Done right, Know Your Customer (KYC) doesn't burden end customers, makes regulators happy and keeps financial institutions (FIs) clear on whom they're doing business with. Unfortunately, current KYC procedures are often fragmented, manual and slow, putting organizations at risk of losing their reputation and facing hefty fines.
Moving money around has never been easier. For banks and other FIs, however, this has made combating financial crime more difficult than ever. Each year, anywhere between $800 billion - $2 trillion is laundered globally according to the UN, a staggering 2-5% of the world's GDP. (1)
Balancing regulatory compliance with UX
To ensure transparency of transactions and compliance with the existing regulations (namely KYC and AML), FIs need an unobtrusive, accurate way of telling their customers are who they claim to be.
Unfortunately, dated processes and poor handling of inaccurate data are often standing in the way.
There is, however, a way of automating KYC, both during onboarding and data remediation, that doesn't jeopardize customer experience or the quality of data.
We're talking about identity document scanning — capturing customer's personal information right from the mobile or web app; quickly, securely and with lower error rates. Let's take a deeper look into the benefits of approaching KYC this way.
1. Reduced costs
KYC requirements vary from country to country, but they all come with a sticker shock.
A typical bank with 10m customers will spend $56m on KYC compliance, but that’s still a drop in the bucket compared to punitive fines it will have to pay for getting it wrong. (2)
Identity document scanning reduces these costs on three levels:
- By streamlining data collection from customers, which, according to Thomson Reuters findings, accounts for 20% of all KYC processes. (3)
- By reducing friction customers face when entering or updating personal information. Cumbersome KYC processes are thought to cost FIs upwards of $168m in abandoned applications amassed over 5 years. (4)
- By satisfying regulators with cleaner, more accurate data. ID scanning drives data quality and lower error rates, resulting in sounder monitoring systems.
It’s hard to tell the exact impact ID scanning will have on KYC expenditure as no two financial institutions are the same when it comes to data volume, resource allocation and regulatory environment.
Still, the cost-saving together with the transformational effects are too big to remain unexplored.
2. Better experiences
The way financial institutions obtain and recollect KYC data is completely out of line with customer expectations.
Despite the industry's acceleration toward digital, more than half of bank account openings across the US happened in person, not online in 2020. (5)
But when members of Millennials, Gen Z and Gen X were asked whether they'd want to be able to open a deposit account online, more than 70% said ''yes.'' (6)
Digital user onboarding is becoming more in-demand than ever, and organizations that fight or deny it will find themselves on the losing side.
With ID scanning, everyone gets to keep their lunch break
Generally, a valid form of ID along with a photograph and an address is usually all that's needed for carrying out KYC.
Instead of urging customers to bring these documents to the branch and fill out elaborate forms, organizations could speed up and simplify the entire journey by taking it online.
eKYC, as it’s called, has already allowed for a massive increase in remote enrollments across India, the first country to digitize the identity of its 1.2 billion people. (7)
With automated data extraction, FIs can capture the key personal information all while engaging customers through quicker, more convenient experiences.
A person scanning their passport through the bank's app, for example, doesn't realize — or care — that this information will aid the bank's KYC compliance.
They are simply happy to have saved their lunch break and avoided long queues at the branch.
3. Increased security
Because KYC data often contains sensitive, personally identifiable information (PII), dealing with it securely is absolutely paramount.
This need was reinforced by GDPR (General Data Protection Regulation) in 2018, adding another layer of complexity to the problem.
The directive demands financial institutions follow a set of practices that protect personal data of EU citizens, else they may face steep fines which can in some cases reach 2% of the company’s global revenue. (8)
To remain GDPR-compliant, companies doing KYC have to take several steps, including:
- Deleting what's no longer needed. GDPR requires a specific approach to collecting and storing personal data. Companies are only allowed to process the data that's necessary for their KYC processes and can't hold onto any of it after it's been used.
- Keeping customer files secure. To prevent unauthorized access to sensitive data, companies should never keep their customer records on a public cloud such as Google Drive or Dropbox.
- Partnering with GDPR-compliant solution providers. FIs that outsource their KYC procedures (either in part or as a whole) to specialized vendors need to ensure the same providers comply with the provisions laid out by GDPR.
When implementing an identity scanning software into any touchpoint, organizations ought to look for an on-device solution that works locally without any server-side involvement.
Results can then be securely handed off to a private database. Apart from helping organizations stay on the safe side of GDPR, this form of automation reduces administrative burdens and back-office tasks inherent to collecting, storing and accessing data.
4. Cleaner data
Holding onto inaccurate data can land FIs into some serious hot water.
Not only can poor data quality hinder an accurate risk assessment of customers, but it can also cause organizations to miss out on suspicious activities — placing them under severe regulatory pressure.
There are many reasons why incomplete or inaccurate data enters the system. Anything from siloed legacy sources to lack of remediation efforts and simple human error could be at play in ‘spoiling’ the incoming and existing data.
Driving accuracy with AI
An ID scanner, especially if it’s powered by deep machine learning, can be far more reliable in recognizing, classifying and entering data than a real human.
It’s never affected by stress or fatigue, works in imperfect conditions and has already seen thousands of documents just like the one in front of it.
Ideally, FIs should choose a solution able to maintain high levels of accuracy and extract key data points from identity documents.
It’s also helpful to have a few extra features that strengthen KYC:
- Image crop. Having the option to extract the front and back side image of the document along with personal data can help FIs carry out ID verification more efficiently.
- Data matching. Failing to match VIZ (Visual Inspection Zone) with the MRZ (Machine Readable Zone) can be a telltale sign the document is invalid.
- Auto-classification. Automatically scanning a document regardless of its type and country can be a great asset in markets with multiple nationalities.
- MRZ check digit calculation. Confirming the MRZ check digit corresponds to the rest of the code is another way of making sure only genuine documents are coming through.
- Color status. Spotting a monochrome image can help FIs filter out photocopied documents.
The regulatory landscape keeps evolving, and FIs need to develop their compliance systems accordingly.
Primarily, they need to work on quickly, securely and accurately identifying customers at the beginning of the relationship and then periodically later on.
With an ID scanner in their mobile or web app, FIs can deliver more convenient, immediate experiences to their customers, while at the same time strengthening their KYC efforts.
Are you ready to make that leap? Try BlinkID for free and see for yourself what seamless, secure and feature-rich ID scanning feels like.