Credit for this analogy must go to Chris Ellis from Bowsprit when he ran a panel at the PIF Innovation summit towards the end of 2020. It’s an apt analogy for KYC, and each one of the pedals: brake, accelerator, and clutch has their place.
Compliance is often viewed as a necessary evil for businesses. A process that creates friction with the customer but must be done in order to meet AML regulations. It’s undeniable that KYC journeys have, in the past, created difficulties for businesses.
However, with approximately $2 trillion of illicit money moving through the global financial system each year, it’s time to examine how compliance goals can be met while being made as frictionless as possible.
KYC can be an asset in your customer onboarding journey and with the right support, it can help your customers stay with your business for longer.
A digital KYC journey should be finely tuned to the customer and reactive to how they interact with the business, being able to onboard a customer online or through a call centre depending on customer preference.
KYC as a brake
KYC typically slows down customer onboarding. But that’s only when you consider all applicants as customers. KYC today helps you filter out those who are not right for your business, that includes criminals such as fraudsters and money launderers who you want to keep away from your business and from your other legitimate customers.
No-one wants to build a better vehicle for money launderers and no legitimate business wants a money laundering scandal associated with their brand. Without having an effective and robust KYC journey in place for your onboarding customers you risk crippling fines – which in 2019 totalled $36 billion globally. There’s also the incalculable cost of reputational damage.
In 2018, Danske Bank saw possibly the biggest money laundering scandal in Europe to date. The bank is expected to pay out billions of dollars in fines to regulators across the continent, the CEO at the time resigned, share prices more than halved, and the bank has promised to donate several hundred million dollars to charity as an act of contrition in a bid to retain some of its reputation.
The bank had been receiving suspiciously large deposits in its Estonian branch. They were being made by non-residents of Estonia who had almost no KYC checks performed on them. It later transpired that the money being moved was coming from Russia, a high-risk nation for money laundering.
If Danske Bank had put in place effective KYC journeys across all of its branches, then it could have avoided a scandal that has crippled its operations and caused severe long-term damage to its reputation. It will take a long time before the bank is able to repair the trust it has broken.
KYC as an accelerator
It’s clear that poor KYC can be a huge brake on business if implemented poorly and can have devastating consequences if left unchecked. So how can it accelerate your business?
Good KYC processes mean that you’re able to onboard your customers painlessly. Using a KYC journey which is configured to your businesses exact compliance needs requires a KYC workflow that is customised to all the potential types of customers you’ll onboard.
For example, you may need just a few verified documents in order to onboard a customer. Making that clear from the start of the customer KYC journey means that they know exactly which documents to have to hand and can supply them immediately.
But not all documents are made equal, passports are more reliable than a bank statement after all. It’s likely that for your risk-based approach to compliance to be effective you need multiple documents to onboard a customer and if they lack something as powerful as a passport then making it clear what else is acceptable, such as a driving license will create a painless experience for customers.
There are also ways you can incorporate your KYC checks into the onboarding journey. A gaming operator could allow a customer to select bets so that the potential winnings are clear but then require the customer to submit their documents before processing the bet.
That way the customer is already engaged and motivated to see the journey through. KYC has become a part of their journey when using the product.
If, in the future for security reasons, you need to check further details in the future the customer won’t be shocked by it and is more likely to respond positively. And that integration of KYC with your customer onboarding journey has managed to motivate your customer into engaging with the process.
KYC as a clutch
KYC comes into its own as a clutch for business. If it goes wrong, then the customer-business relationship stalls. But that can be a good thing, provided that your KYC journey is properly configured. Something that hasn’t historically been the case.
KYC should only cause the relationship to stall out when the customer you could be onboarding is trying to move illicit funds through your business or carry out other financially criminal activity such as fraud.
Thanks to the development of the digital economy, it’s no longer feasible to get to know your customer as businesses did in the pre-internet age. Face to face concierge-like onboarding is a rarity rather than the norm. However, that type of KYC was never particularly effective, it was a high-intensity experience for customers but provided little depth of knowledge and it was not scalable without significant investment.
For the past decade we’ve been experiencing a surge in digital and remote onboarding tools, where the KYC process is embedded into the customer experience. Unfortunately, customer abandonment is still high thanks to increased regulatory demands and slow onboarding processes.
Approximately 36% of financial businesses lose customers thanks to slow onboarding and it stands to reason that this statistic extends to other industries that require a similarly tough KYC process to onboard customers.
However, the industry is moving into a new era of KYC and customer onboarding. KYC is being used to shift gears and accelerate and improve the customer experience.
One example of easing the entire process for customers is making the journey available to them in their preferred language – smoothing out the customer journey and making it as frictionless as possible for them.
Using completely configurable KYC solutions means that businesses can integrate compliance checks with the customer onboarding process at a stage where the customer is most motivated and open to providing identity documentation.
The KYC journey is a brake, an accelerator, and a clutch all in one. The brake protects your business by putting a stop to criminals from accessing your products, the accelerator allows your customers to move quickly through the onboarding journey, and the clutch is what creates a frictionless transition between the two.
Create your frictionless KYC journey today.
