Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations protect your financial institution and consumers. On a basic level, the requirements are straightforward. Firms should verify identities, check against prohibited lists and evaluate risk factors. However, complexity enters the KYC process because the industry lacks clear standards for onboarding clients across multiple jurisdictions.
As a result, banks and credit unions devote significant resources to compliance and administration. And users — who crave convenient, speedy services — abandon complicated enrollment systems or need extra assistance. Portable KYC provides fast but accurate identity verification. It standardizes the due diligence process, improving customer experiences and administrative procedures. Explore the drawbacks of the current KYC process and learn how portable KYC is a game-changer for financial institutions and consumers.
Current State of Affairs: User Onboarding and Cybersecurity
Advanced technologies and digital everything make it easier for fraud actors to use someone else’s credentials. Firms often use manual methods to authenticate, screen and verify identities to combat fraud and comply with customer due diligence (CDD) rules. The heavy administrative burden is costly for banks, credit unions and startups.
KPMG estimated the banking sector spends “in excess of $25 billion” yearly on financial crime risk management, most of which is due to KYC. Moreover, the time-consuming KYC process leaves consumers frustrated.
Securing Processes and Systems
The lack of standardization means every organization must create its own KYC process. Administrators validate various documents, including driver’s licenses from 50 states, passports and utility bills. Indeed, 57% of respondents to a Global Legal Entity Identifier Foundation (GLEIF) survey said that the “reliability of reference data is a challenge,” and 55% “agree that the resourcing of onboarding is a challenge.”
Falling Short in User Enrollment Experiences
Opening a new account can be a lengthy ordeal. Customers appreciate your attempts to reduce fraud but don’t understand why methods vary among financial institutions. The requests for documents can seem intrusive, and consumers want to complete everything online, especially younger clients. Consequently, 63% of individuals abandoned bank applications in 2020, and 32% of Gen Z applicants refused even to start if the firm required an in-person visit.
In addition, the onboarding process can be confusing, increasing calls to your contact center. Each conversation requires identity confirmation. Even if prospective clients make it through your onboarding process, a poor experience reduces loyalty, meaning they’re more likely to switch institutions.
Portable KYC: What It Is and How It Works
Portable KYC refers to the standardization of identity verification methods and files that can be used between different software applications. For instance, a bank or credit union collects information from a consumer, verifies it and creates a KYC file. From there, the individual can access other services within the banking ecosystem without providing the documentation again. In this method, the bank doing the initial KYC verification may charge a fee to other institutions accessing the KYC file.
Alternatively, artificial intelligence (AI) and machine learning (ML) automate time-consuming processes by verifying and approving thin-file demographics. These technologies identify good clients while flagging others for enhanced due diligence (EDD).
Standard KYC vs. Portable KYC
The standard KYC process is unique for every financial institution. However, in most cases, consumer data resides in silos, meaning customers must verify their identity when opening a new account, even if they already have one at the same bank or credit union. In contrast, portable KYC uses AI and ML to share data between institutions and departments.
Portable KYC can reduce the costs of compliance while enhancing cybersecurity and privacy. Automated solutions let qualified consumers complete KYC and AML online. If their identification details change, they don’t have to update their information with each branch or department. Instead, identity assurance tools can continually re-confirm accounts to assure accuracy.
Benefits of the Portable KYC Process
Established banks and credit unions can leverage portable KYC to minimize liability while saving time and money. It also helps them compete with digital financial services by decreasing friction during the customer onboarding process. Likewise, startups can focus on scaling their business without investing heavily in a bloated compliance management system.
Key advantages of a portable KYC process include:
- Reduced Vendor Costs: Proprietary systems and multivendor processes drive up costs and complexity. Fully managed customer acceptance software provides identity assurance at enrollment and beyond, lowering IT and administrative expenses.
- Saved Time: Portable KYC performs compliance checks once and provides the user with cryptographic proof. Service providers can confirm the information cryptographically without needing to repeat the same checks. Opening an account can take minutes, not months, with a KYC data-sharing ecosystem.
- Improved User Experiences: Outdated systems increase your onboarding failure rate. Because, let’s face it, customer experience is a significant competitive differentiator. It fuels revenue growth and loyalty while reducing costs. Portable KYC can provide the near-instant experience consumers expect by completing compliance checks once and confirming identity using a verifiable credential.
The Future of KYC is Portable
The world is moving toward a centralized system of digital IDs. Industry leaders are coming together to review possibilities for blockchain-agnostic credentials and other options to standardize the KYC process. While waiting for a global solution, financial firms will continue to dump significant funds into compliance and anti-fraud systems.
However, future-oriented banks, credit unions and startups deploy AI-powered tools to automate processes and reduce liability. These solutions allow organizations to authenticate customer identity quicker and more accurately than manual processes. With fewer compliance concerns, firms can concentrate on their core missions.
Improve Your KYC Process
Get ahead of the regulatory curve with a fully managed acceptance platform. Instnt Access™ uses the Hyperledger blockchain, allowing your customers to sign up once. After that, they can access your products and services with one click. It automatically accepts suitable applicants, lowers false rejections and indemnifies onboarded customers against fraud loss. Learn more by booking a demo today.