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Transforming KYC onboarding with GenAI: A new era in banking

By Dr Henry Balani | Mon 8 April, 2024
Person in dark suit holding graphic which represents human interaction and GenAI

Generative Artificial Intelligence (GenAI) tools like ChatGPT from OpenAI and Google Gemini have transformed the retail banking sector. Reshaping conventional approaches and offering unparalleled efficiencies, they automate customer interactions through intelligent chatbots. Additionally, improving risk assessment methods in credit scoring and investment advice.

AI for streamlined KYC onboarding

For Know Your Customer (KYC) onboarding, GenAI promises to facilitate a more streamlined approach to data and risk management. Also improving the user interface, customer experience, and automation of routine tasks, thereby mitigating errors. Furthermore, its ability to create corporate digital customer profiles based on behavior holds the potential to transform KYC/AML risk management processes predicated on behavioural patterns has the potential to revolutionize the KYC process further.

GenAI is a recent addition to KYC onboarding, whereas Artificial Intelligence (AI) has already been utilized in various capacities. Consequently, concerns regarding safety, reliability, and the potential displacement of existing compliance staff are not unique.

Both forms should be evaluated as instruments to support and enrich the role of Compliance analysts. These technologies alleviate the manual, repetitive workload of screening and matching. Enabling analysts to concentrate on more valuable tasks such as interpreting, analyzing, and reporting intricate money laundering cases.

Importance of data quality and human language interface

All technologies rely on the quality of available data within the business process. AI and GenAI are no different, which is particularly crucial for accurately assessing customer risk during KYC onboarding. While these tools endeavor to address data-related challenges, banks must maintain the accuracy of their databases by leveraging technology that extends beyond the capabilities of AI.

In recognizing GenAI as another type of AI, it is useful to understand the difference between the two. AI is a broad term that refers to technologies exhibiting human-like intelligence. GenAI models are typically based on deep learning architectures and are trained on large datasets. The revolutionary aspect is the human language interface that is at the front end.

Intelligent document processing

Moreover, AI facilitates onboarding through the application of Intelligent Document Processing (IDP) to extract unstructured data. Instead of manual document scanning, customers can initiate the identification check by submitting snapshots or scanned documents. IDP, can then extract relevant information based on predetermined rules to efficiently complete KYC onboarding.

GenAI to improve the KYC workflow

A GenAI chat-based KYC workflow facilitates interactive and transparent risk assessment for individuals or entities. By integrating with trusted data sources, it enhances risk transparency based on behavior throughout the KYC/AML process.

This advanced customer experience offers a substantial opportunity for GenAI adoption. GenAI can emulate human behavior by autonomously requesting additional information, utilizing face and image recognition for validation, and guiding customers through the onboarding process without bank intervention.

This marks a significant improvement over traditional AI, which often necessitates manual interventions across various platforms. Potentially impeding the onboarding process and hindering the bank’s competitive edge in the market.

The benefits of GenAI

GenAI’s advantage lies in its ability to understand and process natural language for complex tasks. Unlike AI, which may struggle with language comprehension and context, GenAI seamlessly follows, and updates responses based on user directions.

It can maintain conversation context like human thought processes. Allowing users to refer to different parts of the dialog, use pronouns, request summaries, or adjust outputs based on predefined parameters. This marks a notable improvement over traditional AI, which often faces challenges in maintaining interpretive context throughout conversations or workflows.

GenAI offers the potential for automating data entry and verification. Thereby minimizing errors and enhancing customer satisfaction through faster onboarding. Additionally, it can improve accuracy by utilizing IDP to extract unstructured data from documents, streamlining the KYC process. Reducing the need for extensive back-and-forth communication and delays for customers.

Furthermore, GenAI can accurately identify required customer data and automatically flag non-relevant or missing information. Moreover, GenAI-powered verification chatbots can efficiently respond to customers or request additional KYC documents based on predefined prompts, further enhancing the onboarding experience. These advancements position GenAI as a robust addition to KYC onboarding, offering a more efficient, user-friendly, and effective process compared to manual approaches.

GenAI: A new era in banking

GenAI presents a promising opportunity to transform the KYC onboarding process. Offering benefits such as improved user experience, streamlined data management, heightened accuracy, and automation. By constructing transparent risk profiles based on behavior patterns, GenAI can significantly enhance the efficiency and user-friendliness of KYC procedures.

Integrating GenAI with traditional AI can offer comprehensive KYC solutions, leveraging the strengths of both technologies while mitigating potential risks.

However, it is crucial to recognize that adopting GenAI also entails challenges. These include model complexity, unpredictability, bias, data security risks, and the necessity for robust risk management strategies. Establishing strong data foundations is essential for successful GenAI implementation in KYC onboarding, ensuring both effectiveness and security.

While GenAI holds immense potential for KYC enhancement, banks must be vigilant of these risks and implement necessary measures to address them.

 
Author: Dr Henry Balani

Dr. Henry Balani is Global Head of Industry and Regulatory Affairs at Encompass. He is a noted industry thought leader and commentator on Regulatory Compliance issues and trends affecting the financial services industry. As a published academic, Dr. Balani also lectures on international business, economics, and regulatory compliance courses globally. Dr. Balani holds a Doctorate in Business Administration from the University of Wisconsin, an M.B.A. from Northern Illinois University in the USA, and a B.S. in Economics from the London School of Economics.

LinkedIn Profile | Dr Henry Balani

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