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The imperative of digital transformation for KYC processes

By Howard Wimpory | Tue 30 May, 2023
Business women in a discussion at an office table with a laptop

Encompass were recently joined by a stellar line up of speakers from the banking world to discuss customer onboarding, KYC and the imperative for digital transformation.

In a thought-provoking session, we discussed three key topics which garnered interesting insight:

    • KYC and digital transformation
    • Defining and measuring success of KYC transformation
    • A look to the future for KYC

In this blog we look at the discussions in summary. To listen to the full webinar please visit Customer onboarding, KYC and the imperative for digital transformation.


Customer onboarding, KYC and the imperative for digital transformation

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Setting the scene for a KYC non-digital model

KYC brings many, well documented challenges when it comes to a non-digital model. These ‘pain points’ are felt by the customer, internal stakeholders as well as regulators. In summary they fall into four key areas: –

  • Meeting ever-increasing regulatory requirements
  • Processing high data volumes rapidly and efficiently
  • Building a holistic client vision and view of risk
  • Adjusting to changes in customer perception

Banks have been open to varying levels of transformation across their business – particularly from the perspective of the customer. However, many banks have yet to extend digital transformation to the KYC back office. Digital transformation will not solve all problems. But it does make great strides to delivering efficiencies, reducing errors, improving the customer experience and managing risk.

What is the current state of KYC transformation?

When addressing the panelists for their views it was interesting to hear the variety of responses. There was a common thread that banks saw KYC transformation as a positive. But, on the other side, without a standard model they are left to their own devices to navigate the complexities of their own requirements, dependant on their levels of risk.

KYC transformation within banking continues to be inconsistent. There is certainly a need and appetite for the automation of standardized processes. However, individual banks have their own agenda which has created a ‘stop start’ approach with banks ‘cracking the nut’ in their own ways. A full circle of outsource, in-house, offshore, nearshore and then farshore before coming back to outsource has certainly been experienced by some. And yet, despite all this moving around, the process has not yet been re-engineered.

Insight driven KYC

The transformation conversation would not be complete without reference to data. With some banks feeling they are ‘drowning in a pool of data’ the question must be addressed of what data is needed? Few banks have adopted a back-to-basics approach to data collection. Or is it that they have yet to invest in automation to enable the easy analysis of the data to deliver real insight?

Fundamentally, banks can gather vast amounts of information. But they also need to take a step back and think – what is useful and how can we use it to achieve the best outcome? It should come down to basic risk establishment. Do we know what we want to manage, how do we want to manage it and how can we use it to the best effect.

A successful bank is one that decides which data points are the critical ones. Most banks need to go back to basics and establish a better baseline point for the data. Greater insight on actual behaviour and reduced upfront data demand on the client at the time of onboarding can be achieved if banks had greater focus.

KYC transformation journey

All too often digitization just replaces existing processes. The starting point should be to have a blank canvas and to really think about what is needed. There should be a system where information can be drawn in, stored, accessed, and connected to other areas of the business from an easy-to-use interface. Access to multiple data points with the ability to upload additional documents will allow the bank to evaluate the client risk profile depending on the bank’s risk appetite and acceptance methodology. This approach can provide a great base for the introduction of perpetual KYC (pKYC).

Success criteria

It is assumed that not all elements of the KYC journey can be delivered immediately. But being able to measure the success of the transformation project is vital. Each iterative step towards the end goal needs to deliver its own benefit as demonstrating continued success protects the overall programme’s funding.

Improving the number of monthly reviews per month and the speed at which each review is delivered is a common metric that translates into capacity creation, customer satisfaction and competitor differentiation. The avoidance of fines and keeping the regulators happy also plays into the success criteria.

There is a web of participants. These can be customers, internal teams, or regulators. Banks transformation plans need to respond to the needs of all these participants, not just their operational efficiency.

Digital transformation programs are multiyear investments that require success measures. Senior sponsors must work with investment committees over many years to make it a continued and committed source of funding. Digitization of the KYC process must work for the users as well as the customers. It is about delivering the customers’, internal stakeholders’, and regulators’ expectations.

Looking to the future – pKYC the nirvana state!

In the minds of the panelists an ideal state for KYC would have less interaction with the client. The more interaction you have, the more friction the bank is exposed to. Instead, adopting a digital transformation approach will significantly reduce the need for outreach.

The panel spoke about the emergence of alerting from premium data sources and how technology developments will be needed to deal with alerts to minimise an increased workload. I would agree that a move towards a more effective model, pKYC, which monitors and responds to client risk profile changes faster, is within reach. However, I would reinforce that banks should view pKYC as an opportunity to reimagine existing processes to drive a better customer risk identification and mitigation programme.

For a deeper understanding of the imperative for KYC transformation, download our whitepaper.

Author: Howard Wimpory

Howard works with Tier 1 banks to digitally transform their KYC onboarding and refresh processes. He has held a number of executive-level operational roles with a major global bank including leading their wholesale KYC Onboarding and Refresh functions. His most recent role prior to Encompass was as Managing Director, Group Financial Crime Operations position at Barclays Bank, where amongst other functions, he was accountable for leading KYC Remediation of Corporate and Investment Bank Client records to FCA committed timeline.

LinkedIn Profile | Howard Wimpory

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