Digital Customer onboarding is more than just the beginning of a relationship. How it is done influences whether or not customers like and trust the company, as well as how much effort and cash they are willing to spend with the company. Burdensome and disconnected techniques that result in inconsistencies in the gathering and verification of necessary know your customer (KYC) information can offer a significant problem to the financial sector.
Customers encounter and evaluate all of the aspects they appreciate most during the onboarding program: ease, customization, branding, safety, and service. Addressing KYC regulatory standards in an efficient and productive manner is critical in staying competitive, not eliminating genuine or loyal consumers, and doing what is necessary to safeguard communities.
What is KYC Compliance?
KYC Compliance is the method that a bank employs to ensure that it knows the identity of its clients. Nowadays, this usually includes analyzing identification papers and background checks to determine who the client claims to be and then making efforts to validate that the client is indeed that person. KYC compliance is completed throughout the onboarding process for financial institutions, but it does not end there. Banks are obligated to “know” their customers throughout the duration of their financial relationship. This involves recognizing and validating changes in a client’s financial behavior, such as when they relocate for commercial clients. It also involves adjustments in ownership of authority for corporate customers.
KYC is also an important component of anti-money laundering (AML) and counter-terrorist financing (CTF) regulation. It serves as a framework for AML compliance. Companies can’t evaluate if they’re allowing criminal activities if they don’t know their consumer.
Authorities have tightened the reins for good cause, boosting KYC standards. As more business has transitioned to digital media, these needs have become critical to:
- Combating illegal activities
- Avoiding fraud
- Ultimately preserving community
Evolving rules cause several problems for both banks and their consumers.
Evolution of Know Your Customer
KYC consists of a number of directives aimed at combating money laundering fraud, and terrorist funding, each of which modifies the strategy used in different countries. These have gradually extended the variety of companies in scope and the sorts of solutions for which the KYC procedure applies.
The frequency and scope of inspections have also been raised. Clients from a newly extended list of high-danger nations must undergo Enhanced Due Diligence (EDD). The obligation to recognize, verify, and continually screen the Ultimate Beneficial Owners (UBO) of legal entities, particularly charities and trust-like companies, causes issues for KYC procedures, particularly where the UBOs are located in banned high-risk third world countries or have offshore accounts.
Know Your Customer Costs and Expenses
Internal Costs
Internal expenses will comprise the KYC procedures as well as any actions needed to keep the business compliant. Compliance officers are hired to monitor transactions, respond to notifications, handle investigations, call clients, manage false positives, and perform other regulatory duties as well.
The expenses, particularly those associated with hiring experienced AML personnel, continue to climb dramatically. The tides of legislation that have slammed financial services have resulted in increased recruiting and significant pay raises for compliance officers.
KYC costs do not end with onboarding. Regulated firms must do continual consumer due diligence. This entails keeping an eye out for questionable financial activities. It should also involve adjusting to alterations in the client’s financial behavior that may suggest a concern or let’s say a change in beneficial ownership of a company
External Costs
External vendors continue to be an important part of the KYC ID verification process. Credit bureaus and background datasets are critical points of reference for correlating prospective clients’ identification queries and supplying insights to the ongoing client due diligence operations. Credit data is not available in every country.
Sanctions
Alongside the internal and external expenses, financial organizations that fail to satisfy regulatory criteria face severe sanctions.
The consequences of faulty KYC verification are enormous, with revenue, brand image, and personal costs. Each member state determines the particular consequences for AML KYC compliance failures, but they are anticipated to be quite harsh and highly detrimental to the financial firm in question.
In several European nations, regulatory bodies have taken a tough approach.
And yes, penalties and fines are not just the only danger for financial institutions, failure of KYC verification is probable to result in fraudulent behavior, leading to big revenue loss for businesses. In the first half of 2021, identification card theft amounted to £11.5 million, as per UK Finance’s 2021 Half Year Fraud Report.
Client Abandonment
Businesses should be concerned about lost business when clients leave in the middle of the onboarding process because the KYC verification process is too time-consuming. KYC technology suppliers have expanded dramatically in recent years, making it more difficult to select the correct compliance solutions for goods.
Choosing the Right Solution
It is not so simple to implement and configure the correct KYC compliance online verification system. It may rapidly become a challenging aspect of developing a client onboarding experience.
It is vital to have a multi-layered identity verification and KYC solution that is customizable while also reducing production costs and time to market.