• Alan Samuels, VP. Data & Product at Encompass Corporation


• 23.08.2024 11:30 am
#CorporateDigitalIdentity #Banks

Know Your Customer (KYC) processes are fundamental to compliance and risk management in the banking sector. However, traditional KYC methods present significant challenges, leading to inefficiencies, high costs, and poor customer experiences. 

Traditionally, banks have used manual KYC to verify customer entities, however, this process can be time-consuming and prone to human errors, prompting organisations to move towards automated KYC processes that use digital platforms and technologies to enhance the accuracy of customer verification. 

Challenges of manual KYC

Manual KYC processes are riddled with inefficiencies that stem from several key issues such as disconnected systems and human error. Banks often rely on numerous, fragmented systems, making it difficult to consolidate and verify information, resulting in inconsistent data, and unreliable audit trails. 

Manual data management, such as maintaining paper documents or internal spreadsheets can increase the risk of human errors, such as miskeyed or missing information. Trying to keep client data up-to-date manually is a continuous, time-consuming challenge and can lead to compliance inconsistencies. 

The inefficiencies and errors inherent in manual KYC processes are evident. The average onboarding process can take between 90-120 days, significantly delaying client acquisition. Annually, $3.3 trillion is lost to client abandonment, with 85% of clients reporting a poor experience. These delays and errors waste valuable time and resources, resulting in high internal friction and lost business opportunities. 

Additionally, manual processes heighten the risk of non-compliance with KYC regulations, exposing banks to severe penalties and reputational damage. The frustration and inefficiency associated with manual KYC also led to decreased staff morale and productivity, further undermining the bank’s operational effectiveness. 

The role of public and private data 

In the realm of corporate and investment banking, leveraging both public and private data is critical for an efficient KYC process. Public data, accessible from government databases, regulatory filings, and other open sources, provides foundational information about an entity. However, private data, specific to, and owned by, the client, is essential for validation. 

Today’s disjointed data processes and management create a poor customer experience when banks repeatedly request information from clients that is already available in the public domain, or has previously been shared by the client. This unnecessary back and forth leads to a lengthy onboarding experience and increases the likelihood of client abandonment. 

Scaling KYC operations

High employee turnover and a shortage of experienced analysts impede efforts to scale KYC operations. Developing technology in-house is complex and fraught with challenges such as project overruns, lack of internal expertise, difficulties in future-proofing, and prohibitive costs. Disconnected systems further complicate data integration and management, making scalability a daunting task. 

Despite attempts to transition to more automated KYC processes, 88% of banks report difficulties in obtaining the necessary private information for KYC. This highlights the need for a more integrated and efficient solution. 

The path to Corporate Digital Identity (CDI)

CDI is emerging as a transformative aspect of modern KYC operations. Technological advancements now enable a dynamic view of the customer, paving the way for a standardised approach to KYC. A CDI profile incorporates real-time data and documents from authoritative public sources and private information from the customer, providing a comprehensive customer risk view tailored to a bank’s specific regulatory and business requirements. 

With CDI, banks can overcome the challenges associated with manual processes. CDI solutions offer fully integrated systems powered by real-time data with seamless API integration. Automated processes facilitate the ingestion of public data in real-time, and automated outreach for private data collection minimises the need for manual intervention. 

CDI ensures that data is normalised and resolved, with clear entity primacy and hierarchy rules. Digital client profiles are standardised, providing a consistent and reliable source of information. Enhanced visibility of data provenance and an audit trail bolster compliance and risk management efforts. 

Advantages of CDI

The benefits of CDI are substantial. It can result in savings of up to hundreds of millions of dollars over five years and reduce client abandonment rates by up to 40%, significantly improving customer retention. Efficient and compliant KYC processes lead to business growth, happier customers and staff, and robust risk mitigation. 

By adopting CDI, banks can transform their KYC processes, achieving significant efficiency savings and enhancing overall customer and employee satisfaction. The future of KYC lies in automation and integration, ensuring that banks remain compliant while fostering growth and innovation. 

Transitioning from manual KYC to CDI represents a pivotal shift for banks, addressing the critical challenges of inefficiency, high costs, and poor customer experiences. By leveraging CDI, banks can streamline their operations, improve compliance, and enhance customer satisfaction, positioning themselves for sustainable growth and innovation in a competitive landscape. The adoption of CDI is not just a technological upgrade, but a strategic imperative for modern banking institutions.