#38 – RegTalks with Bion Behdin, First AML

Transcript

Welcome to RegTalks, the podcast dedicated to the latest trends in the world of regtech, fintech, and financial regulations.

My name is Claus Christensen, and I’m the CEO and co-founder of the award-winning regtech provider Know Your Customer.

Today, it’s my great pleasure to welcome Bion Behdin, CRO and co-founder of the AML compliance startup First AML, as my guest. Bion has spent seven years working in corporate commercial banking across three major banks, experiencing the impact of inefficient and unfriendly AML processes firsthand.

It was this experience that spurred him and his fellow co-founders to start First AML.

Bion brings a wealth of experience to clients when it comes to AML regulations and streamlining compliance. Thanks, Bion, for joining us for this episode of RegTalks.

Thanks for having me, Claus. I’m excited to get started.

Great.

Could we start with your journey into the RegTech space? You mentioned that it began with your experience at ANZ and other banks. How did this shape your approach?

Yeah, that’s a good question. When I was in finance, we would do these big flashy pitches in corporate and commercial banking, and we would win the client. Then I would proceed to put them through probably the worst onboarding experience of their lives, trying to get an account opened with a tier-one bank.

The part that I personally struggled with as a frontline officer working in the bank, especially regarding AML, was the relationship between the customer, the frontline teams, and the compliance division. I was sort of the conduit between compliance and the customer, not really knowing what to collect or what to verify. First AML has really been born out of that frustration between compliance divisions, the teams that need to close revenue, and the end client, who often has to provide a certain amount of information—often personal information—that they generally don’t feel too happy to provide.

So that’s the problem that First AML solves: the workflow between those three parties.

I have to say, I do and I don’t envy you for that bad experience.

It was something we actually lacked in the beginning when we created KYC, my co-founders and I, because we had a legal co-founder and me as a technical co-founder. It seemed ideal, but what we were missing was banking experience.

Listening to you, it wasn’t all that pleasant, and I know it isn’t from the customer side. That is what both our companies are trying to solve, obviously.

So what led you to join First AML, and how has your role evolved since then? My role certainly did evolve.

Yeah, it’s an interesting one. When you look at my role as a founder and chief revenue officer, the average tenure for a chief revenue officer in a technology company is about eighteen months. So it’s definitely a marathon, not a sprint. When we started the company, I did so with two other guys.

One of them was with me from finance; the other was an ex-management consultant. We kind of naturally fell into our roles. Originally, we weren’t technical co-founders.

We actually started the business as a sort of low-fi, no-technology business. We reached about a million ARR without building any technology. Then we started to invest heavily in the proliferation of that technology. My role has always been focused on revenue and the customer side, understanding customer problems.

But I often feel that people in sales leadership roles don’t talk enough about the product. I consider myself more a product person than a revenue person because, without a good product, you can cold call as many customers as you want. To gain serious traction, it has to be product-first.

I absolutely agree. That mirrors our own philosophy at KYC.

We wanted to build the perfect product for this space—KYB, or business entity verification in our case—and go deep on that. Sometimes I think we should have invested more in revenue and marketing early on. We did that in later years, but at the very beginning, we concentrated on building the best product we could.

I think that’s great from an integrity viewpoint, but it can be challenging from a revenue perspective if you don’t have that in the beginning. My role, as I said, has certainly changed. I always say I haven’t led a company for nine years; I’ve led nine different companies over each year because it changed so much in that time.

It’s an interesting intersection between sales and products because many of the core features we have now—the really loved features—didn’t exist until we received customer feedback on the product. And that includes you guys, as a partner of First AML; it’s kind of that iteration.

You’re building a plane while flying it, I guess, which is really hard. Especially when you’re working with regulatory technology, there is a certain level of core functionality that needs to work really well before you can start innovating. I think that’s where a lot of people miss the trick.

That’s true. If a new startup founder were to ask me for advice about starting something in regtech, I would say, if it’s your first rodeo, I wouldn’t recommend going here. It is very hard to sell into these large institutions, which we target—banks and so on. Second, if you want to target them, don’t go into compliance; that’s the most sensitive area and the most difficult to enter.

Just a little warning there. But obviously, we both managed over time. When we looked at First AML, Adam, where we discussed it first, I noticed that you are quite active in the legal space, but you have law firms.

I found that interesting because we struggled with that in the beginning. We do have a few now, but it doesn’t seem to be an easy fit for what we specifically build. You mentioned there were challenges in technology adoption generally. Given that smaller firms rely on multiple tools, how crucial is that element of orchestration in their operations? Can you elaborate on that?

Yeah, that’s a really good point. I think especially in the AML space, it’s so fragmented. There are a lot of people doing different things.

First AML focuses on the orchestration layer, which is the operational side of doing customer due diligence. Legal is our biggest sector now—legal and finance are our two core sectors.

The reason people have responded well to the First AML product, especially in the legal sector, is that relationship I mentioned earlier. It’s the end customer, then you’ve got your fee earners, who are your frontline lawyers. In larger firms, you’ll often have a separate compliance department assisting those fee earners. The use case for our product fits well into their workflow, which is why it’s been widely adopted.

You’re totally right about point solutions, too. When we go into firms, it’s often a harder sell because we’re not only replacing three products that they’re currently using, but also their workflow. They have to design the new workflow around the First AML product. It’s much easier to sell a faster or cheaper biometric tool than to replace certified copies as part of an overall process.

But in my opinion, if you want efficiency gains, orchestration is so important, especially in medium-sized firms. Otherwise, it’s just a band-aid on a broken leg. If you can do EIV faster, that’s great, but there are so many other aspects to it that people really struggle with.

I disagree a little with the evaluation that it’s easier to sell a point solution. We’ve been concentrating hard on one specific problem in our company. We took the opposite approach with KYB—business verification—and went deep on that, really deep, thinking that it was a core problem that needed to be solved.

That’s true, but without the larger orchestration, it’s not that simple to sell. Both sides have their challenges. Just focusing on orchestration is hard, and going deep on one vertical is hard. The beauty of our collaboration is that it combines both approaches, which creates a lot more power.

Especially in the mid-market, it’s a knife fight—there are many providers doing many different things.

In AML, especially, we started the company about seven or eight years ago. In the last two or three years, the number of new providers appearing in the market doing similar things has been crazy. Competition is good, but I do fear that it confuses a lot of buyers.

Regtech firms really need to work on their clear messaging: What problem are you solving? Buyers are getting very confused, especially in the mid-market at the moment.

Yes, I absolutely agree, and that is partly intentional by new players.

They throw around superlatives.

I love to pick fights on LinkedIn with people who say they cover two hundred thirty-eight countries when there are only one hundred ninety-six official ones.

That sort of thing exists in the market. A bit of education, real honesty, and clear messaging is really important. This podcast is part of that effort, where we can discuss these topics, point them out, and help buyers and users in the space discover the real value of these products.

When we chatted last, I remember you mentioned the one-to-many approach in regtech. What did you mean by that?

If you think about the space, there are different layers, like a layer cake. At the bottom, you have the data layer. On top of that, there’s the innovation layer, but it’s a narrow product layer, which feeds data into innovation.

Then you have orchestration, where First AML operates. The one-to-many approach in regtech is interesting through partnerships. We have many partnerships; Know Your Customer is a big partner of First AML now, along with other data partners that allow access to our client base without them needing to sell directly.

I think it’s a growing sector, but there will be some platforms that end up as leaders in the space. I don’t believe there is currently a clear leader in the platform regtech space. Yes, you have large players like Finago, but in that middle space, there’s a lot of open air at the moment. Depending on where you want to sit in the stack, you should have different strategies for client acquisition.

You and I are obviously very closely watching the space—the investments made, the acquisitions. Where do you think this is going? You mentioned that in the mid-market, there are no clear winners. Is that a great place to be right now? Do you think consolidation is near-term, or is it further away?

Honestly, I think it’s imminent—within the next twelve months. I don’t know about you, but I’ve probably received three or four inquiries across my desk in the last two weeks, all with a similar story: growing but not growing very fast.

All are in the five to ten or twelve million euro range, with very similar company profiles. I think consolidation in our sector is inevitable. There are many good medium-sized players, but they’re struggling to scale.

Consolidation will happen, whether vertical or horizontal; that’s yet to be determined. I fear that a lot of the technology in the space isn’t that good.

The key concern I have for anyone looking to buy is to really understand the technology stack. Why haven’t they been able to scale past their current size? Is there enough demand for it?

For example, there are many electronic verification providers that are currently subscale. Whether that’s due to being outcompeted by bigger players is hard to determine. The identity sector specifically within regtech is a strange one.

I’d probably stay away from anything like that because I’m not sure of the quality of the underlying technology.

I remember in 2022, there was a big wave of investments—two hundred million or four hundred million into Jumio or Twilio or both IDV providers. I was thinking at the time, like, are you sure you know what you’re doing? There’s not enough money in any one of them to make them a winner. The vision fund strategy—just invest so much that one becomes a winner—is questionable.

I agree that consolidation will happen. I personally have also received numerous contacts in the last six months from investors, which was unusual because there was no clear hook that started it, but it was notable.

People are watching this space closely and wanting to engage. Where is it going? I think we can influence it a bit, and this conversation is part of that strategy. As players in this interesting but vulnerable space, we can build networks. We’re not alone; partnering can create a network that is much more powerful together than the sum of its parts, making it more interesting for larger acquirers.

I feel that too. When I think about our data suppliers, I see them as acquisition targets. Not to say they’ll come to you with an offer anytime soon, but it makes sense.

If you’re the platform and there’s margin with your suppliers, acquiring them allows you to reduce your direct costs, increase margins, and gain a new set of customers to sell the platform product into. That’s how I think about it in the context of First AML.

It’s about who provides us with information, what their client base looks like, and whether those clients need orchestration. It’s much easier and cheaper to upsell an existing client than to acquire a new one.

Absolutely. And, Bion, not that I’m making an offer here, but the same applies to us. We think about potential acquisitions that could bring us new customers if we integrated them.

Yes, you’re spot on. The idea works both ways.

This has been a really interesting conversation, with plenty of ideas discussed.

For sure. Especially for identity providers, looking at a KYB platform could offer many options. Everyone seems to be waiting for their first domino to fall. Here in the UK, one of the larger verification providers was purchased last year by private equity. I think they’re looking to do more in the space.

It’s coming sooner rather than later, for sure.

I believe it is coming soon because these firms need to accelerate, and they can’t do that by developing everything themselves. They need to acquire, and only then can they build something substantial together.

Yes, especially with some older suppliers that have many customers, but their tech isn’t modern enough. They are prime candidates to acquire sub-ten million turnover companies and inject new technology to save themselves, essentially, and then upsell their existing clients. Many older providers should be looking at newer providers as acquisition targets.

Did we have significant exits in the space? Is there capital from those founders that could reinvest in regtech at the moment?

The biggest one I can think of is Onfido. They had a decent exit last year. I know the Compli Advantage guy has been seed investing quite a bit in the space, but I’m not sure about his current position.

There is some recycled capital in the space, but as you know, it’s very hard to pick a winner right now. It’s difficult for people to say, “This is the one I want to invest in.”

In any case, both of us are focused on execution for now. We’re not acquiring each other immediately.

Let’s move to a question that’s at the core of our topic. I recently read about Canada’s money laundering problem, particularly through their housing market. I came across the term “snow washing.” You mentioned “beach washing” for Australia. How do you think the concepts of snow washing and beach washing compare?

It’s an interesting issue for those markets. They are prime targets for money laundering through property because property prices are generally stable and increasing. Over the last fifteen to twenty years, Australia and Canada have seen relatively stable economies with less chance of currency shocks, making them prime money laundering havens.

Canada has strong AML laws, but they were undermined; attorneys don’t have to do KYC. That’s a common thread where you see a lot of money laundering—where lawyers don’t participate in the regime. It’s a significant problem.

Self-regulation is absolute nonsense in my opinion. Australia falls into that category as well; they don’t have regulated gatekeeper professions, which is a major issue. There’s a bill in parliament looking to close that loophole, which would make Australia less attractive for money laundering. Right now, it’s one of the easiest places in the world to launder money.

If you can move money through your solicitor’s trust account with no KYC, it’s very appealing. Housing in Australia and Canada are classic locations for laundering cash.

Yes, very similar.

Alright, I think we’re at the end of our session here. We don’t want to stretch this too long. I have one last question that I ask all my guests. If you were to switch roles and become the global regulator tomorrow morning, what would you do and why?

That’s a really interesting question. I would focus on beneficial ownership in every country that wants to be part of the FATF regime. If you’re regulated by FATF, there’s no reason why you shouldn’t have a publicly accessible corporate register. I know for your business, that would be great too, Claus, but it’s ridiculous that some countries don’t have publicly available registers to check UBO information.

It would alleviate so much pain across the board and make your product even more valuable. It would work immediately in jurisdictions where we struggle because there’s no shareholder or beneficial ownership information available.

I’d love to hear from our American or Japanese listeners, if we have any, because both societies have chosen differently. I don’t think it’s so much a political decision; it’s that their societies value privacy of company ownership more than transparency.

In Europe, the UK, and all over Asia, societies have decided differently—they want transparency and clean money overall.

Yes, there’s always tension between personal rights and what’s good for society. Some countries’ philosophies differ in that regard. I believe individuals should give up a bit of personal freedom for the betterment of humanity, but that’s just my opinion.

In any case, I’ve made you head of global AML regulation, so it’s your prerogative. Go ahead.

I’d probably get sued by the DOJ for that or something! But that’s what I would do if I could.

Bjorn, this was fantastic. Thank you so much for coming on RegTalks.

I thoroughly enjoyed this and learned something valuable. It’s great to have this conversation and partnership continuing.

Sounds good, Claus. Let’s keep in touch.

We will.

Thanks, Bion.

Thank you for listening to this episode of RegTalks. My name is Claus Christensen, and I’m the CEO and co-founder of the award-winning regtech provider Know Your Customer.

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