22 Sep 2021
When Greg Watson wrote in his blog article in November 2019[1], about the “key components needed to digitalize the KYC process”, he could never have predicted that in just a few short months, the entire world would come to a stop. Faced with global lockdowns and restrictions on in person services, many financial institutions, were forced to fast-track pending digital transformations and to act fast to introduce electronic solutions and escalate implementation. Adoption of digital solutions for manual tasks were no longer nice to have – they were must haves!
2020 forced consumers to utilize remote and non face to services ranging from online grocery ordering and delivery to conducting professional meetings on the internet. Customer have gained a newfound comfort with digital experiences, opting for solutions that can be used, with ease from their smartphones, tablet and laptops. Banking is expected to be no different.
The first key component of a digital KYC process is described as “Knowing your Data”. An FI needs to be aware of what information has already been collected on their client. This will aid in the development of a system that leverages existing data and ensure each and every customer receives a seamless online experience. Failing to build a system that incorporate data that has already been collected can deter clients from engaging with the online platform and even turn them away to a more agile and innovative competitor.
The next key component is transforming the experience. Financial Institutions should not and impressively, have not, sought out to duplicate manual processes. Solutions should transform the experience. A typical in branch on-boarding experience required the client to provide a multitude of physical documents and answer a myriad of questions while the bank employee painstakingly keys in all of the data. This process can take from 60 to 90 minutes per client. Followed by days to weeks of waiting for an account approval. Duplicating this cumbersome process online is not an option. FI’s need to and are, seeking out innovations that are already in place in an up and coming industry – FINTECH.
The FINTECH industry has spun out , over 10000 startups in the Americas, by February 2021 as per statista.com[2].“Fintech relates to application of innovative technological solutions in the financial services industry.”[3] This exponential industry stepped up during the pandemic and is the driver of the transition to the digital age in traditional banking. Many local banks escalated the transformation to online, non face to face onboarding and client service solutions from five year plans to within a matter of weeks. This has certainly served to be a most positive by product of the global pandemic.
Fenergo shared that Digital KYC would take the form of:
- Regulatory Rules Engines
- Systems and Data Integration
- Centralized Data Management
- CRM Integration
- Integration to Data Providers
- Digital Portal
- Artificial Intelligence/Optical Character Recognition/Natural Language Processing
- ID and Verification
- eSignatures
- Automated Risk Scoring
- KYC utilities
According to the Financial Action Task Force (FATF), reliable digital IDs can make individual customer verification easier, cheaper and more secure. They can also help providers meet transaction monitoring requirements, and largely avoid risks of human error.
“We highlight the benefits of digital ID in terms of reducing costs, increasing convenience to the consumer, but also to the private sector, whilst not compromising on security,” says Shana Krishnan, Policy Analyst at the FATF Secretariat.[4]
A quick online search of KYC tools will yield a plethora of innovative products catering to one or more of the aforementioned digital KYC tasks. Front line, Compliance, Risk and Audit teams in Financial Institution’s, Investment firms, Money Services Businesses and Payments Service Providers alike have customized their own programs to incorporate a myriad of these offerings.
FINTECH Futures shared earlier this year that:
“2021 will be the year of perpetual KYC with financial institutions moving away from traditional manually driven periodic refresh cycles of collecting data to continuous KYC, where customer records are reviewed based upon key triggers which detect when information has changed – rather than waiting on a periodic re-checking of information held on file which delays the collection of crucial data.” Furthermore this has been the target and the vision for many financial institutions “…who have large operational teams manually retrieving data for tens of thousands of entities every year. The demand for automated data is consistent across the globe with financial institutions across US, Asia and Europe looking to streamline data collection processes for their KYC and related teams.”[5]
This year may be wrapping up in a. few short months however it is certain that 2022 will bring with it even greater developments in the KYC industry. The widespread adoption of interminable KYC technologies has fostered positive change to the industry through the revolution of outdated practices in financial institutions and by creating enhanced user engagement, while also creating exciting new job roles. Consumers are in for easier, more efficient and streamlined experiences, where decisioning and risk assessments takes place almost instantly.
Banks for Institutions, as a consulting company with an operational office in Lviv (Ukraine), also have realized such kind of collaboration with academics and students of Banking University in the Fintech sphere by conducting researches of the fintech (payment market) industry opportunities on a global scale.
[1] https://www.fenergo.com/blog/digital-kyc-transforming-the-customer-journey/
[2] https://www.statista.com/statistics/893954/number-fintech-startups-by-region/
[3] https://www.statista.com/statistics/893954/number-fintech-startups-by-region/
[4] https://www.itu.int/en/myitu/News/2021/08/27/10/05/Guidance-on-digital-ID-acceptance
[5] https://www.fintechfutures.com/2021/03/kyc-a-revolution-towards-positive-change/