Innovation in KYC for a digital economy

Challenger banks and neobanks have arguably led the way with convenient, customer-friendly onboarding. So, how can innovation in the Know Your Customer space help firms stand out in a busy marketplace?

How innovation makes you standout in a digital world

Challenger banks and neobanks have arguably been leading the way in customer-friendly onboarding processes. They have made them part of the wider brand ethos to create convenient, digital customer experiences. Neobanks have demonstrated to customers from the very start of their lifecycle "this is how we do things around here, and you're going to love it." This approach has won them customers and followers.

The entire development of the RegTech ecosystem has been borne out of a desire to support financial institution (FI) to onboard customers in a smooth and seamless fashion. But the challengers really stole a march on the incumbents when it came to convenience and compliance in the know your customer (KYC) world. 

So, what can the financial services industry learn about where innovation has sprung from, where it’s still needed, and how this is going to make the difference when it comes to competing in a digital world?

Advance of RegTech

In the first wave of RegTech, the focus was on providing access to data. Giving financial services businesses the data they needed to satisfy compliance requirements by verifying different types of information about new customers. RegTech was aimed at helping FIs verify customers were who they claimed to be. Whether the FIs process was focussed on Know Your Customer or Know Your Business onboarding, the technology was advancing compliance management through automating access to reliable and affordable data.

It was this first wave of RegTech that started to bring customer onboarding online and began the process of digital transformation in compliance. Until the likes of Onfido and GBG, there really hadn’t been any digitisation of KYC and KYB beyond the use of spreadsheets and email. 

However, as sure as one wave follows another, digitising data access led onto the possibility of digitally transforming more complex elements of the customer onboarding journey. The first wave of RegTech opened the way for more innovation and the automation of compliance workflows so FIs could understand a customer’s risk profile and scale onboarding without adding more cost and people into the business.  Plus, it moved the customer experience forward. If accessing data made customer onboarding faster, automated workflows super-charged it.

RegTech was no longer about point solutions for accessing data. It was about aggregating data and giving product and tech teams the ability to orchestrate compliance workflows. Digitising risk policies, creating workflows of data checks, and automating key tasks to operationalise compliance and arrive at onboarding decisions. Better for businesses and better for customers.

The second wave of RegTech gave birth to customer lifecycle management (CLM) solutions that dealt with end-to-end onboarding processes as well as risk monitoring and perpetual KYC.

Where has the innovation been in onboarding?

The COVID-19 pandemic had a huge influence on customer expectations when it came to onboarding and it’s these customer expectations that continue to drive innovation in RegTech. It’s essential for Know Your Customer processes to be digital, seamless, fast and remote. Customers are expecting to do anything related to their financial lives online.

The challenge for the FinTech and RegTech industries is to segment bad actors from the everyday consumers who just want to access financial products and transact. These everyday consumers want convenient experiences and expect onboarding to be like any other part of their life as a consumer. This is what’s driving innovation - balancing customer experience with regulatory compliance. This is what makes KYC innovation important to FIs, because it is these experiences that provide competitive advantage.

Digital customer onboarding journeys have already moved on enormously in the last five years. There has been global innovation to make onboarding smooth and seamless, and the next swathe of innovation will focus on preventing financial crime and money laundering while delivering convenience for customers. 

What challenges are left to solve?

While neobanks and challengers got a head start, the race was maybe a little unfair given they were able to design and iterate their compliance processes from scratch. This wasn’t so easy for incumbent FIs whose working practices were embedded and needed wholesale change programmes, IT projects and budgets to complete digital transformation. However, neos and incumbents have all come a long way towards solving their compliance challenges.  

There are still areas that need finessing such as -

  • Ensuring operating models work for employees as well as customers - often it can be a trade-off between the two
  • Allowing collaboration between internal departments e.g., sales and KYC - that means transparency and communication
  • Simplifying escalation and handoff points between people - there can be delays when straight through processing isn't possible
  • Enabling people to work globally and across different jurisdictions is possibly still the most complex area for many regulated firms

The retail end of the financial services market has seen more rapid digital transformation of KYC. If we think about digital identity and verification (ID&V) solutions for example these have been developing apace with the advent of biometrics.

There are options to bring the same technology to bear in the Know Your Supplier and KYB space, but these processes are usually vastly more complicated than consumer onboarding. When it comes to gathering documentation, understanding corporate structures, and verifying ultimate beneficial owners (UBOs) a selfie is unlikely to be the answer. However, it doesn’t mean it’s not part of the solution and there is definitely scope for adopting innovation in the know your supplier and corporate onboarding spaces.

And while all this is important at onboarding, it also needs to be thought of for risk monitoring and periodic reviews too. It’s in this field of RegTech that challenges are being solved with holistic, innovative, and global risk management solutions. 

Delivering competitive advantage

Overwhelmingly, the story of digital transformation from manual onboarding to digital onboarding is one of positivity for financial institutions, their customers, and employees. Getting this right can enable the growth of businesses, great customer experience and compliance with regulation. 

Think about the fastest scaling FinTechs and the fact some of them are receiving more than 300,000 download requests a day. How would it be possible to onboard this volume of people without the support of great RegTech solutions that orchestrate workflows, integrate data access and automate risk-based decision making?

It’s essential to have the right processes, the right tech, and to harness the next wave of innovation to make onboarding scalable while dealing with customer demands that will enable firms to win the day. 

Get in touch

PassFort, a Moody’s Analytics company, provides a SaaS RegTech solution that orchestrates KYC, AML and KYB processes. Digitising workflows, integrating data checks and enabling teams to make risk-based decisions throughout the customer lifecycle. PassFort is breaking the compromise between compliance efficiency and great customer experiences.

If you would like to discuss a digital KYC solution for your business, please get in touch – we would love to hear from you.