Know Your Client (KYC) is a vital compliance measure not only in the FinTech sector, but also in finance-adjacent industries (like telecommunications) that need to authenticate client identities and gain insight into their financial risk profiles.
The KYC process reduces uncertainties in financial dealings and fulfills a legal prerequisite – financial institutions are required to implement KYC screening by the European Union’s Anti-Money Laundering Directives (AMLDs) and the United States’ Bank Secrecy Act. And in industries like the telecommunications sector, KYC helps mitigate fraudulent activity like SIM fraud.
However, although KYC is critical in mitigating money laundering and fraudulent or illegal activity, there are costs associated with implementing the process. In this article, we’ll explore the challenges in implementing KYC and the benefits that KYC process automation unlocks for enterprises.
KYC Challenges for Fintech
Some challenges you might face in a typical KYC process include:
- Slow, error-prone manual checks: Entering essential information (such as addresses, credit card numbers, etc.) by hand is time-consuming and prone to inaccuracies. Common mistakes can raise false alarms and compromise compliance efforts, which may negatively impact your onboarding process by causing delays on the customer’s end.
- Significant implementation costs: You might incur costs for training, hiring compliance experts, and implementing security and authentication software. Not only is the initial setup cost high, but ongoing maintenance costs to remain in compliance also add up.
- Difficulty complying with increasingly stringent regulations: As government organizations increase scrutiny against financial crime, their legal requirements from become increasingly complex. Your company may struggle to preempt emerging directives and keep up with increasing demands.
- Long, tedious verification processes: Your clients may find traditional security measures inconvenient because they slow down the ID verification process as a whole. This is even more of a problem for industries like the telco sector that are prone to high churn.
- Data privacy concerns: The more personnel that have access to your clients’ personal data, the greater the risk of data misuse, leaks, and security breaches. Since transactions happen frequently and repeatedly, the chance of data falling into the wrong hands increases, which may cause reputational and financial losses to your organization.
Fortunately, KYC process automation helps mitigate these challenges.
Why should you leverage KYC process automation? The benefits
Here’s why banks and other enterprises invest in automating the KYC process:
- Reduce costs. A single KYC check can cost you between $13-$130, and banks alone spend around $ 60 million annually on KYC processes. RPA reduces these costs by automating labor-intensive tasks, digitizing the process, and reducing errors.
- Improved customer experience. Digitizing and automating KYC speeds up the process and reduces friction, ultimately improving your customer’s experience.
- Fraud detection & prevention. Automation helps protect against fraud where manual KYC processes might fail to, for example, in preventing SIM fraud. Automation also helps enterprises preemptively detect fraud by leveraging predictive analytics and alerting team members in real time about potential fraudulent activity.
- Ensuring regulatory compliance. KYC process automation reduces the number of humans involved, meaning fewer people have access to sensitive customer data. This helps banks reduce the risk of, say, data leaks.
Automation can also take action against detected fraud, e.g., by notifying the customer of the attempt and blocking suspicious transactions.
What does a typical KYC process look like?
A typical, manual KYC process generally follows this protocol:
Manual Data Entry
Clients first fill in a form with their personal information, proof of identity and address etc. This data is then sent back to employees, who must cross-reference the form and manually enter it into their servers, which is often time-consuming and prone to error.
When you receive information from your clients, your back-office staff start the verification process by cross-checking client information against the legal documents they provided. Because this process is manual, it results in lengthy verification times and possible human errors.
Risk Assessment and Monitoring
Back-office personnel perform additional checks after the initial verification, checking financial history, previous transactions, credit scores, etc. Clients are informed when KYC checks have been successfully completed, and their ongoing financial activity is monitored as part of risk mitigation protocols.
Establishing an automated KYC process with Intelligent Automation
Intelligent Automation (IA) is the combination of robotic process automation (RPA) with artificial intelligence technologies, like Optical Character Recognition (OCR) tech. For example, here’s how IA might function in the KYC process:
- OCR technology extracts data from paper documents (typically government-issued IDs) and digitizes it, paving the way for automation to fulfil verification steps.
- RPA bots automatically identify and enter customer data into the CRM.
- RPA validates customer data against different sources, including databases, social media information, data from forms, etc.
Intelligent automation also helps automate many processes beyond automated KYC verification, such as collecting, inputting, and processing additional customer data from the public domain. RPA bots can also be deployed to, say, automatically track regulatory developments, which compliance officers spend around 15% of their working week tracking.
Thus, implementing RPA for KYC automation gives enterprises the opportunity to automate more processes at scale.
Use Cases for KYC Process Automation
Here are some ways enterprises are leveraging KYC process automation:
Digital Customer Onboarding
In digital onboarding, clients fill in a web form with their relevant information and attach identity documents. OCR programs read the documents and assess the data on the ID against the information provided by the customer on their application. For additional security, this information may also be compared with criminal registries or blacklists, before being entered into your CRM/internal systems.
Monitoring for regulatory changes
Regulatory requirements are prone to quick, sporadic change. RPA bots can be deployed to monitor the web 24/7 for changes in regulatory requirements, instantly alerting relevant personnel and making sure your enterprise is always compliant.
Preventing SIM fraud (for telcos)
SIM card fraud is when fraudsters take control of a customer’s banking or financial sector services by hijacking their SIMS. These fraudsters use information they gather from online sources to request SIM replacements and deceive SIM providers.
Electronic KYC (eKYC) can prevent SIM fraud by ensuring that verification is done from the same device that the SIM was purchased for, eliminating the risk of hijacking.