How up-to-date is your Know Your Customer (KYC) system? According to a CEB KYC Market Report, most banks have a pretty outdated KYC system. If you consider install date of various banking technologies, KYC ranks 10th oldest, of 17. More troubling is the ranking of AML (anti-money laundering) technologies, which are the oldest of the list.
It seems many bankers look at KYC and AML as simply a compliance issue, a cost, and something that is not worth investing in. However, due to recent developments in AML/KYC technology, this is no longer the case; significant cost savings are available, as well as ways to reduce risk, improve customer onboarding, and gather deeper insights into customer behavior. For banks that have taken advantage of these new opportunities, one huge benefit is revenue growth potential, meaning what was once considered a cost is now a competitive advantage.
Consider risk reduction, a concept that is fundamental to the core purpose of banking. Without proper AML/KYC safeguards, a significant door opens to fraudsters and money launderers to do damage. They can set up accounts that perpetrate, or receive, fraudulent transactions. Or even worse, they can accept funds from money launderers or terrorist financiers. In both cases, they open themselves up to losses, fines and reputational damage.
KYC is the first step to gauging the risk profile of a (potential) client. You can perform risk-screening to see if they are on any watch lists. You can check beneficial ownership structure, to discover who actually benefits and, in effect, controls the account. Most importantly, you can verify that the individual is who they say they are; the first step to effectively managing bank risk is to actually know the person behind the account is authentic and trustworthy.
Improve customer onboarding
In regards to customer onboarding, as the report notes, “Banks that can automate their due diligence processes see substantial improvement in onboarding times.” Sixty-six percent of respondents see improvements of onboarding time of over 25%, with 17% seeing over 75%. In an era where consumers expect speed, this faster onboarding equals less customer abandonment, quicker time to produce new customer revenue, better service and happier customers.
A big win for any manager or executive is actionable insight; information that points the way to success. But how, as a banker, can you get that actionable insight? With thousands, or millions, of clients, across numerous branches, performing multiple, complex transactions, how can you decipher all that data to make sense of it all?
AML/KYC systems provide a data channel and analytical tools that can deliver the necessary insight to move forward. As opposed to a one-time onboarding check, modern AML/KYC means ongoing risk monitoring, looking at, and analyzing behavior as it happens.
Transaction monitoring systems are necessary to ensure compliance is aware of what is happening, and can track and report any unusual behavior. These same systems though, need not just play defense; they can quickly notice changing customer behavior and trigger upgrade opportunities, point to new service possibilities or activate a customer support save. On a macro-level, they can discover trends or patterns well before any survey or report ever could.
While up to now, KYC has not received the credit it deserves as an innovative banking technology, the misconception is changing. Investment in AML and KYC is rising steadily and 62 percent of executives expect spend on KYC to increase. The study states that, “KYC solutions rank among the highest value commercial banking technologies”.
The field continues to innovate, both to ease compliance with new and changing regulations and to take advantage of new digital capabilities. Implementing next generation KYC is smart actionable insight for any bank that doesn’t want to be left behind; an effective KYC strategy pays off in lowering compliance risk and costs, as well as improving the customer experience and revenue generation.