Financial institutions use a process called Know-Your-Customer (KYC) to truly understand the customers they look to build relationships with. KYC, however, is an expensive business. A recent Thomson Reuters report highlighted that the average bank is spending c.£40m per annum on KYC alone with some spending close to £300m.
Why do banks need to spend so much?
Firstly, KYC is a regulatory requirement. It must be completed not only when onboarding a new customer, but also on an ongoing basis to ensure they always know their customer. The costs of not doing this are significant fines and reputational damage. Secondly, it is essential for banks to gather information to understand the risk the customer may pose. Finally, KYC forms part of the initial relationship between the bank and the customer. The effectiveness of the KYC process will inform and shape the future relationship.
So what is the problem?
Despite its significance banks still have a long way to go in order to finesse the process. Corporate Banking is a particular hurdle due to its added complexity of servicing clients across multiple jurisdictions. In a recent survey, 89 per cent of corporate customers reporting a poor KYC experience and 13 per cent changed their financial institution relationship as a result*. In turn, a 2016 global survey found that 78 per cent of banks admit that poor service cost them corporate clients in the past 12 months**. The consequences of not getting this right are both financial and reputational: banks will lose customers and future revenue opportunities.
What can banks do to solve it?
- Choose a KYC tool and workflow system that meets global requirements and integrate it – Corporate banks largely aim for a centralised operating model for their multi-national clients. KYC is a key part of this. Therefore, any tool selected must consider regulatory differences and nuances across jurisdictions. KYC is essentially about gathering and validating customer information. Therefore, it is important to ensure the system is integrated into existing architecture to ensure accurate and relevant data is flowing to downstream systems.
- Complete KYC quickly – lead times are often months, meaning that process efficiency is a key challenge currently experienced during KYC today. With the correct operating model, systems and processes in place, banks can reduce time to complete checks and therefore be more attractive to customers. Having a workflow tool to manage the Client Onboarding, KYC and Account Opening process can also be very useful in ensuring handoffs are not only minimal but seamless.
- Manage customer expectations – getting this right can make a huge difference. Make sure that the client has sufficient access to information through a range of channels (e.g. a client portal, telephone, documentation). Explain the process and how long it might take. Be honest if this is a long time!
Is it really as easy as this?
Of course, conceptually it is easy; however delivering this in reality is no mean feat. There is clearly merit in going back to basics with a banks KYC principles. For example, considering what matters most to clients and identifying opportunities to deliver this successfully. Given the high operational costs of delivering compliant KYC, there is little to lose and a lot to gain!