How KYC Automation Is Transforming Client Onboarding

09/06/2020

How KYC Automation Is Transforming Client Onboarding

Client onboarding is becoming increasingly complex, with financial institutions spending exorbitant amounts of time and money manually processing checks. So how can your KYC process be conducted accurately, efficiently, and without adding extra weight to your team’s workload?

 

In this blog we’ll look at what makes up the traditional KYC, the challenges financial institutions are facing in their onboarding processes, and the ways an automated client onboarding solution can help your business streamline operations while meeting regulatory standards.

 

WHAT IS TRADITIONAL KYC?

Know Your Customer (KYC) is a process by which banks or other financial entities obtain information about their customers and verify the validity of that information by checking it against numerous external watch lists and public record databases. Anti-Money Laundering (AML) and Customer Due Diligence (CDD) are also critical processes that fall under KYC and comprise of regular checks and ongoing monitoring of clients.

The purpose is to evaluate the risk of potential illegal activities, and to prevent misuse of the businesses’ services by way of identity-theft, money-laundering, terrorism-funding, and fraudulent financial transactions.

KYC can be done via online or offline channels:

  • Offline: The customer downloads the onboarding application, fills in the details in a physical document, signs the document and submits it along with copies of the required paperwork.
  • Online: The customer uploads required documents and fills in the details required in an online form. The documents are verified by manual reviewers who will correspond with the customer to finish the process.

Traditional KYC processes are heavily dependent on humans performing manual tasks such as data sorting, data entry, error-rectification and approvals. Due to this dependency on human resources, banks are facing an increasing number of hurdles in onboarding new customers and ensuring regulatory compliance.

CHALLENGES IN MANUAL KYC

With a stringent and ever-evolving regulatory landscape, ensuring compliance in customer onboarding can be a very complicated process for financial institutions.  Banks must meet compliance standards set forth by local, regional and national governments and ensure that they provide customers with a smooth onboarding experience, all while being financially stable enough to do so.

There are several challenges institutions face when implementing traditional KYC:

Manual Data-Entry

Most institutions’ onboarding process requires the collection of data that is still captured through paper documents and email. This requires an exhaustive amount of labour-intensive, manual work that results in errors and remediation costs.

High costs

Major financial institutions have reported spending anywhere from US$50 million to US$500 million per year on KYC/AML and Due Diligence costs.

The true cost of KYC includes internal salary wages, third party identity verification, technology development or third party licensing, regulatory fines and costs of remediation. It’s no wonder banks are scrambling to find ways to make onboarding more cost-effective.

Time-Consuming

Internal teams spend hours on manual data-entry, information checks, error-rectification and contacting customers for more information. The manual nature of KYC means that companies can spend over a month on KYC compliance for a single customer.

Customer Frustration

Due to the time-consuming nature of KYC, it can take weeks and even up to over a month for some clients to be onboarded. They are also contacted anywhere from an average of eight to ten times during onboarding to provide further information. In fact, up to 40% of a bank’s potential clients are lost during the tedious onboarding process.

Fast-Changing Regulatory Environment

The ongoing revolution of frameworks that regulate KYC processes make it difficult for banks to keep up and can cost them millions in penalties when found non-compliant. From the 2008 financial crisis to the end of 2019 financial institutions paid over $36 billion in penalties in non-compliance with AML, KYC and sanctions regulations.

Inconsistency

There is a lack of standardisation in the methods for collecting client information. The various documents requested differ among banks, regions and countries. Information collected can vary from a passport, a utility bill, national ID card, phone bill, etc.

Security

With the implementation of GDPR post-financial crisis, financial institutions must adhere to stringent requirements related to the management and storage of client data. Data breaches result in hefty fines for non-compliant banks.

Wasted Human Resources

Due to the manual nature of KYC processes, valuable human resources are tied up performing mundane, repetitive tasks, instead of focusing on anomalies and more client-centric tasks. This can also have a negative impact on employee engagement. Over 50% of all banking salespeople spend one-and-a-half days each week onboarding new client organisations.

The above challenges give you a small glimpse into the struggle that financial institutions face when onboarding customers in today’s regulatory landscape. 

With KYC costs on the rise, there is internal pressure for financial institutions to reduce the burden of compliance. As a result, banks are turning to technological solutions that can automate these workflows and alleviate the weight that onboarding compliance carries.

WHAT IS KYC AUTOMATION?

Automated KYC verification leverages advanced AI and machine learning technologies to ensure that your clients meet regulatory standards without a high dependency on internal resources. 

Although end-to-end KYC processing still requires humans to make high-level decisions, a majority of the legwork can be handed off to automation, and more specifically, Intelligent Process Automation. 

Intelligent Process Automation (IPA) is the collection of technologies that combine to manage, automate and integrate digital processes. Some of the technologies that make up IPA are:

  • Robotic Process Automation (RPA) – The use of robots that can mimic humans’ behaviour to handle high-volume, repetitive tasks.
  • Intelligent Document Processing (IDP) – A type of IPA that uses technologies such as machine learning, Natural Language Processing (NLP) and Intelligent Character Recognition (ICR) to process and extract data from a large quantity of documents.
  • Artificial Intelligence (AI) – AI analyses data in a way that humans can’t, and recognises patterns in data and learning from past decisions to make increasingly intelligent choices.

The above technologies are now being used to automate workflows, extract data from documents and reduce screening, identification and verification times.

Using IPA and machine learning to collect and analyse data can provide financial institutions with a more robust and instantaneous picture of any client. This has many short-term and long-term benefits.

WHAT ARE THE BENEFITS OF KYC AUTOMATION?

Reduced Costs

Enhancing KYC processes with automated solutions can reduce onboarding costs by 70%. By eliminating data-entry error and rectification, avoiding hefty non-compliance fines and increasing the onboarding cycle, banks can reduce costs significantly.

Increased Efficiency

Fully automated identity verification enables customers to create a verified digital identity that can be checked instantaneously. And since robots don’t need to rest, automated solutions also have the added benefit of running 24/7 with no down-time.

This shaves up to 80% off of onboarding time and allows financial institutions to increase their total number of onboarded clients per annum.

Minimised Risk

By automating end-to-end processes, you can minimise the risk of errors caused by data entry mistakes or oversights. The reduction in manual intervention also significantly reduces security threats and data breaches, keeping customers’ data safe and keeping banks compliant.

Scalability

Manual practices are impossible to scale without large costs in manpower and do not easily adapt to the frequent changes in KYC regulations, internal changes or external threats. 

AI-powered bots run 24/7, adapt to external requirements quickly and can be integrated into your business’ infrastructure with little to no interference or downtime.

Improved Customer Experience

Customer satisfaction is the key to success. Automated KYC provides clients with a frictionless experience by eliminating the frequent back-and-forths between customer and bank when new information is required. With an automated process, customers are given an easy and fast accreditation or identification experience that results in quicker account opening.

Freed-Up Capacity

Eliminating the need for employees to perform repetitive tasks means they can spend their time focusing on more high-risk cases and customer-centric activities.

Empowering employees to use their talents and creative abilities on higher-value tasks increases employee engagement and retention. According to a 2019 study conducted by Forbes, of 302 senior executives surveyed, 92% said that employee satisfaction had risen as a result of intelligent automation initiatives.

Conclusion

Onboarding new clients in a highly-regulated industry can be complex. Fortunately, advances in technology are enabling financial institutions to implement automated solutions that offer a myriad of benefits at a much lower cost than traditional processes.

If implemented correctly, KYC automation can reduce costs, boost efficiency, free up human resources and help your business ensure regulatory compliance.

Interested in exploring automated solutions for your onboarding processes?  Take a look at how Nexus IDP solutions can help you streamline your KYC workflow or get in touch to discover how Nexus can help you digitally transform your business.