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Digital KYC – Transforming the Customer Journey

In my last blog, we explored three core challenges that traditional KYC processes pose for financial institutions – namely the impact that it has on customer onboarding, customer experience, and the cost of operational compliance.

In this blog, we look at the key components needed to digitalize the KYC process.

KYC requires financial institutions to verify the identity of their customers and fully assess their suitability as a client so that they cannot be used for criminal activity. It is essential for the safety of financial markets and society at large. However, financial institutions are spending millions each year on KYC processes spanning initial compliance, refresh programs and remediation, and still manage to fall foul of the regulator on a regular basis.

Know Your Data

Data (mis)management is probably the biggest cause of onerous KYC processes. The inability to re-use customer data and documentation across business lines and jurisdictions (data laws permitting) or to automate the consumption of customer information really hampers financial institutions’ abilities to expedite compliance and onboarding.

Financial institutions need to be technologically set up for compliance success. In our connected age, clients expect and demand a faster, more efficient account opening process that lets them re-use the information they’ve already submitted.

Digital Components for Transforming Customer Onboarding

To achieve the holy grail of good customer experience, financial institutions need to build onboarding workflows and client lifecycle journeys with the customer in mind. KYC compliance can be digitally enabled to become the biggest opportunities for financial institutions to transform their customer experiences.

Digital KYC empowers the efficient management of all KYC policies and regulatory compliance from initial client onboarding throughout their lifecycle, including document refreshes, to ensure customer information is current and accurate.

So, what does Digital KYC look like?

  • Regulatory Rules Engine Implementing an automated regulatory rules engine can eliminate regulatory interpretation and generate an upfront requirement in terms of all in-scope, and all the data and documents required.
  • Systems and Data Integration Integration into a series of third party, sister systems and bank-owned internal data repositories is a must to enable a streamlined customer journey.
  • Centralized Data Management If a customer already has a relationship with a financial institution, it should be possible to re-use and re-purpose this information. The ability to integrate with key internal systems should make this a distinct possibility.
  • CRM Integration API connections into CRM systems can provide the visibility that relationship managers need when onboarding clients for real-time information about applications.
  • Integration to Data Providers Automating the consumption of this data via third party data providers such as Lexis Nexis, World-Check and RDC, further reduces the need to ask customers for information and adds an independent verification to the process.
  • Digital Portal With a digital portal, customers can upload information at their own convenience in a streamlined and well-orchestrated manner. That information can be appended automatically to their client onboarding application to accelerate compliance and enhance their customer profile.
  • AI / OCR /NLP There are a host of technologies that speed up the KYC process by sifting, scanning and extracting useful information from reams of paper forms and documents. Optical Character Recognition and AI-infused Natural Language Processing are two such technologies that can make documentation more intelligent and meaningful.
  • ID&V When opening a new account, the ability to perform as much of this digitally without the need to visit a branch is imperative in this age of digitalization. Therefore, providing technologies that allow customers to take selfies and upload photos of their identification documents is a necessary part of streamlining the process.
  • eSignatures Continuing the theme of digitalizing, financial institutions that provide e-signature capabilities can provide a better frictionless and streamlined digital process.
  • Automated risk scoring It’s important to eliminate or reduce manual interpretation as much as possible to create a data-driven decision-making process. This way, when a client profile is augmented and enhanced, FIs should be able to automatically arrive at an accurate risk score that will drive the appropriate level of Due Diligence required using a risk-based approach.
  • KYC utilities There has been a resurgence of late into the concept of KYC utilities among collaborating financial institutions, such as the Benefit Bahrain KYC utility based on a blockchain concept and the creation of a Nordic KYC utility. While they do not remove liability for KYC compliance from financial institutions, they do add greater efficiencies by sharing customer profiles and KYC information.

KYC is an area of client onboarding with immense potential for improvement. Digitalizing the KYC journey can reduce rework, operational inefficiencies, and human interpretation of complex regulations, creating a better, more streamlined client experience.

In our next blog in this series, we will discuss the move to a perpetual KYC model and how digital transformation can create a true risk-based, managed-by-exception compliance model.