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The State of KYC Digitalization: Progress and Challenges Ahead

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In Fenergo’s webinar, ‘KYC, AML, & Onboarding in 2023 – Were Lessons Learned or Do Old Habits Die Hard?’, a panel of compliance experts zoned in on what the data from Fenergo's research on 1100+ executives at global banks tells us about key Know Your Customers (KYC) trends.  

Some of the main findings, detailed in a global report titled ‘KYC in 2023’, indicate that in the last year the average cost of KYC reviews has risen (by 17%) along with the time taken to conduct KYC reviews (by 11 days). So why is KYC costing more while reviews are taking longer? 

Factors driving costs and review times up 

Two-thirds of banks are spending between $2,500 and $3,500 to conduct a KYC review – a cost banks will struggle to manage if reviews continue to increase year-on-year at their current rate. 

The panel discussed exchanged theories as to why KYC reviews are taking longer on average, with possible factors mentioned including the increased complexity of regulations, multiple jurisdictions with varying requirements being involved, and clients taking longer to respond to information requests. Reliable data access was also highlighted as being important for efficiency - some regions like the Nordics have far better access to public data than other countries where data privacy is prioritized. 

Banks are struggling to scale with transaction volumes 

High false positive rates are something which cause issues at banks around transaction monitoring processes. The main causes of false positives are legacy systems and a lack of integration between KYC, onboarding, and transaction monitoring systems: effectively siloed, outdated systems that make reviewing transaction monitoring alerts a siloed, laborious process. 

The top 3 transaction monitoring issues faced by banks, according to 2023 survey data. 

When asked about artificial intelligence (AI) and machine learning usage, around a quarter of attendees of the webinar said that they use this technology for rules and analytics in transaction monitoring. However, over 46% said they do not use any AI or machine learning. The panelists felt optimistic that these technologies have the potential to help address issues with more configurable rules or overlaying geopolitical changes onto systems. 

Slow onboarding is losing banks their customers 

Customer experience was a key theme of both the research data and the anecdotal evidence our panel brought to the discussion. Nearly half (48%) of banks surveyed by Fenergo admitted to losing clients due to slow onboarding processes that damage customer experience to the point of abandoning account opening.  

Suggestions to improve included: centralizing storage of client data; digital channels; self-service, and a single point of contact. Data privacy regulations were also noted as impacting some perpetual KYC models. 

“The reuse of information, the reuse of documents with a client in different jurisdictions, and having that single view of clients is something that we need to aspire to...and some firms are more advanced in their digital journey in supplying that but, having a single point of contact to navigate an organization such as Citi or other global banks - having a service organization that really looks after the clients path through the initiation of a relationship - is something that I would say is your low-hanging fruit (for reducing client attrition rates at onboarding).” - Nicola Poole, Global Head of New Client Onboarding at Citibank 

Some of the key takeaways from the discussion included: 

  • KYC reviews are taking longer on average due to increased complexity of regulations and requirements 
  • Data quality and access to reliable data is critical for efficient KYC and onboarding processes  
  • There is a need for better integration between KYC, client onboarding, and transaction monitoring systems 
  • Automation through technologies like AI/ML can help address challenges like high false positive rates and inability to scale with increasing transaction volumes 
  • Improving the client experience should be a priority area of focus to reduce client attrition 

Watch the webinar on-demand now.