Banking sector troubles continued to roil the U.S. marketplace this week as beleaguered First Republic Bank was acquired by JP Morgan Chase days after it was seized by regulators. First Republic becomes the second-biggest ever U.S. bank failure, after Washington Mutual in 2008.
Prior to First Republic, the second-biggest bank failure had been that of Silicon Valley Bank, which folded in March. We said at the time that SVB’s failure would test the strength of other bank’s Know Your Business (KYB) capabilities, because of the sudden spike in business clients that left SVB that would be looking for a new banking relationship.
The failure of First Republic and wider concerns about the stability of the banking industry will provide similar opportunities for financial institutions that have safe and efficient onboarding processes for new customers. Consumers are shopping around, trying to find stable institutions that will provide them with the most benefits. This means there will continue to be a steady stream of consumers looking for new banks and going through the new customer onboarding process. The banks that have the best Know Your Customer (KYC) processes in place will be poised to win in this reality.
KYC as Competitive Advantage
Due to the highly regulated nature of the industry, banks have to run stringent KYC checks on all new customers. Signing up for a new bank account is never going to be as quick and easy as signing up for, say, a Netflix account; banks have to demonstrate that they are keeping customer accounts secure and preventing fraud such as money laundering.
However, the KYC rules that banks have to follow can mean that the onboarding process is onerous for new customers. Consumers want a quick, easy and preferably entirely digital process. Whether it is simply signing up for a new streaming service or opening a digital financial account, consumers expect the process to be easy.
When it is not, they get frustrated and annoyed at the businesses they are dealing with. When it comes to industries that have stringent KYC regulations, users can have a very frustrating experience.
For example, imagine someone signing up for a new online account, which requires sending a picture of a driver’s license or national ID. Then imagine that the user has to repeatedly take a picture of that document and re-submit it – or worse still having to photograph it and send it over in an unsecured email – because the platform’s technology is having trouble reading it and extracting the data. That person will soon give up the whole process and a customer will be lost. In a world where many consumers are searching for new banking relationships, being able to onboard quickly and securely is a huge competitive advantage.
How to Do KYC Right
Banks that have the most efficient and accurate KYC processes, then, are poised succeed and win new customers in this environment. Here are some steps businesses can take when it comes to creating an optimal KYC experience.
Businesses need to deliver a seamless onboarding/registration process for new customers. They should have the ability to create custom workflows that can deliver personalized user experiences. For speedy user onboarding, businesses need technology that can compare customer information against identity documents or relevant databases in real time in order to simplify and streamline the KYC process.
The right technology should make the document verification process easier and more efficient for companies by extracting all relevant data for analysis. This eliminates the need for manual user input, which can be frustrating for consumers and if too time-consuming, may cause them to abandon the process. AI can be used to automatically verify the accuracy of most documents, and unusual or difficult cases can be shifted to human experts for further review.
Cross check with identity verification and fraud databases
It’s vital for businesses to cross-check the data they receive from each user against trusted data sources and fraud databases to validate the information provided. You should have the ability to query all relevant data sources – both public and private – to ensure user data can be verified and any false information or fraudulent registration attempts are caught.
Compliance checks and ongoing monitoring
For regulated services, all potential new users must be checked as it pertains to different compliance regulations – such as if they are on PEP (politically exposed persons) list, any restricted lists or on a country’s sanctions list. Then such people can be rejected or blocked from onboarding as required by law. Businesses also need ongoing screening of already onboarded users to monitor for any status changes or suspicious or anomalous behavior and stop it.
By streamlining KYC processes and approving genuine users faster and more securely, financial institutions can grow quicker, attract and retain new customers and achieve higher revenues.
Luckily, any business can create optimal KYC processes. The use of latest technologies combined with continuously improved AI algorithms and ML models makes it easier than ever before to validate identities, manage new and old users, enhance risk-decisioning and ensure compliance with changing regulations at lower costs.
By winning at KYC, banks can position themselves for strong growth both now and in the foreseeable future.