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Modernize banking operations with KYC process automation

By Alex Ford | Thu 4 May, 2023
Young business man and woman work together at a laptop in a modern office

Banks across the globe are accelerating the modernization of their operations. COOs and leaders in Know Your Customer (KYC) transformation need to deliver solutions that augment and automate internal processes, as well as deliver exceptional customer journeys while remaining compliant in line with regulatory requirements.

Not only can banks boost their operational excellence, but they can also increase revenue, reduce costs, and mitigate risk. Allocating budget to the area of KYC digital transformation is vital, but so too is the ability to demonstrate ROI.

The cost of inefficient KYC

Globally the projected total cost of financial crime compliance across financial institutions is US$274.1 billion. More specifically, European COOs should note that banks in Europe incur operating costs of €12bn a year on KYC processes. This is to ensure compliance when onboarding new clients and carrying out scheduled and event-driven reviews.

The cost to meet compliance obligations for companies or corporates with complex ownership structures are where the costs and time really start to build up. As an example, banks can spend as much as 47 hours carrying out the required tasks for each multinational or foreign corporate client. With international corporate clients accounting for around 50% or more of KYC and anti-money laundering (AML) operational costs in Europe’s five biggest corporate banking markets, efficiencies are key.

KYC challenges facing bank COOs

Bank COOs are the ultimate technology buyers and budget holders. They are required to balance high operational costs with the ability to onboard and refresh clients quickly to expedite ROI and meet regulatory demand.

Bank COOs face shared challenges: –

  • Operational costs increasing from manual processes that require additional headcount
  • Low productivity per analyst from manual processes
  • NPS/CSAT scores are below target for KYC onboarding and refresh
  • Difficulty in demonstrating ROI on tech spend
  • Risk of potential fines and reputational damage weigh heavy with keeping compliant
  • Customers migrating to the competition as manual processes create lengthy approval times and slow down onboarding
  • How they can elevate their compliance team from being the blockers to the business

Modernizing the back office

Using manual processes has been at the heart of the KYC and AML conundrum. However, they are not sustainable when looking at reducing costs, meeting regulation, or achieving scalability to beat the competition. Neither is throwing more headcount at the problem as this just compounds the challenge for a COO with a further increase in budgetary costs v time to revenue.

Banks universally have relied on legacy IT infrastructure to run daily operations for KYC. These systems are expensive to maintain; error-prone; present daily challenges with integrations into other software and require extensive work to upgrade. Additional software may also have been deployed but without thought to integration or proving ROI.

With such outdated systems the race to transform the back office has left some banks behind their competitors and falling short of their business goals. Taking a view of ‘it’s not broken, so why fix it’ approach will not maximize growth in the current banking climate.

KYC digital transformation

The way forward is digital transformation of the KYC process. Allocating budget will reap benefits beyond operational efficiencies. They include the improvement to customer journeys, the risk of fines are reduced and there is provision for a clear audit trail.

A digital KYC solution complements and integrates with existing processes such as client lifecycle management (CLM) systems. They are not standalone, siloed platforms. Instead, they are configured to meet the individual needs of each bank with elevated levels of integration across the entire KYC journey and process.

Connecting to limitless data products allows the population of a real-time digital profile. These can automatically be stored, shared, and reviewed/refreshed on demand. Replacing manual and repetitive work with automation allows multiple searches and the merging of documents and data to be performed concurrently. This immediately reduces time spent on analyzing companies or corporates with complex ownership structures.

Using an experienced provider such as Encompass, who focus specifically on KYC digital transformation within banks, can rapidly automate, simplify, and optimize the process to demonstrate ROI and achieve significant operational efficiency gains.

Building a competitive advantage from improved KYC processes

To stay ahead of the competition developing streamlined KYC processes should focus on removing unnecessary steps within the process.

Manual reviews for all customers are a misuse of valuable resource. Instead, automation should take the strain and deliver higher levels of straight through processing (STP). Fewer manual reviews should then be allocated to the more complex cases. As well as adding an additional burden on the business by requiring extensive company resources, a manual review of every customer negatively impacts the customer experience by adding excess friction to the onboarding process.

To avoid high abandonment rates or poor outcomes on NPS/CSAT surveys, customers need to be delighted by their experience with the bank. Adopting a digitized solution will dramatically reduce the KYC process from weeks or days to minutes and lessen the bottleneck that overburdened analysts deal with daily.

AML/KYC shortcomings to blame for record fines

Banks and other financial institutions were fined almost US$5bn for ‘anti-money laundering’ infractions, breaching sanctions and failings in their ‘know your customer’ systems in 2022. These fines were imposed due to the same procedural shortcomings that regulators have been highlighting since 2015. The fines were around due diligence on new customers, management of AML measures, monitoring of suspicious activity and ensuring compliance.

Reducing the risk of fines, minimizing human error and the need for multiple reworks are all achievable with dynamic KYC process automation. Delivering a consistent procedural approach to KYC with a dynamic audit trail allows analysts to build real-time KYC investigations with digital profiles for every customer journey.

Demonstrating KYC automation ROI from Encompass

KYC process automation allows faster and scalable processes to deliver 100% STP of KYC searches. Additionally, significant revenue uplifts can be achieved by reducing time to trade by 40%.

Working closely with internal stakeholders ensures the bank can deliver value swiftly. KYC automation minimizes the complexity and ensures banks can proactively address high operational costs. As a result the bank can also realize value early and avoid potential fines that have a negative impact on their reputation.


Author: Alex Ford

Alex drives business growth in North America, working with customers, partners and the Encompass team to transform KYC with automation in financial institutions and other regulated entities. Joining in 2012, Alex has held Executive responsibility for business functions including Customer Success, Operations, Marketing, Product and Delivery. From 2015 to 2020 Alex was based in Glasgow with the launch and expansion of the UK operation, before taking up leadership of the North America business.

LinkedIn Profile | Alex Ford

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