Six reasons it is time to revamp KYC processes

Know your customer (KYC) processes provide the backbone for anti-money laundering (AML) compliance measures. However, for many banks customer due diligence (CDD) operations are outdated, inefficient and costly. We have highlighted six reasons it is time to revamp KYC processes and look to technology to automate ineffective manual KYC.

1. Time is money

Arduous and lengthy business account openings are primarily a by-product of manual data input and a lack of system connectivity. On average, banks spend between 50% to 75% of the costs associated with onboarding processes on approvals. More recent research from McKinsey shows KYC due diligence and account opening to be a significant bottleneck. In addition, banks have been reporting that more than 40% of the time a customer spends onboarding, is consumed by these two processes.

2. The people problem

Banks typically employ 10 percent of their workforce in financial crime related activities, with KYC often being the costliest activity. However, there is a skills shortage when recruiting specialist staff. So often, analyst vacancies are left unfilled. Subsequently, this has a detrimental effect on backlogs, human error, and an inconsistent approach to KYC.

3. Poor customer relationships

Reducing customer friction and increasing efficiency are critical demands from banking clients. While previous digital transformation efforts are to be commended, back-office compliance functions are too often disregarded. With complexity and cost often being cited as reasons to delay.

However, corporate onboarding plays a crucial role in fostering a long-term working partnership, ensuring processes are efficient, effective, and compliant. By looking at these compliance processes, not as an act of mitigating risk, but as an opportunity to grow and better service clients, banks will be better able to reap the rewards.

4. Agility underpins growth

Banks need to be flexible and responsive to clients’ demands, offering customizable solutions and adapting their offerings to meet evolving market needs. Tailoring product and service is made possible by knowing your customer. Manual processes, that are reliant on people, do not allow a bank to leverage data in real-time. Subsequently this creates incomplete customer profiles leaving them unable to identify and respond to emerging market opportunities.

5. Time-to-revenue

Time consuming KYC and onboarding processes often involve extensive paperwork, manual data entry, and multiple iterations of review and approval. In addition, there can be repeat, and often unnecessary, client outreach, often for publicly available information. In turn leading to extended approval times with poor time-to-revenue.

6. Refresh and remediation

For banks KYC refresh is treated as an administrative exercise consisting of scheduled reviews that yield limited risk mitigation, and often strain client relationships due to poor customer experiences related to the inconvenient, cumbersome, and, at times, invasive requests for information and documentation. Refresh and remediation workloads are unmanageable and in the absence of a digital baseline it means KYC must start again, with subsequent unnecessary and repeat client outreach significantly damaging client relationships.

An innovative approach to revamp KYC processes

Banks can configure their KYC requirements based on their approach to risk. Instead of manually entering numerous data points, banks can leverage global data sources from an automated solution. Instead, automatically pulling in required information on the business structure, registration, and ultimate beneficial owners. Furthermore, integrating with existing client lifecycle management (CLM) and customer relationship management (CRM) solutions provides the opportunity to deliver a complete digital KYC profile that can be accessed in real-time.

Automated systems efficiently source, retrieve, and collate client information, reducing the time required to complete onboarding tasks and improving the depth of customer insight. This enables banks to accelerate the time it takes to start generating revenue from new customer relationships.

With KYC digital transformation placed as a pillar of the transformation strategy, manual processes are reduced, having a positive impact on productivity, customer experience and operational efficiencies.

Technology enabled KYC operations provide a foundational pillar of growth for banks. By leveraging technology to automate and streamline more manual processes, banks can reduce costs, improve agility, and provide a better onboarding experience. All while enabling them to better comply with the evolving regulatory requirements in different jurisdictions, avoiding fines and associated reputational damage.