The Puzzle of KYC

Episode 296

State of Identity Podcast


Episode 296

The Puzzle of KYC

What impact does eID have on the KYC space? On this week’s State of Identity podcast, host Cameron D’Ambrosi is joined by Liudas Kanapienis, Co-Founder & CEO at Ondato. This duo discusses the impact of eIDs on the broader KYC space and where the industry is headed. Find out what lessons the rest of the world can learn from Baltic nations, deployment of eID.


Cameron D'Ambrosi, Senior Principal at Liminal


Liudas Kanapienis, Co-Founder & CEO at Ondato


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Cameron D’Ambrosi [00:00:00] Welcome back, everyone. We’ve got a fantastic episode for you this week. The co-founder and CEO at Ondato, an exciting new Lithuanian fintech startup. We talk a lot about the state of the industry, the impact of eIDs on the broader KYC space. How he thought about making those build versus buy versus partner decisions when they were building out the platform. Where the industry is headed, what lessons the rest of the world can learn from Baltic nations, deployment of eID. I know. I say they’re all great. I think this one is particularly wonderful. Stick around. I think you’ll enjoy it. Welcome everyone to State of Identity. I’m your host, Cameron Ambrosi. Joining me this week Liudas Kanapienis, co-founder and CEO at Ondato. Ladies, thank you so much for joining us. And apologies in advance if I’ve butchered your name a little bit.


Liudas Kanapienis [00:01:03] Oh, good. Thank you. And really pleasure to be here.


Cameron D’Ambrosi [00:01:06] Oh, it’s our pleasure to have you in your bio. We have you described as one of the most active personalities in the Lithuanian fintech world, which is a fantastic turn of phrase. Would love to hear a little bit about that background. Obviously I’m here to talk about Ondato, but it sounds like before founding Ondato you had a few other successful startups.


Liudas Kanapienis [00:01:31] So. Well, you see, it’s kind of my age. And then the timing actually just just gave me this opportunity to. To try out different things and. Honestly, I wasn’t like looking for some kind of opportunities or something. But when you grow up in kind of, you know, rising country and and growing country, so then the opportunity comes and I think it’s more related to the like my personality self that I’m kind of not avoiding, let’s say some kind of ideas or something just to be like introduced to me and at least of to think about them and not denying the things that I don’t know. Yeah. So, and if you’re right, like if then look in, especially even myself when I look at it’s LinkedIn or something that I’ve, I’ve tried a few things, you know. So yeah, but, but it’s just because like, you know, I really wanted to understand the things, especially what I don’t know. And that, to be honest, comes from, from my childhood. And when I was, you know, a youngster, I was building websites, even though I like, never programed, actually, you know, so, so from from the early days or something. So if I really wanted to understand that to, to learn a bit and, and yeah, so, so that, that how the journey starts, it started, you know, and to really, really enjoying, you know.


Cameron D’Ambrosi [00:03:02] I love it. So tell us a little bit about on Datto and what your mission statement is. And I guess to some degree, you know, you hit on this in your previous question, but what was the the light bulb moment that led you to want to found, you know, a player in the KYC, in the identity verification space? You know, was it your experience with some of these earlier fintech startups that you had a a part of? Like you realized there’s a gap in this market and, you know, nobody is really providing the functionality that I want to see. So I’m just going to go build it actually.


Liudas Kanapienis [00:03:38] Exactly the case. Yeah. So when I was, when I was running the fintech before, so, so of course I faced like all, all of that sector in general. Yeah. So I never tried the different startups as well in the field and. Like already established companies and products. And that was exactly the reason, you know, so. Basically I was looking for some solutions, you know, so, so that I needed in my previous work and basically to make the things work better to to me. And I didn’t find it, you know. So now I’ve talked with my now co-founders and then my, my friends and say from, from the, you know, previous experience that we worked together before. And I said, listen, I have this kind of issue and do you see the same or just like I cannot find it or whatever. And yeah, and we discussed it and basically we, we came to the. To the conclusion that basically it just does not exist. And and everyone is just focusing on one single process, even though this problem in general, like the KYC. What we are solving is, is not the kind of that you can solve that by just one small piece. Yes. So it has to the know your customer as such is is like in one single process. So from the like onboarding to do no ongoing due diligence and basically until the moment even not until the moment even like in the financial institutions like few years after the moment you say goodbye to your customer, you know, so and, and that’s exactly like what we, you know, what we decided to solve and tend to focus on. So and if talking about the mission itself. So that was, to be honest, very simple. And that’s that’s what we are still focusing on it just to turn like the compliance into the business benefit or like in other words, just to make our clients more efficient and more competitive in the market. So it’s like simple, simple as that. So and yeah, and then, you know, like combining the deep experience, the knowledge that we have combining the things that we kind of understand. Decided to to go for it.


Cameron D’Ambrosi [00:05:51] I love it. So this is I think it’s an exciting space, you know. Whether it’s identity verification, whether it’s document verification, whether it’s biometric face matching. It’s a space that I think is seeing a tremendous explosion because the use cases for, you know, whether it’s age assurance, whether it’s identity verification, only continuing to grow legacy platforms, adopting these technologies because this is what their customers expect them to to have in terms of functionality. FinTechs, obviously building digitally native and kind of building their stacks around these technologies from the ground up. And then you have whether it’s trust and safety applications for online to offline platforms or other, you know, use cases as, you know, whether it’s California or other jurisdictions, start thinking about things like age assurance, you know, bringing age estimation and other things into play. How did you think about the technology challenges in terms of the stack and and capabilities you needed? You know, did you anchor on building those in-house? Did you see that? You know, orchestration is kind of the way we’re headed in terms of folks expecting all these capabilities in one stack and wanted to blend where you have strength in house with where you can go out to the open market and kind of maybe purchase or or at least some of these technologies. Like how did you think about adding in all of the features and functionalities that you know, you know, the modern customer expects from a platform like yours?


Liudas Kanapienis [00:07:18] So, well, it’s not a kind of, you know, easy decision, let’s say, that that we made, but we were just like literally forced to do that. So at the very beginning, we were just thinking about like building the platform and integrating, you know, the existing solutions into it. So but there was a first challenge that we faced that we didn’t find the solutions that would actually work as intended or as we expect them to work. And with that, so so we just literally had to start creating all the things from scratch. So, and basically that’s how this platform is designed to serve, like in, you know, in the fully modular way that, that like our customers could use that separately. But on the other hand, like everything despite a few, let’s say things developed in-house. So of course there are engines that we were using, you know, developed by giants like Microsoft, Google and all the stuff. But yeah, but all the applications that that we like, you know, give to our customers, they are fully developed in-house and that’s with that. So then at least we are sure on what we are delivering to the customers and how it works, if it works as intended and basically how we expect that to work. And the other thing is that it gives us then the power of control if we need some kind of change or whatever, some, some kind of combination of a few services and all the stuff. All the stuff. Yeah. So, so yeah. So that that was not an easy decision. And of course, you know, it took longer than expected then to, you know, to deploy the first things to the market and and of course, to deliver the services now. But now it it gives a lot of the advantage, you know, especially in the market, which is you’re totally right, demanding, you know, really a lot and every day and and the changing environment regulation and then basically use cases as such. So so that’s that’s for sure.


Cameron D’Ambrosi [00:09:24] So in terms of differentiation, you know, obviously this is an exciting space. A lot of new entrants, a lot of exciting platforms, you know, some of whom are, you know, coming out of your neck of the woods, whether it’s the folks at Verify, whether it’s you know what, the guys at Micro Blink are building. How do you see yourself kind of differentiating yourself? A playing field that that does not want for for lack of entrance and where you know do you kind of when you’re pitching to your customers how do you see yourself as as putting your strongest foot forward relative to some of those other players?


Liudas Kanapienis [00:09:59] So. Well, you see, to be honest, I never like, like talking directly like say, let’s say about like direct competitors such because first of all, in my opinion, we are all colleagues here anyway. Yeah. So just we have a bit of different angle on how we solve the exact problem that the customer has. Yeah. So and in some cases that if we see that I don’t know the existing solution that they use or some kind of, you know, other competitor is solving some kind of challenges that they have maybe even better. So, so then, then, you know, we say that, yeah, maybe you just can, can stay with them and that’s it. Yeah. So, but like when, when, let’s see how we are looking at our like solutions and services that, that we offer. So we look that in a more complex way. So, you know, and it’s not that kind of, as I mentioned at the very beginning. So it’s not that we would be solving like one single part of the process. Yes. So if there is a kind of a need for just the ID verification, so then of course, there’s lots of bunch of these solutions out there. And basically, honestly speaking today, it’s it’s pretty much commoditized thing. So, so especially in terms of the processes, how they’re handled and everything. And then we come to do more like soft things of the city, what, how the customer success is being organized, what kind of flexibility the company has and the product has. And in terms of like both the, you know, how to actually enable those technologies work for its purpose. And of course, in terms of the how much does it cost to, to, to the customer to implement and so on and so on. So there’s really lots of the different angles now where we honestly just, you know, ask the customer, so what do they actually need to do those technologies to make it work for for them? Because sometimes people forget that technologies are here just to help to solve one are the challenge, but not just to create some kind of additional hassle. And that that’s where our focus is. And and usually usually it helps.


Cameron D’Ambrosi [00:12:12] I love that. So in terms of the verticals and geographies where you’re seeing the most penetration, you know, are you taking a global approach to this market? You know, did you start kind of locally and have been branching out there? How have you been thinking about geographic and vertical applications for Ondato so?


Liudas Kanapienis [00:12:33] Well, from the day one, of course, we knew that we are building not a local product but but a global product. Yeah. So because customers, they are accepting like their, you know, users, customers from, from around the world and then basically they, they usually don’t want to limit themselves like in one a different jurisdiction. So when we are talking like about our customer base, so that’s where of course like, you know, it is more like European and the American one. Yeah. So we are not so active Latina Asian markets. Yeah. And there is a simple reason for that. It’s, it’s a different regulation understanding on the data protection and all of that kind of, you know, differences that that we have within those jurisdictions. And I would say that we are not so active, let’s say, in African markets just because, again, we didn’t had so much time actually to, you know, to to reach all of the possible markets that that we see a good trend with. So on the other hand, that also didn’t explains a bit of like why is that because like our background is more financial anyway and and that’s why the markets that we worked, you know, understand especially from the regulatory from the obligation perspective and that’s where we are and creating the, the biggest value, you know, and and that’s that’s where we can bring, let’s say, the best products from from our end. Yes. So and having that in mind. So so you know, we have to pay attention to like what kind of regulation there are in different markets and what is the level of that regulatory environment basically in those different jurisdictions. And, you know, we we were building that product like Agnostic Front from the regulators perspective. So and that’s why we have different methods of customer identification authentication and that’s how then it can be like applied in those different jurisdictions. Yes. So, but. That that also then a bit of late limits. Let’s say our proposition in the media markets like, you know, even more is to assess in the in some Asian markets, we are just simply not competitive, you know, and because if if there’s no, like actual no compliance regulations, especially in the data protection, all the stuff. So it’s so, you know, then, then our procedures are not not so good, you know, from from their perspective. Of course, we have to make sure that that is compliance with the highest standards, not the lowest ones.


Cameron D’Ambrosi [00:15:17] I yeah, I couldn’t agree more. I think, you know, building global products is, is a necessity. That’s some of the nice to have when you’re talking identity, right? I mean, if you’re going to be mixing it up out there, being able to support identities from wherever they may be coming from I think is really critical. Slight pivot off of that. But I think kind of ties in to some degree. We’re set to enter, I think from a global perspective, quite the transitory phase in the identity space with the rollout of ID programs, whether it’s, you know, distinct national ID programs or, you know, broader initiatives like the, you know, IDC 2.0 wallets that are going to be hitting in the European Union or the surprise, surprise somewhat more fragmented and probably poorly implemented approach we take here in the U.S., which is to let every single State Department of the Motor Vehicles decide how and when you can have a digital credential in your wallet. You know, how are you thinking about the transformative impact that ID is is going to have on the space? And, you know, do you see this as a threat, an opportunity somewhere in the middle?


Liudas Kanapienis [00:16:30] So you see, I’m from the Baltics states and like, it’s nothing new for us, to be honest, because we are using like the idea such like for quite a long time and it’s really, really well working then in our environment. Yes. So so from from our perspective, we see that only as a kind of a really good tool in, in a lot of the cases for the authentication of of the customer. Yeah. So inside in lots of deep, you know, papers and all that kind of stuff, just like from, from my perspective, I just see one challenge to be honest here because like originally in quite a, it was a few years ago like it us in general like electronic I.D. is called as a user ID tool. And the problem is that like all the later legislation are like taking those words like user ID, but building into the device, you know, so and the devil it’s in everything are just sitting in the devices and confirming that you are kind of controlling that device. Yeah. With this some kind of code or whatever, but actually not ensuring that this is the user that should control that device. Yes. So because like to explain that in the very simple words. So like when you come physically to the bank branch. Yeah. So so the bank employee sees you and then you’re putting the signature so they know that like you as the person like put it in that signature. Yeah. So and with the device ID we have the problem that actually we don’t know who is making that signature, who is entering the pin code, you know, or opening the wallet. And that’s where in my belief, that will need to be solved. But from the user perspective, like especially where you just need to transfer some parts of the data within the electronic ID. So then, then of course, you know, it helps and it’s really convenient. And then as I say, like we are using that for quite a few years already. And and it really helps into daily life.


Cameron D’Ambrosi [00:18:40] I greatly admire your your optimism. And certainly I think envy is another word that I might say, I feel, regarding the availability of ID technology to you. You know, as a resident of the Baltics, where, you know, I think maybe more so than any, you know, global region, the embrace of technology, you know, anchored around digital identity has been really, really spectacular. I’m extremely hopeful for the deployment of these technologies. And I think they have the the potential, again, you know, big asterisk, if deployed correctly, to, I think, write a lot of the wrongs we have with our current, you know, identity stacks. And hopefully, contrary to what some folks would allege, drive, you know, fundamental inclusion and in unlocking opportunity and doors for folks as opposed to having identity be. Which is, you know, in many cases how I think many consumers do view identity. Right. If you if you lack the fundamental credentials to transact. Identity is not a blanket for you. It’s, you know, it’s exposure to the cold. Right. So I think if we if we do right by these technologies and we can get them in the hands of as many people as possible and make the access equitable, I think it’s only going to be a net positive because, you know, knowing who is behind the transaction is right. The the been the holy grail of the Internet since its inception. And I think we’ve been kind of making up for our failure to build that into the Internet from day one. So.


Liudas Kanapienis [00:20:19] Exactly. So you see, the thing is that I don’t know how it happened, but in some kind of period of time, I would say even like the last ten years, we were like as a society, we were so much focused on the anonymised, like, you know, activity on Internet, like forgetting what is the actual like, you know, social inclusion of of everyone of us. Yes. So that we actually we always know each other, who we are dealing with and especially in the transactions that we are having, you know. So there’s no that kind of anonymous transaction that such and no into. And there was a period of time that like maybe, I don’t know, part of the people or like the society as such we’re expecting that that has to be like just anonymised, like by, by all of the means, you know. So and now when coming back again like and it created some challenges. Yeah. So we have to do to be clear on this and basically everything that what we see now, especially with those like, you know, trends on, on, you know, people losing money and then fraud activities and everything. So that relates, you know, to to actually like anonymously but possibilities to anonymously like do some kind of actions on the Internet. Yeah. So and, and now when shifting back again to the, a bit of the knowledge, so who you’re dealing with that actually creates more benefits then, then you know, then only just hiding your identity behind some kind of IP address, you know, or camera. So so that’s that’s exactly. And to all those initiatives like IDs and everything is just, you know, it’s just the way on moving forward. So I’m sure that it will bring, again, some new challenges. It will be again, you know, now in Europe, we have this 2.0. There will be a first like 3.0 and all the stuff. But but it’s still a way that on moving forward and bringing back the actual like, you know. Balance in the interactions. You are online the same way as we have like, you know, offline. So so like that’s that’s my opinion.


Cameron D’Ambrosi [00:22:36] So what’s next? You know, I love to ask folks to kind of take out their magic crystal ball and and make some predictions. Obviously, I think you’re kind of in the catbird seat. And, you know, maybe we can anchor to some degree around ID, you know, given your exposure to some of these technologies well before we’ve seen them hit in in other markets. Like what are you excited to see? What are you hoping to see? And. As someone who’s kind of living in the future, what advice do you have for for markets that are set to kind of gain some adoption of it that you’ve already experienced?


Liudas Kanapienis [00:23:10] So. Well, you see, like if we looking at today. So of course we are living in this kind of environment of change. Yes. So so and that’s that’s why we see like all this all these initiatives that are started today, so that that’s for sure that it just needs to be implemented. So let’s let’s talk about like, you know, what is an example, you know, so like it’s only the very, very beginning of the journey. So, so it has to be like implement it first and test it out first. And then of course, the change where that will happen and for sure it will happen because as I say, that there are some challenges. And let’s see some core some some core issues that the current setup or demonology has. Yes. So so and that that will, again, involve and kind of, you know, that will create new like also technologies and startups and all the stuff. But of course, the new aspect on on how we look at the like electronic identity as such and what then we expect from it. But from my, from my angle like course that. Maybe even will be more regulated like from from even the regulatory perspective. So. So how do you know electronically that these are being managed, distributed and of course, informs of the acceptance. And in my belief that all the data protection acts and and or GDPR in in Europe will need to be changed as well because of that. But in general, so, so in like from my perspective or view is that now we are heading through the change or of presenting ourselves to Internet and basically then to the relationship that we have within the different users and companies. So, so and all the infrastructure created around that is just to, to help it, you know, to manage quicker and of course, easier.


Cameron D’Ambrosi [00:25:20] I love so much of that. And again, you know, can barely contain my excitement for for what the future holds in the space. Last question before we wrap here. Shameless plug time. You know, for the folks who are listening, who are interested in learning more about the Ondato platform, about your capabilities or getting in touch with you. What is the best place for them to go and how should they reach out?


Liudas Kanapienis [00:25:47] So. Well, of course the best is is just to visit our website you know at and that added comment where we try to keep up to date, you know, the services and the product that we launched. And of course there are all the means of how to communicate with us and how to reach us. For sure. Like we as the individuals and myself, you know, I’m I’m on the LinkedIn platform and to try to balance the services that is this or read the messages that that I get and to communicate, you know, as much as possible. So, you know, and basically today we as a platform like, you know, we are providing everything that relates with, you know, your customer and both like for private and business individuals, you know, so and that is like our scope, that is our mission and everything around that. So we we try to help our clients to to solve. So we’re happy to talk about that as well.


Cameron D’Ambrosi [00:26:46] Amazing. I will be sure to include those links in the show notes below. Lucas, thank you so much for joining us. Really, really was my pleasure hosting you and looking forward to, you know, hopefully circling back with you to check in on your progress. And if you’re ever in New York, certainly drop us a line and maybe we can record an episode in person.


Liudas Kanapienis [00:27:10] Were left to do that. So it was really, really pleasure being here, talking with you and and yeah, looking forward.


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