The global financial services sector continues to be rocked by a series of regulatory fines and money-laundering scandals, totaling more than US$36 billion in fines over the past decade. In the first of a new series, Fenergo’s Chief Technology Officer, Niall Twomey, explores the key KYC challenges facing financial institutions across the world and the increasing adoption of digital KYC and e-KYC utilities to solve these challenges.
The C-suite in most financial institutions are under considerable pressure to deliver safer but faster customer onboarding journeys. The key to achieving this comes
down to their ability to manage client lifecycle events and milestones via re-usable, verified and up-to-date customer information.
However, this remains a significant challenge even today.
What's the Real KYC Challenge?
The core of what takes onboarding so long is the process of collecting, validating and processing customer data and documentation to achieve the right compliance decision. FIs often reach out for the same information about a client from various locations or business lines. This adds up to an unnecessarily long onboarding process, delayed time to revenue for the service provider itself, and high abandonment rates. Our research suggests that current application dropout rates account for one-fifth of total applications. The risk of non-compliance isn't just reputational or financial - it's now hitting FIs where it hurts: their bottom line.
For 1 in 5 (21%) financial institutions, onboarding timeframes have increased by four-to-eight weeks. What's worse is the fact that they expect onboarding times to rise even further. Instead of getting to the root of the problem, many firms are still solving the compliance challenge with brute force or added headcount.
It's crucial that financial institutions can access the right data at the right time. Re-usability and transparency are essential for this. If an onboarding team can easily access 75-80% of the customer information they need to complete KYC, they only need to contact the customer for the outstanding 20-25%, delivering a much faster onboarding process and better client experience.
Digital KYC and e-KYC Utilities to the Rescue
To solve these challenges and become more digital, streamlined and cost-effective, the industry is looking at two key areas to transform and revolutionize KYC compliance. The first one is internal Digital KYC processes that create an ecosystem of data and system providers to enable straight-through processing for compliance and onboarding. The other area is the second coming of electronic Know Your Customer (e-KYC) utilities. As you may remember, the first iteration of KYC utilities (2012-2015) proved that there is definitely a need for shared, validated customer information, however, the technology and distribution models underpinning these KYC utilities failed to deliver any real impact (which I'll examine in more detail later in the series).
There are three key drivers behind financial institutions' interest in KYC technology as a utility: rising customer expectations, the emergence of new technology, and the drive toward compliance and operational efficiencies. These themes will be the guiding message throughout this blog series as I explore how utilities can not only solve the KYC challenge, but take Financial Institutions to the next level.
The industry is actively looking at improving the client experience, especially reducing onboarding times and delivering value-added services to their clients. e-KYC utilities can help this by providing digital and fully packaged access to up-to-date Know Your Customer data, thus speeding up and simplifying the client onboarding process. Businesses across the world are moving towards digitalization, exploring new technologies such as Blockchain and ID&V-type technologies.
In the next blog, I explore the second coming of e-KYC utilities and identify what we can learn from previous KYC utility models.