Strategies to Impact KYC Processing in the Digital World

In the digital era, compliance, security and Know Your Customer (KYC) processing is becoming increasingly complex and expensive for the banking industry. The impact of penalties and strict regulations imposed on KYC and Anti Money Laundering (AML) non-adherence can be significant and can adversely impact the reputation of the company. Banks and other financial institutions cannot afford to be non-compliant, which forces them to evaluate alternatives that reduce cost and risk. Fortunately, the recent advancements in technology related to blockchain, AI, analytics and RPA can significantly reduce cost and the risks associated with KYC Processing. For example:

• BOT-based RPA implementation reduces the resources required, which has an impact on the overall cost and can be applied to various areas of KYC Processing such as data extraction, identification and verifications and risk rating.

• Analytics-based (and insight-driven) KYC processing can significantly help in the risk assessment process as well as deliver insight-driven reporting for enhanced decision making.

• Blockchain-based KYC processing is a very effective way for sharing KYC data and risk assessments across financial institutions.

• Introduction of machine learning in the KYC refresh cycle could potentially help in identifying patterns and resolutions.

• Structured and unstructured data can be extracted with reasonable accuracy (up to 90% in some cases) and increased Straight Through Processing (STP) without manual intervention.

There are multiple benefits for technology adoption in KYC processing, but banks and financial institutions still resist large-scale, transformation-led KYC implementations and adhere to traditional methods. The reasons for this adherence to tradition could be multi-fold, due to both internal and external factors including:

• The inherent fear of data privacy and compliance concerns when implementing technology-based solutions. A single incident can impact the reputation of the bank.

• The perception that sharing of customer data across other financial entities may impact the client’s own business as they need to divulge some vital information regarding their own customers to competitors.

• Traditionally KYC has been implemented in-house, and there is resistance to change or to transforming the existing process using technology, which may lead to a centralized KYC processing outside the business unit or even to a third-party service provider.

Does the digitalization and increasing adoption of digital technologies change this? Possibly yes. In fact, some of the fears may be alleviated as digital technologies are becoming more mature and are alleviating security and compliance issues better than before. For example, banks were reluctant to implement cloud into their IT strategy when it was introduced for the same reasons. However, recently this has changed, and more banks have adopted cloud. Similarly, when the confidence gained in recent times due to successful digital implementations across the various functions of the bank are coupled with increased adoption of AI and machine learning there have been benefits to the business.

Also, improvements in customer servicing and competitive advantages gained by digitally led initiatives will lead banks to think of alternatives in KYC processing. Recently there has been efforts to move to a centralized KYC utility-based models by implementing registries either inside or across the organizations that enable the sharing of customer data in a secure and cost-effective manner. Technologies such as blockchain not only ensure the changes are propagated in a secure manner but also can define the stakeholders that can be involved in the various stages of the KYC processing ensuring security and privacy.

Organizations can now start considering an enterprise-wide KYC strategy which can eliminate redundancies and reduce cost. KYC implementation should no longer be looked upon as a technology implementation alone as a way to cover business and compliance aspects in a holistic manner. NTT DATA has been a forerunner in successful KYC implementations for clients across the globe. Based on our expertise and lessons learned we have a formulated approach and strategy for KYC implementations.

To learn more about strategies that can be considered and discover the details of a successful KYC implementation program, read Strategies for a Successful Client Due Diligence Program or contact us at bpo@nttdata.com.