Know Your Customer, but Make It Seamless: Improve Compliance and Onboarding Through Seamless KYC

Introduction

If the customer lifecycle is a performance, the onboarding process is the opener. If the opener doesn’t catch your attention, you don’t want to stay for the show. For many financial institutions, however, onboarding is not a showstopper. It’s fragmented, with too many customer touchpoints. According to a recent study, the result is frustrated customers and a “leaky funnel”: 64 percent of account applicants abandoned the process in 2020―an all-time high.

On the back end, current onboarding processes are siloed, labor-intensive, and lacking efficiency and agility. Not only does this lead to higher costs for financial institutions, but the current fragmentation introduces additional risk when it comes to regulatory compliance, particularly around Know Your Customer (KYC) regulatory obligations.

KYC is more challenging than ever—why?

With the rapid shift to digital and the increasing sophistication of bad actors, KYC is critical. As important, customer needs are shifting—and institutions must find balance. Here are a few reasons why KYC continues to vex financial institutions and their clients.

Business challenges: The demands of today’s customers are evolving—as customer demographics change and digital innovation accelerates, customer expectations increase. In addition, the digital shift has thrown the door open for new competition in the market, intensifying the customer acquisition battle. FinTechs and neobanks are leveraging external digital intent data, making it easy to become a customer rather than product differentiate.

Disruptions: The pandemic permanently shifted the onboarding process, making it more digital and leading to more challenging risk assessments. The fintech ecosystem is introducing new forms of payments, further changing the risk parameters. And, the threat landscape is evolving faster than ever as agile bad actors innovate continuously and without fear.  

Evolving regulations: The regulatory burden also continues to grow. In the last three to four years, sanctions increased by over 60 percent. In 2018, the Customer Due Diligence (CDD) Final Rule aimed to improve financial transparency and prevent criminals and terrorists from misusing companies to disguise their illicit activities and launder their ill-gotten gains. Also, in 2018, the 5th EU Anti-Money Laundering Directive (5AMLD) brought regulations in line with modern trends and technologies, strengthening existing rules on transparency and cooperation between financial authorities. And in 2021, the Corporate Transparency Act brought major updates to anti-money laundering laws.

Inferior KYC capabilities impact customer onboarding

Financial institutions know that they need to make the customer onboarding process easier, smarter, and more efficient, but progress remains elusive. For example, banks report that it takes an average of 30 days to onboard a customer.

It doesn’t have to be this way. One large bank in the United Kingdom found that some advisers were spending only 27 percent of their time with customers, and branch managers spent almost a day per week on paperwork and equipment maintenance. The bank knew that things had to change. It worked to streamline distribution by identifying and prioritizing key journeys for digitization, accelerating the migration of simpler needs to self-service, and rethinking the in-branch operating model to better match shifting customer behavior.

The data KYC connection

Financial institutions have traditionally managed key business functions—marketing, customer relationship management, core baking, and more—in long-standing silos. But, as technology evolves and customer demands change, institutions need to rethink this outdated model for many reasons. For example, they need to understand how top-of-funnel marketing influences account opening. The baseline for this understanding is a complete view of the customer. However, that alone is only part of the equation today as banks increasingly look to third-party applications and partners to help them understand digital interactions in real-time.

Data is the oil that greases the KYC machine. Institutions must ask themselves—do we have the necessary data to create a 360-degree-view of risk? While most organizations do a decent job profiling and utilizing transactional information, unstructured data holds immense insight and is underutilized.

Institutions need a historical view of risk, trust, and similarity to see how they have changed over time. The necessary data is available—it is just not organized in a useful way. As customer demands evolve, digital solutions enable institutions to address those challenges while decreasing costs and increasing revenue.

Enter a seamless KYC

Seamless KYC is the process of ensuring regulatory compliance by eliminating friction at the intersection of compelling customer journeys and accurate customer risk assessments. Through integrated, data-driven, and intelligent digitization—customers are happy, and you manage risk more effectively and affordably.

A smart digital strategy integrates the components of that end-to-end process. But how do institutions leverage data both from a compelling experience and risk assessment perspective? And how do you incorporate automation?

KYC plays a key role in the connected customer journey. A customer data platform brings data from the front and back office and outside the bank into a joint customer profile that includes transactional and demographic data. You can use that profile for marketing, enrich the onboarding process, and tailor product offerings to a specific customer.

Flexible tools and an agile cadence of reviews make for a more seamless application process. While streamlining the process on the back-end relies on front-end involvement, integration makes for a more connected experience.

Getting started with KYC

As you begin the journey towards seamless KYC, it’s essential to evaluate end-to-end processes to determine which areas of friction are a priority. Which integrations matter most? What data sources need to be augmented? What intelligent automation do you want to use?

Having a solution that facilitates this end-to-end flow and enriches customer data is key. It must be easy for customers to upload information. Then, you must leverage that data in a central customer profile without going back to the customer on multiple occasions.

Some key takeaways as you work towards better KYC are:

• Find a balance between a compelling customer experience and regulatory compliance
• Monitor the end-to-end process and the data that enables it
• Identify areas of friction in processes and data flows that should be eliminated
• Enable availability of data for multi-dimensional and complete risk assessments
• Seek smart automation opportunities that deliver agility and efficiency gains
• Strive for incremental and continuous improvements