In this new globalization era, everything is becoming digital: from everyday transactions to opening an account. This transformation towards digitization started from the need to reduce the costs and time of traditional processes. This transition is part of the overall digital transformation in financial services as it is particularly important when opening a bank account or submitting documents to public authorities. Furthermore, anti-money laundering and financial crime regulations require banks and financial institutions to conduct extensive identity checks in order to prevent illegal activity. In line with the shift to digitalise financial services, it has now come the time to digitalise the Know your customer (KYC) checks as well. Without a digital identity, there is no way of knowing whether the individual or entity with whom you are interacting is non-fraudulent and complies with the regulations.
Traditional KYC Operations and Covid 19
One of the most difficult aspects of manual operations is ensuring adherence to an institution’s policies. The work of compliance comes to a halt in situation when client-facing staff collects and pass on an insufficient or incomplete document to the compliance team. The client facing staff must reach out to re-contact the potential clients and hence, repetitive client outreach is frustrating for both the client and business professionals and delays the on-boarding process.
The work of KYC operations itself is challenging. KYC professionals performing customer due diligence work with several independent sources of information that reside outside their institutions. The team typically download documents as files in PDF and once, they have completed their due diligence, they pass these along the chain of work either as attachments in emails or links referring documents stored in shared drives. It is quite difficult and monotone to verify as many errors and omissions are expected during the classical KYC process. Manual verification is not easy and therefore, taking a lot of time and resources. As a result, making it more difficult for businesses and its customers.
Furthermore, criminals are always looking for opportunities to capitalize on and this global pandemic is no exception. Cyber-crime around this pandemic has increased and will continue to rise if it continues. Financial institutions are at risks with individuals not being able to verify themselves personally. During this time, criminals will be looking for any opportunity to take advantage.
As daunting as these challenges may seem, the risk of doing nothing may is even greater. During this pandemic, in order to stay ahead of financial threats, organisations must evolve and re-invent themselves by embracing the digital KYC operating model. New technologies are providing organisations the opportunity to overtake the legacy systems and rapidly develop a robust identification infrastructure. At the same time, customers’ expectations of a smooth and digital experiences are becoming more embedded by the convenience and ease of use that Fintech companies are able to provide.
Customers who have gone through the type of digital KYC journey that digital banks can provide will never go back to certified paper copies of documents. Hence, if established financial institutions want to prepare their back-end and client-facing operations for the challenges of the next decade, the KYC compliance function is an excellent place to start.