Non-performing loans shared up to 50% of gross loans in some countries as reported by The World Bank in 2018. In countries like San Marino, Ukraine, Equatorial Guinea the ratio of NPAs (non-performing assets) rose to 53.0%, 48.4%, and 36.7% respectively. NPLs cost FIs (financial institutions) as high as €205 Billion (EU only), ₹10.36 Trillion (India), and 3.4 Trillion Yuan (China) by the end of FY 2018-19. It figures that banking institutions despite their best efforts have been brought down by unstructured customer due diligence (CDD) processes. Knowing a customer for financial institutions has become more than just an operational obligation or regulatory compliance. KYC Automation has indeed become the best defense of financial institutions against money laundering and fraudulent transactions.
But as the efforts to build concrete KYC automation infrastructure catch on, their effect on the customer journey is another concern for banking institutions. Banks with already increasing customer onboarding timelines now have to sacrifice for stringent ‘Know Your Client’ compliance. Unfortunately, the desire to prevent losses is not reason enough to soil the hard-earned customer relations. As digital banking continues to push its limits, customers and their demand for advanced services are going to reap more access from financial markets. Banks are obliged to sell cross-functional services while keeping themselves from invading customers’ privacy and experience. Taking an outside-in approach to customer experience in banking might allow banks to inspire a customer-led KYC disruption.
State of KYC Maturity in FIs – Premise to KYC Automation
Scalability, continuity, and validity of customer information lie at the bottom of all ‘Know your Customer’ (KYC) operations. For multi-market serving organizations dealing with complex cross-product consumerism, managing the constant influx of data becomes counterproductive with years. Backlogs of due diligence convert into risk costs worth billions of dollars. Top reasons for such losses remain shallow onboarding experiences, labor-intensive processes, and technical Darwinism.
In FY 2018, only 30% of corporate customers globally reported all the material changes (average 6 per SBU-strategic business unit) their organization went through in the last 24 months. Such failure in ongoing checks keeps financial institutions from anticipating risk or SARs (suspicious activity reports). Banks cannot rely on corporate customers’ transparency and diligence to undertake such roles of information transfer. It is only evident that banks device a customer communication strategy to perpetuate such information sharing that helps in KYC Monitoring. Through self-service communication workflows and automatic rule authoring for ongoing KYC compliance reporting, FIs stand to resolve the industrial information backlog.
KYC Automation Management not only remains to be risky for financial institutions but it is also costly. The cost of reiterative customer KYC interactions has been rising at 12% per annum for banks. Organizations dealing with customer data tend to spend more on refreshing it than acquiring it in the first place. It’s not just the cost of compliance per customer that costs more to the institution, but the cost of non-compliance instead. Costs per non-compliance may go as high as US$ 500 per non-commercial account annually. Each interaction with customers for non-compliance takes an average of 3 iterations for pure correction and system reset back to normal. Centralization of customer communications and minimization of manual intervention may yet allow banks to reduce lead time and increase throughput in such processes.
Between the KYC Organisation and KYC Managers, the movement of information on paper, file & folders also adds to the harrowing customer experience tale. Exchange from public databases, background screening, and defragmentation keeps the customer in loops of request and feedback for a sizable share of the customer lifetime journey. Rapid changes in Customer identification and AML laws do not make it easy to modulate paper trails accordingly. Between 2000 to 2020 the Bank Secrecy Act in the USA underwent 28 amendments. Migrating KYC Systems with Cloud-based Customer Experience platforms could help in paper scrapping and transformative digitization of processes at the same time.
CCM-KYC Integration – An Onboarding Degradation Solution
Some institutions believe in ensuring a declaration rich customer onboarding process to create a perfect AML System from the first customer touchpoint. Such processes merge various functions like risk assessment, audit trail, sanctions screening, etc. Decentralized CDD system silos run individual reiterations for each customer until approved by the batch process of KYC Automation. This restricts the simultaneous clearance of multiple customer profiles, thereby creating bottlenecks for statutory onboarding. In this series, an increase in the number of bank accounts per capita and access to markets among sub-urban business communities across the world has led to a stockpile of unkempt KYC records and AML lag. McKinsey reports that an average 89% of the leaving customers cite slow and crude onboarding processes as reasons for switching financial business. Integrated onboarding thus finds itself in a unique stalemate with KYC compliance. Customer Communication Management as a Service platform equipped with interactive business intelligence apps can lead FIs through these phases of customer attrition.
‘If-and-Then’ KYC Automation with Modern CCM Systems
Legacy KYC systems in financial institutions are commonly input-driven functions with little to no dynamic decision abilities. Data extraction, storage, and management systems in earlier times were not built to manage any if-and-then scenarios. Simply because there wasn’t much real-time decision making for customer service management at the time. Today, the inability of isolated KYC modules to manage different LOBs (line-of-business) is adding rising risk to customer agreements that employ multiple services from the same provider. Cross communication between channels is required to maintain a structured yet conditional hierarchy of customer relationship management in KYC compliance. Re-engineering Customer Communication Networks to enhance KYC networks can impart more real-time intelligence to existing KYC policy frameworks. Consistent LOB processes can also deliver more actionable data per customer interaction. This integration of CCM with KYC is not only limited to risk proofing; it also leads to profitable customer relationships.
Defragmentation of KYC with CCM as a Service
Common communication systems and KYC workflows exert high-pressure on low-value customers due to excessive standardization. SME customers sometimes end up undergoing the same KYC cycle as large industrial corporations. Topline structures of AML schedules that merge various underlying functions of CDD create a paper trail that’s redundant for most customers. These experiences convert an otherwise easy onboarding experience into an exercise of unintended red tape. Oliver Wyman reports that repurposing and remodeling KYC processes to include intuitive experience management can yield 25% more productivity in onboarding. Creating Bespoke KYC Automation & CDD Platforms by enabling CCM as a Service in Customer onboarding can further enhance experiences for repeat customers. Model KYC workflows should be able to accommodate at least 10 to 30 segmentation categories of customers to ensure alignment with remediation and screening protocols. Segmented KYC allows for faster time-to-serve and more information per interaction with customers.
Ongoing KYC vs. Onboarding KYC – Advantages of disruptive CCM
While the cost of onboarding KYC continues to rise at 18% every year, customers still don’t seem to be happy with it. New Banking clients complain that banks contacted them three times as much they claimed for the onboarding process with dedicated KYC documentation. Ongoing KYC is another tale altogether. A recent survey revealed that 18% of FIs take a compliance review action only when triggered to do so (red flags, statutory audit, customer complaints, etc.). An average KYC refresh process for existing customers may take up to 20 days and 3 to 8 interactions. Disruptive CCM could mitigate the worries of both these operations.
Professional Services for Customer Communication assist in developing process design, automation scheduling, and policy engines to manage both ongoing and onboarding KYC. Self-service customer communication portals can empower KYC workflow with automated document factory, omnichannel messaging, data passporting abilities. Creation of data aggregation fronts with real-time information management functions would reduce duplication, dwell errors, and guesswork in managing new and updating existing customers. Businesses stand to achieve a framework that applies calibrated customer experience transformation to automate control restricted ops for serving internal needs.
Absence of Structured KYC Reviews & Loss of unused data
Achieving a single customer view through customer journeys remains a challenge for many financial institutions. Currently, 80% of KYC resources are employed for data gathering as compared to the 20% that’s used for monitoring and assessing this data. Out of this unstructured data, forms close to 65% of all KYC-CDD data processed worldwide. Unplanned and analog customer communication further allows for the deterioration of customer journeys. Targeted CCM Operating models with designated SLAs, governance structures, policy engines, UI dashboards, can help FIs organize the complete Customer Lifecycle including regulatory necessities.
Furthermore, a core-critical full-scale API integration of banking communications with compliance functions can also level with productivity errors in 100% customer identification. Expansion of customer segmentation with third-party data verification lends a flexible component-based KYC Automation process to leverage unused data between different business functions. If banking institutions are to graduate from Know your Customer to the Know Your Customer’s Customer (KYCC) model event-driven customer communications have to lead the KYC lineage.
CCM Intervention and Next Level of Customer Due Diligence
65% of banking institutions across the world cited poor customer experience as reasons to seek KYC automation and transformation. As more economies project towards full-digital banking intricate customer experiences would need more visualization, access, and analysis of data. Intelligent automation with chatbots, optical character recognition, e-signatures, natural language processing remains underutilized. Creating information touchpoints out of sundry occurrences in a client’s lifecycle will lend periodic infusions of actionable data. Cloud-based CCM platforms can map the needs of customers from an onboarding experience to the right KYC tools. Moving holistic KYC processes to perpetual and intuitive self-service portals can help banks maintain AML compliance without sacrificing their customer relations. Financial Institutions just need to figure the customer-centric angle of the regulatory mandate.
In the next series of this KYC-CCM integration series, we’re going to share with you the tools and techniques to develop an operational workflow for Straight Through Processing. Watch out for KYC Transformation operational plan and quality improvement methods in our next blog post.