How neobanks can help introduce an efficient KYC programme to the financial industry

The banking revolution that we are seeing will result in substantial changes to many processes related to traditional banking – and some of them are already coming to fruition.

Cheque usage, for instance, is, and has been, in decline in recent years. In the UK alone, the number of cheques processed was down by 75%, from about 1.7 million in 2001, to about 400 million in 2016.

Traditional banks – even the world’s biggest – that do not innovate and adapt to technological and conceptual changes will be left behind.

The business model of a typical neobank, or digital bank, is more akin to that of a technology company. What we see here is extensive usage of technology, including automation, to make processes more efficient, as well as leaner headcounts in comparison to a traditional financial institution because of the lack of, or dramatically reduced, presence of physical branches.

For these institutions, a quick and seamless onboarding process and excellent ongoing customer service is essential to attracting more customers and maintaining their existing customer base.

Ensuring this satisfaction rests on having an efficient and effective Know Your Customer (KYC) process in place at the point of onboarding, and for periodic reviews of customer KYC files. This is where the benefits of automation are clear, in the tightening of processes and ensuring of compliance and a quick and customer-friendly journey.

Having an automated process can also encourage financial institutions to perform KYC checks more frequently for improved risk detection.

Automation is critical to the success of a digital bank. A well established process, with a solid decision tree, will ensure time and cost efficiencies are maximized, as well as making processes, such as onboarding, more straightforward and, ultimately, successful for all.

Unlike traditional banks that keep their branches open throughout the week, these digitally-focused institutions are, by definition, available 24/7, and have no branches. That means that their customers can leverage their services when traditional banks are closed, and, crucially, from anywhere, meaning ease of use is evident once more.

Encompass automates KYC data collection, analysis and integration, freeing analysts from these routine and repetitive tasks. The Encompass API powers existing customer lifecycle management platforms with automation with one, simple integration, enabling KYC on demand.

The advantages of technology

Neobanks, and digital banks, are considered “early adopters” of newly developed technologies. As regulators become more familiar with the landscape and what is available, and the regulations more stringent, expectations are higher in terms of the bank’s ability to utilize technology for their needs.

In the early 2010s, before the beginning of the digital banking revolution, a core challenge for financial institutions lay in their ability to discover Ultimate Beneficial Owners (UBOs). UBOs were hiding behind complex company structures or sophisticated transactional schemes, and identifying and verifying them was, in many cases, nearly impossible.

The process of establishing and calculating beneficial ownership requires the use of advanced technology.  Encompass streamlines the complex process of gathering and analyzing data from multiple sources to unwrap a corporate customer’s organizational structure, as well as determining a customer’s UBOs. A task that previously could take many weeks in complex cases can now be performed in a matter of minutes.

This means that those involved can be assured that they have all the information required, going beyond simple layers of ownership to empower them to make decisions.

The efficiency of these institutions is also found in the speed of activity. Within minutes, a private customer, and increasingly business customers, can open an account with a provider by only providing a few personal details and one or two official documents. The KYC process can be executed quickly and effectively, with tasks including screening against Politically Exposed Persons (PEP) and sanctions lists and risk analysis made seamless.

In this sector, payments move instantly from one account to another, while, previously, it could take a day or more for funds to be transferred. This means that transactions are likely to be monitored in real time – something that was not very common until recently. Unlike real-time fraud prevention, Anti Money Laundering (AML) regulators traditionally required post-mortem investigations, and looking into transactions retroactively still dominates the market for traditional banks, but the instant nature of transactions done with digital banks could pave the way for change.

While the increase in technology available to financial institutions, including intelligent process automation offered by Encompass, has resulted in improvements in processes and the acceleration of digital transformation initiatives for some, for the industry on a wider scale, what we are likely to continue to see is a shift in parallel with continual developments in AML and KYC programmes as organizations look to meet requirements as well as better their output.