Solving the conflict between customer experience and KYC

Know Your Customer processes for banks generally remain manual, time-consuming and frustrating for customers. But with the accelerated shift towards digital banking, banks must prioritize a frictionless customer experience that includes KYC, while also managing the cost of compliance.

This goes beyond the typical focus on updating the “factory machinery”, such as back office risk management systems, that monitors customers for risk and flags alerts when something suspicious occurs. Financial services firms spend $180 billion on financial crime compliance, according to Lexis Nexis, but compliance and risk management continue to cause friction for customers. Advances in data and analytics technology can help banks lower KYC costs to sustainable levels and simultaneously improve customer experience.

Traditional banks hold years of transactional and biographical data on both customers and counterparties, but this is often stuck in siloed systems, meaning important relationships cannot be easily connected. Important sources of external data, such as corporate registry data to identify business customers, are not comprehensively integrated into internal bank data. By joining data into a connected single view, banks can then build context around their customers and prospective customers to reduce risk and improve decision-making.

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Innovation by some fintechs has made a positive impact on consumers and provides a roadmap for traditional banks. For example, identity verification often consists of an in-app flow that asks a customer to take a picture of themself and a picture of their passport, which is then automatically verified. For ongoing monitoring, customers are frequently asked to update address, income and usage details as part of their standard interaction with the app. This type of frictionless yet compliant approach is becoming the expected customer experience standard.

KYC compliance and customer experience

The key to a single view of the customer in the KYC process is a unified view of relationships that links all related entities into a single dynamic network of KYC profiles, with automated KYC data collection and integration. Traditional banks hold a strong advantage here, as they have access to years of data on both customers and counterparties to create a powerful contextual view that can transform their approach to KYC.

A crucial first step is for financial institutions to enrich their internal data using external data sources to identify, verify and monitor their customers. By using technologies such as entity resolution and graph analytics, banks can connect billions of internal and external data sources to create a complete single view of their customers and their counterparties, along with their behaviors. This allows a bank to better understand their risk without having to continually ask customers to provide information that is readily available in the public domain or in the bank’s own systems.

Once that is in place, connecting legacy data to new data creates a significant competitive advantage. For example, if a customer want to open a business account at a bank where they already have a personal account, the bank already has significant intelligence on the customer and their historical behavior. This not only helps create a seamless onboarding process, but makes it easier to identify the level of risk and provides an opportunity for upselling or cross-selling.

And financial institutions should use the contextual, networked view of customers that they have built to transform their approach to ongoing customer monitoring. By deploying a “continuous KYC” approach that refreshes activity every time a change is detected in external data or whenever customer interacts with a bank via digital apps or payments, a bank will consistently have an up-to-date view of the customer’s activities. This allows the bank to manage risk better in real time when it arises, and it reduces or eliminates the need for periodic reviews for low-risk customers who have made no significant change to their data or usage over the course of their relationship with the bank.

By using the latest technology to harness the power of data, banks can get a more accurate picture of their clients through automated flagging when client data changes. This also improves the client experience when unnecessary back and forth processes are eliminated. Finally, when analytics, search, data visualization and AI all come together, so too does a more detailed contextual portrait of a bank’s clients.

Aaron Elliott-Gross is head of KYC solutions at Quantexa.