditworthiness, and other related information. KYB ensures companies comply with legal standards and that potential customers aren’t unknowingly involved in risky or illegal activities.
KYB also enables organizations to make smart business decisions. By understanding who they’re dealing with, they can avoid potential risks and build stronger, more informed relationships with SMB partners.
Anti-money laundering (AML) measures
Anti-money laundering (AML) measures play a critical role in stopping financial crimes like money laundering and fraud. AML involves a series of procedures and checks that enable companies to detect and report suspicious activities, ensuring their operations are legitimate and transparent. This protects them from being used for illicit financial activities and maintains their reputations as trustworthy and law-abiding entities.
Customer due diligence
Customer due diligence (CDD) is an important step in ensuring compliance with KYB and AML regulations. This process involves verifying customer identities, understanding their business activities, and assessing their risk profiles. While standard CDD satisfies most verification requirements, the level of diligence varies based on the perceived risk. Simplified due diligence may apply in lower-risk cases, whereas high-risk scenarios may require enhanced due diligence.
Beneficial ownership disclosure
For SMBs, disclosing who ultimately owns or controls the business, also known as beneficial ownership, is an important part of the verification process. This allows for transparency and helps companies understand the full picture of who they are doing business with, which is important for legal and security reasons.
Beneficial ownership information is key to preventing money laundering and other illegal activities, as it ensures that businesses are not unknowingly involved in transactions with potentially risky individuals or entities.
Sanctions screening
Sanctions screening involves checking whether the SMB or any of its owners are listed on any international trade or financial sanctions lists. This allows companies to avoid violating laws by doing business with entities or individuals who are subject to restrictions or penalties.
Sanctions screening helps maintain legal compliance and protects the organization from legal and reputational damage that can arise from unauthorized dealings. It’s particularly important with international business operations, as it helps ensure that all transactions adhere to global trade and financial regulations.
Ongoing monitoring
Ongoing monitoring is a continuous process that involves regularly reviewing and updating SMB-related information. This way, any changes in their operations, status, or risk profiles can be promptly identified and addressed.
Regular monitoring helps companies quickly spot potential issues that can impact risk levels, such as shifts in financial stability or changes in ownership. This proactive approach protects against potential compliance breaches and ensures that the company’s engagement with SMBs remains relevant and secure.
The unique challenges that create SMB data gaps
As a critical part of the global economy, SMBs drive innovation and create employment opportunities. However, verifying them poses unique challenges that often lead to gaps in data and information. Examples of these challenges include:
- Inaccurate information: Errors in SMB data, like incorrect contact details or business descriptions, are common. These inaccuracies can be caused by simple mistakes or outdated information.
- Limited digital presence: Many SMBs may not have a comprehensive online footprint. The lack of a website or digital records can make digital verification difficult.
- Changing business details: SMBs often undergo rapid changes. They may change addresses or shift ownership, leading to outdated or conflicting data.
- Resource constraints: SMBs frequently face limitations in resources. This can result in incomplete documentation or delays in providing necessary verification information.
- Fraud risks: The possibility of fraudulent activities or misrepresented information is a significant concern in SMB verification.
- Inconsistent data formats: Variability in how SMBs record and report data can create inconsistencies. This makes it challenging to verify and align information across different platforms.
- Limited financial information: Many SMBs, especially newer or smaller ones, may not have extensive financial records. This complicates the financial verification process.
- Noncompliant submissions: Limited awareness of regulatory requirements can lead to noncompliant submissions by SMBs.
These issues not only impact the ability to accurately assess and onboard SMBs. They also affect companies’ broader business decisions and risk management strategies.
Enhancing verification with precise SMB data
Using precise SMB data for business verification improves risk assessment, allowing for a deeper understanding of potential problems with SMB partnerships. Accurate data helps prevent fraud and ensures regulatory compliance. It also streamlines the onboarding process and speeds up transactions, improving the overall experience for SMBs.
Additionally, accurate SMB data simplifies vendor and supplier due diligence and supports the creation of customized products and services. Companies that have mastered their SMB verification process are better able to protect their reputations, build a competitive edge, make more informed decisions faster, and forge stronger business relationships.
Case studies: Enhanced business verification in action
To help you visualize how enhanced business verification can help companies overcome SMB data challenges and turn them into new opportunities, here are some real-life case studies:
Global insurance company
A global insurance company recently contacted Markaaz after struggling to verify small business applicants, which hindered their ability to approve benefits products. The lack of critical data, such as employee counts, also impeded their sales strategies.
Markaaz used its extensive directory and matching algorithms to verify SMBs that other data providers couldn’t. The result was a 79% match rate and the enrichment of 74% of records with valuable additional data, such as firmographics and compliance information. This improved the insurance company’s verification process, enabling them to better serve SMBs and enhance their product offerings.
Alternative lending provider
A leading alternative lending provider saw an increase in application approvals and a reduction in customer attrition after turning to Markaaz to improve their verification rates. By applying our robust database and matching algorithms to the lender’s unvalidated cases, Markaaz produced an 84% verification rate on previously declined small business applications while reducing the average verification time to just two seconds.
Empowering companies through enhanced SMB verification
Efficient and accurate SMB verification is necessary for regulatory compliance and business growth. Markaaz effectively bridges the data gap, enhancing risk assessment and fraud prevention while streamlining onboarding processes.
Reach out today to learn more about how Markaaz’s innovative solutions can provide precise and efficient SMB verification.
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