Step onto the tightrope of KYC onboarding in the financial industry, and you'll find yourself caught in a balancing act that many executives are grappling with right now: how to meet ever-growing compliance demands without alienating valuable customers.
Today KYC (Know Your Customer) onboarding is a pressing issue for financial service institution (FSI) leaders eager to strike this balance.
Should you be one of them, you’ll know that failure to do so might mean falling foul of anti-money laundering or AML regulations, leaving your business open to suspicious activity, and even losing out on customers in the process.
Indeed, according to a report by OneID, a digital security firm, 96% of FSIs report losing customers during onboarding, forcing them to find ways to develop more seamless digital verification methods.
Sophisticated fraud techniques, such as synthetic identities and deepfakes, are adding to this growing sense of urgency.
FSIs that can get their KYC process right will hold sway over less-equipped rivals.
Embracing KYC will show your business to be efficient and trustworthy, giving you a competitive edge in a financial industry where reputation and integrity are vitally important to new customers.
This is a big opportunity: Research as recent as October 2020 by RegTech company Fourthline shows that almost half of traditional banks still DON’T even provide digital KYC onboarding.
Of the banks that did offer a digital service, 80% were rated as inadequate.
Banks with a digital mindset now have the means to take the customer onboarding KYC process to unprecedented levels.
As Swapnil Bhaskar, head of strategy at Niyo, a digital bank in India, puts it in a recent Forbes interview:
"If you compare with traditional banks, [digital banks] have just 100 secs [of] onboarding time, a better user interface, 24/7 customer service, and innovative features."
By troubleshooting your current approach and identifying areas for improvement, you too can streamline your company’s identity verification while staying compliant.
Read on to find out how.
Want to discover how leading fintech brands are providing superior KYC onboarding? Berkeley Payments’ Open API cards program uses AI technology to help you sign up new customers quickly and securely.
What is KYC onboarding, and what does it typically include?
Know Your Customer onboarding (KYC onboarding) is the process through which financial institutions verify the identity and assess the risk of their customers.
Should you have a business-to-business relationship with your customer, then KYB is the correct term.
KYB/KYC checks and AML screening have existed for decades, but in an age where rapidly improving technology is driving more sophisticated financial crime, they have taken on new importance.
Indeed, no registered FSI in a regulated financial sector can escape them, and no customer is permitted to access a financial product or service without them.
As regulators struggle to keep up, FSIs have to adapt their KYC measures to fast-changing AML compliance.
What they must provide varies according to their location and the type of service they offer, but today’s KYC onboarding checks typically include:
- Document Authentication – to comply with customer due diligence (CDD), FSIs must ask for identity documents (including date of birth and birthplace), proof-of-address, and bank statements to verify customer identity.
- Customer Risk Profiling – KYC involves creating risk profiles for each customer based on various factors, such as their industry, location, transaction history, and source of funds. This risk assessment helps financial institutions understand the risk level associated with each customer and apply the appropriate diligence measures.
- Sanctions and Watchlist Screening – high-risk individuals, like politically exposed persons, often require enhanced due diligence (EDD) measures that cross-check customer information against global sanctions lists and watchlists. This helps identify people or entities associated with illicit activities, such as terrorist financing.
- Transaction Monitoring: KYC requirements don’t stop once onboarding is complete. Nowadays, ongoing monitoring systems use pattern recognition algorithms to identify suspicious transactions in real time.
To make sure they carry out these measures effectively, organizations must often follow a KYC onboarding process flow. This is a KYC review that serves as a roadmap, helping FSIs follow rules, reduce risk, and uphold a trustworthy reputation for integrity and compliance.
If you’re looking to optimize your company’s KYC onboarding, then fixing the weak links in this workflow should be your first port of call.
The 5 KYC onboarding steps you may be getting wrong – and how you can fix them
Improving your client onboarding KYC can be a multi-faceted and challenging task. As a company leader, you may be tempted to keep in-house meetings on the topic light, with a breezy agenda heading like “What are the 5 stages of KYC we can improve?”
Anyone who has experience dealing with KYC, however, will know that pinpointing these areas requires a deep analysis of your existing procedure.
To guide you in the right direction, here’s a KYC checklist of five crucial onboarding steps that you may be getting wrong.
1. Your KYC onboarding isn’t tailored to specific new customer profiles
Your financial institution probably deals with a diverse clientele, ranging from corporate entities to individual consumers.
Each type of customer has unique KYC onboarding compliance requirements, so it doesn’t make sense to deliver the same process to each one. Corporate users, for example, typically have their financial data published online, so can benefit from simplified security procedures.
Unknown consumers, meanwhile, require more enhanced checks, including fraud controls, enhanced ID verification, and a facial liveness check to mitigate potential risks.
Allocating specific customer profiles to each type of user can help you use your resources more efficiently. They allow you to divert more attention to high-risk customers, while simultaneously saving time and effort for you and your low-risk users.
With over 40% of KYC onboarding devoted to due diligence checks and account opening alone, according to McKinsey research, this can amount to a remarkable difference.
The time-consuming nature of CDD
Some modern digital banking products come with this smart profiling feature built into their service so that you don’t have to manually tailor the customer onboarding process for each customer segment.
Not only does this save you valuable time and resources, but it delivers personalized customer experiences that help build loyalty.
2. You’re not collecting customer data efficiently
How you collect customer KYC data might be costing your company more time than you think.
Tried-and-tested methods like manual data entry and in-person customer identification do the job to a certain extent, but they tend to be time-consuming and prone to errors. All of these lead to delays in the KYC/AML onboarding process that make your business look outdated.
Today’s data collection methods must be smart, convenient, and swift. Digital solutions in the form of mobile apps and APIs enable customers to provide their details as smoothly as possible, with user-friendly interfaces and step-by-step guidance.
For your business, this could also involve using a single API to easily integrate with hundreds of third-party data providers who will give access to their data resources. Such integration allows you to quickly conduct customer checks without manually collecting data.
3. You’re not making full use of AI
E-KYC is another name for digital KYC processes and data from market research firm ReportCrux shows that its use is surging right now.
Analysts there forecasted a fivefold increase between 2019 and 2027, with a Compound Annual Growth Rate (CAGR) of 23.4%.
Artificial Intelligence (AI) is a key driving force behind this surge, and leading online FSIs are waking up to it.
Jonathon Hamburg, our founder at Berkeley Payment Solutions, says that "AI is reshaping the compliance landscape by enhancing our ability to detect and prevent financial crimes in real time.” He adds that “through data analytics and machine learning, we are now more equipped to stay ahead of emerging threats and work collaboratively with regulators to combat illicit activities."
The Berkeley Payment chief isn’t alone in his thinking. Many banking brands now use machine learning and advanced data analytics to validate customer identities in ways we couldn’t conceive of just a few years ago.
What used to take hours, AI can do in seconds. Where there used to be human error now exists 100% precision.
AI-based KYC onboarding solutions are rapidly taking over from traditional methods. They can analyze vast quantities of data from government databases and credit bureaus to verify customer information in real time.
They can accurately identify suspicious activities, enabling FSIs to report any anomalies to regulatory authorities.
They can even monitor customer profiles to keep up with changing regulatory requirements.
This means practical automated solutions for speeding up your KYC onboarding. Optical Character Recognition (OCR) is one example. This method quickly scans and extracts information from passports, IDs, and driver's licenses to speed up the verification process and slash onboarding times.
FSIs that fail to integrate AI solutions soon face falling behind their competitors’ more efficient and compliant onboarding systems.
4. You’re not using biometric verification to strengthen security
What’s quicker than typing a PIN? Answer: facial recognition or fingerprint scanning.
The umbrella term for these is biometric verification and its stats are impressive. The National Institute of Standards and Technology (NIST) found that facial scans can achieve accuracy rates of 99.43%, with fingerprint sensors not far behind.
Importantly, biometric scans are also popular with the public. Iproov, a biometric verification research company found that 70% of the US and UK public would use facial recognition to access mobile banking, citing speed and convenience as the biggest reason.
This need for speed is what makes the tech so attractive to FSIs, too, which can now verify a user’s identity in a split second, then integrate the data into fully digital KYC profiles.
At a stroke, they’re able to quicken KYC onboarding times, eliminate costly old-world methods, and improve digital security. It also helps them look modern and tech-friendly, something that’s important to younger target markets.
5. You aren’t using automated KYC compliance updates
Many FSIs get caught short by quick-changing compliance regulations.
Data collected by the Financial Times paints a stark picture: credit and financial institutions shelled out over $50 billion in fines between 2008 and 2022, with North American companies making up 70% of that.
Global AML fine landscape (2008-2022)
One way to plug this gap and avoid the reputational collateral damage of a heavy fine is to automate key compliance processes.
Many FSIs now use automation to continuously monitor customer information and ensure that their profiles are in line with regulatory updates.
It involves generating and submitting regulatory reports, which form part of a secure digital audit trail.
It means using Dynamic Compliance Updates that adapt your KYC processes to fit with changes to legislation without human input.
Many of today’s Digital KYC solutions offer these protection methods as an integrated service, which means that if the authorities do come knocking on your company’s door, you’ll be armed with a robust compliance framework ready to keep financial penalties at arm’s length.
Don’t take any chances with your KYC onboarding: use a provider you can trust. Berkeley Payment’s Open API cards program is built on 17 years of experience in delivering seamless and secure KYC solutions to the world's leading financial companies.