Automated KYC for online financial services

Automated KYC is changing compliance, bringing efficiency to manual processes, higher security standards and better customer experiences to online financial services. Find out how automated KYC is a boon for providers and customers in an increasingly contactless digital economy.

In days of yore, banks, building societies, asset managers, insurance providers etc all had to ask new customers to fill out paper forms and submit documentation, which then had to be analysed manually before a decision could be made about whether to onboard the customer. Then, there were renewal checks - if they happened - to make sure nothing had changed with that customer to make them more of a risk. 

The whole KYC process was time-consuming, prone to human error, and generally frustrating for both the service provider and its customers.

Automated KYC has changed this. And just as well, since the digital economy is really the only future now.

So what is automated KYC and how does it bring compliance efficiency to financial institutions without compromising the customer's experience. Better than that, we can talk you through how automated KYC can be a boon to both financial institutions and their customers in more ways than one.

What is KYC, and how does it affect financial institutions?

Know Your Customer (KYC) is essentially a process. It's a defined set of tasks carried out to ensure compliance with regulations designed to prevent financial crime and protect consumers. These tasks become a process to verify someone is who they say they are and to build a picture of risk around new customers. Financial institutions need to verify the identity of customers opening accounts, applying for loans, depositing savings etc etc before they give them access to products.

The regulations applied around the world that impact KYC processes are there to prevent different types of financial crime - like fraud, money laundering, terrorist financing - and illegal activity that's associated with financial crime - like people trafficking and drug trafficking.

Banks and other financial institutions have a moral and legal obligation to make sure their customers are who they say they are. Accepting money from someone who is people trafficker is horrible on lots of levels. And, enabling crime through non-compliance can lead to reputational damage, to large fines, and even to criminal charges. All money laundering report officers (MLROs) will tell you that the stakes are high, especially as individuals can be held personally accountable for failings, as well as the financial institution.

KYC regulations require providers of financial services to perform due diligence - that means acquiring and reviewing information from or about customers that will validate they are who they say they are, and that they are a legitimate person to be doing business with.

This due diligence process might be longer or shorter depending on the financial institution's appetite for risk. Broadly speaking though, a KYC process will check:

1) Name - with proof of ID

2) Address - with proof of residence

3) Age (i.e. date of birth)

These KYC checks will need to be satisfied before an account is opened, a loan is approved, and the savings are accepted.

Why are financial services companies choosing automated KYC?

Through saas solutions and RegTech platforms, financial services companies can now capture and complete KYC processes using automatic workflows with integrated data checks. The customer starts their application online, a pre-programmed series of data checks is carried out with different data providers and this is used to validate information, assess risk and satisfy compliance. Approval i.e. onboarding, or rejection i.e. off-boarding of customers can then become near instantaneous - certainly faster and more efficient than when performed manually.

The due diligence is completed online, in the background, while the customer experiences hardly a bump in the road. No forms. No paper shuffling. No API calls to numerous different providers for information. And, at regular intervals, the same KYC checks can be run again to ensure nothing has changed in the customer's risk profile that means they should be off-boarded i.e. they haven't suddenly moved from their address in Sydenham to Syria.

The traditional KYC process involves verifying customer data from paper-based documents and then manually entering this into a database. A process like this clearly takes time, ties up resources and poses the risk of errors, identity theft and fraud. The demands put on KYC processes have become more complicated over time, with GDPR, anti-money laundering regulation, globalisation and the explosion of digital financial services. With this trend set to continue, automated KYC or eKYC becomes the only sensible choice.

Financial services companies choose electronic KYC (eKYC) and automated KYC because it offers a fast, secure and practical solution to compliance challenges and changing consumer behaviour. Automated KYC helps financial institutions scale-up their compliance function, significantly increase the efficiency of KYC workflows, and lower the cost of the whole process. With automated KYC, service providers can also improve the customer experience at onboarding, without hiring new staff to manage relationships.

How does eKYC work?

Automated KYC or eKYC uses intelligent process automation technologies (like dynamic workflows and intelligent document processing) to satisfy a series of checks that complete due diligence. This process is tracked and its outcomes stored for audit purposes. The best platforms enable institutions to communicate with their customers as well, so questions can be asked; additional documents provided, and the process keeps moving forward.

As soon as a customer submits an application a series of checks begins and moves through stages of approval to complete the customer's risk profile. According to that risk profile different outcomes can be set to execute i.e. low risk straight-through processing (100% automation) and the customer is onboarded; medium risk - the customer is asked for more information via the platform and when that's provided they can be onboarded; high risk either off-board or escalate to the senior compliance manager.

The institution will automatically verify customers through the data held about them online by government bodies, credit agencies and so on, and/or validated through ID documents. And, the information about customers is then accessible from one secure and central space.  

And, of course, customers complete the entire KYC process online without having to make any annoying, in-person visits to the "branch" or post office.

Four benefits of automated KYC

For institutions....

1. Lower costs. Automated KYC processes and RegTech solutions mean due diligence at onboarding and then throughout the customer lifecycle can be completed quickly and at scale, so when you process more applications, you don't need to more staff to do it. According to Forbes, digital KYC can lower onboarding costs by as much as 70%.

2. Increased advocacy, loyalty and growth. Automated KYC allows financial institutions to process applications faster, increase customer satisfaction and reduce time-to-decision, which means customers get access to products faster. Providing a better compliance experience really can make the difference when it comes to customer loyalty too - those with a 'better than expected' experience at onboarding are more likely to recommend their provider (77 percent).

For customers...

3. Better customer experience. A manual KYC process can be convoluted and time-consuming for "good" customers. Automation means information is submitted and processed online - with less back-and-forth communication to get verified. Automated KYC allows customers to get onboarded from the comfort of their own home.

4. Better data security. Manual KYC processes are prone to data entry errors and security threats. KYC automation reduces the risk of human error and increases the accuracy of workflows. This reduces the potential for fraud and data breaches and allows customers to feel more secure about sharing personal information.

Get in touch

As new technology and regulations continue to disrupt the financial services sector, more companies are looking for ways to make their KYC process compliant, efficient and cost-effective. Many are turning to automated KYC as a result, recognising its potential to deliver accuracy and scalability with better customer experiences.

PassFort, a Moody's Analytics company, offers automated KYC solutions that are flexible and easy to use - better for financial institutions and their customers.

Get in touch to discuss compliance automation solution for your business.