KYC Needs to Come of Age
Banks (and customers) generally treat the Know your customer (KYC) process as an inconvenient yet necessary formality to open a new bank account. Banks need to do adequate due diligence to verify the identity of their clients and assess potential risks, especially ensuring compliance with anti-money laundering regulations. Yet, both bankers and customers agree that current KYC processes are very antiquated and at odds with the highly digital world that we live in.
KYC process typically requires multiple documents, multiple verifications, and multiple interactions between the banker and the customer. Here are some key factors that makes KYC implementation difficult.
Inconsistent standards: Given the lack of standardization, there is little consistency in the documents required for KYC processes. It varies with banks and with every geography. For banks that run global operations, complications increase even more with different regulations becoming applicable to different clients and regions.
Time-consuming, tedious and costly: Often, banks need to go through considerable back and forth with customers when it comes to completing KYC requirements. This also drives up the cost of conducting the KYC process and makes it extremely time consuming. Besides, any material changes at the customer end need to be reported, which customers often neglect to do.
New and evolving data security regulations: Data privacy mandates like GDPR or the 2018 California Consumer Privacy Act require banks to be stringent with the data that they gather and manage, placing demands on making their processes and data secured and compliant.
Also, it is important to note that KYC implementation is a compliance issue that doesn’t absolve the bank from the responsibility of trying to do better when it comes to providing a superior customer experience.
Every bank must take care of the following two aspects when revisiting their KYC process. First is security, and the second is customer experience.
Security is paramount because it is the reason KYC exists in the first place. For identity management, most banks rely on data and documents that can be easily compromised or hacked. In certain cases, it includes personal and confidential documents raising concerns about who has access to this information. Hard copies are exposed to the risk of being stolen or misplaced while digital documents can be hacked.
Banks cannot afford to overlook the aspect of customer experience and convenience either. A study by an identity assurance provider found that four in ten consumers had abandoned an application for a banking account midway; and most of them did so because they found the form too lengthy!
So how can banks make KYC simple yet secured? In today’s world, where technology is enabling every process, in every business, digital capabilities that offer security, visibility and ease of operation are available to banks to address the challenges in KYC implementation.
Digital Technologies to Consider for a Smooth KYC
Biometrics: The use of biometrics offers several possibilities around the use of fingerprints or facial recognition or even iris recognition. Many of the newer smart phones come with features such as advanced cameras, facial recognition software, fingerprint readers etc., making it easy to submit biometric information remotely. New wearables are being developed that also act as a payment app. Tappy Technologies, a wearable payments specialist, unveiled a new watch strap design that combines its existing contactless payments module with a passive fingerprint sensor that can be used to increase the security and transaction limit of wearable contactless payments.
Blockchain: Blockchain also brings several advantages because it allows data to be stored across the network, in a single repository. By its very nature, blockchain enables secure data backup since it is replicated across the chain. US-based Rambus, which specializes in the performance and protection of data, recently launched Vaultify Trade, which is essentially a blockchain and cryptocurrency security platform. It leverages the company’s expertise in tokenization and encryption to let banks safely offer their clients a range of value-added digital asset services from within their existing mobile banking apps — with bank-grade security.
Artificial Intelligence: AI and machine-learning have a very important role to play in drastically improving the KYC process. One issue that often delays the KYC process is the number of false positives that current solutions throw up while identifying high risk customers. Based on techniques such as pattern recognition and unstructured data analysis, AI can help identify customers who are truly high risk, thereby making the process far more efficient. AI can also help keep track of regulatory changes, thereby ensuring that customer forms are updated regularly. This avoids a situation where customers are wasting time filling out a ton of information just because it is part of a standard form, even if current regulation no longer requires that information.
A Secure and Easy KYC for a Superior Customer Experience
The above technologies ensure that the identity infrastructure that banks use do not remain static. They reduce the risk of information leakage of documents that exist in digital formats. Use of digital capabilities that leverage bio-sensitive data, cryptographic fingerprint and consensus based processing, patterns, and data analysis ensure maximum safety.
On the other hand, customers are delighted to find that a single swipe of a finger or just their face is adequate to establish their identity. Not having to fill lengthy forms or submit multiple documents are conveniences customers look for. With these digital technologies, banks can make it as seamless and simple for customers do get their KYC done as it is for them to sign up for a Netflix subscription or a grocery delivery service.
For banks too, leveraging these digital capabilities, will make it easy for them to manage their KYC process implementation at optimal costs and minimum complexities. Many of these are already work in progress and it is a matter of time before these technologies become the norm rather than being the differentiators!