The KYC Process is one of the imperative elements in the banking industry & other financial sectors. Business models have changed alot since the emphasis on KYC/AML by the governments worldwide. This article explains a few insights about how business models have changed due to KYC and what’s the latest requirement in this context.
McKinsey’s Survey
McKinsey conducted a survey of 12 leading global banks to assess the state of their KYC (Know Your Customer) processes and identify best practices for improving these processes. The survey aimed to quantify the benefits of better KYC practices and identify ways to overcome common challenges. This survey lead to the findings which are documented below:
- There is an urgent need from 2020 to improve the KYC programs in banks and other financial institutions.
- Customers expectations in terms of services & convenience have been increased. Mckinsey’s analysis found out that banks who have top customer service significantly grew with 3% growth rate, 15% revenue growth & 4% efficiency growth.
- The analysis also found that the quality of the data collected matters a lot. Since the operational cost was up to 26% due to poor data quality it created problems. Non standardized formats, duplication & incomplete data were the highlighted problems in the research.
- Cost of KYC programs are increasing & budgets are getting tighter pushing the banks to invest in more advanced, cost efficient systems for KYC. McKinsey’s analysis showed a 43% growth in financial crime compliance for banks alone. While the budget of KYC programs decreased to 25% as of 2020.
Top KYC Programs and their impact
McKinsey’s KYC Benchmark Survey exhibited that opportunities towards improvement in KYC systems are significantly high. Examples from these results indicated that banks with streamlined processes & reduced hand-offs have reduced risks and are more effective.
Risk & Resilience practice in banks through KYC
This research also collected data & findings on the increased Resilience and risk management in banks through improved KYC. look at the exhibit below:
- Banks increased productivity through KYC was from 20 to 50%
- Quality Assurance scored on 13%
- Improved customer experience through reduced customer outreach was 18%
Overall, the Improving KYC processes can have multiple benefits for banks. These improvements can lead to cost savings, better risk management, and a better customer experience, which can increase customer retention. In addition, the data collected during KYC processes can be used in other areas of the business, such as identifying opportunities to offer new products or services to customers based on their expanded business activities.
Impact of KYC-programs on Bank’s Business Models
To successfully implement advanced KYC programs, banks need to focus on five key areas:
- Risk-driven design and customer-risk management
- Digitization and optimization of the customer experience
- Use of data and analytics
- Intelligent process and policy automation
- The creation of a center of excellence
These efforts should involve both technological and non-technological elements. Banks should also strive to build a holistic set of capabilities in each of these areas, rather than relying solely on technology. There are many steps that can be taken to improve KYC processes, such as defining clear roles and responsibilities, resetting risk-based policies, streamlining risk processes, and simplifying requirements. These non-technological efforts can lead to quick wins and significant improvements.
Read Further: What’s Happening in KYC - Countrywise Knowledge
A Global Bank’s Case:
A global bank that had recently grown its KYC team and invested in technology and data was lacking key capabilities in its KYC program, such as a digital rules engine, automation in the due diligence process, end-to-end workflows, and a customer-facing portal. To address these issues, the bank decided to implement the five key ingredients for advanced KYC programs, as outlined in a previous statement. After conducting an assessment of the bank's current state and industry insights, a detailed three-year transformation plan was developed to address areas such as performance management, talent management, and process efficiencies. The plan also included the implementation of "no regret" technology and data capabilities, as well as initiatives to improve the customer experience. The bank expects these efforts to reduce the number of cases requiring customer outreach by 20% and the number of requests for customer outreach to one or two, down from five. The bank also anticipates an increase in capacity for its operations teams of 30-35%.
Further Moves in context of KYC
Implementing an advanced KYC program requires significant resources and dedication from a company, but the rewards can be significant. A successful KYC program can lead to cost savings, improved risk management, increased revenue, a better customer experience, and improved employee satisfaction. When KYC is integrated into the business DNA, customer risk management, customer experience, and profitability can all be effectively managed simultaneously, leading to mutually beneficial outcomes.
Also Read: The impact of sanctions and trade restrictions on KYC and AML for government agencies
The KYC Process is one of the imperative elements in the banking industry & other financial sectors. Business models have changed alot since the emphasis on KYC/AML by the governments worldwide. This article explains a few insights about how business models have changed due to KYC and what’s the latest requirement in this context.
McKinsey’s Survey
McKinsey conducted a survey of 12 leading global banks to assess the state of their KYC (Know Your Customer) processes and identify best practices for improving these processes. The survey aimed to quantify the benefits of better KYC practices and identify ways to overcome common challenges. This survey lead to the findings which are documented below:
- There is an urgent need from 2020 to improve the KYC programs in banks and other financial institutions.
- Customers expectations in terms of services & convenience have been increased. Mckinsey’s analysis found out that banks who have top customer service significantly grew with 3% growth rate, 15% revenue growth & 4% efficiency growth.
- The analysis also found that the quality of the data collected matters a lot. Since the operational cost was up to 26% due to poor data quality it created problems. Non standardized formats, duplication & incomplete data were the highlighted problems in the research.
- Cost of KYC programs are increasing & budgets are getting tighter pushing the banks to invest in more advanced, cost efficient systems for KYC. McKinsey’s analysis showed a 43% growth in financial crime compliance for banks alone. While the budget of KYC programs decreased to 25% as of 2020.
Top KYC Programs and their impact
McKinsey’s KYC Benchmark Survey exhibited that opportunities towards improvement in KYC systems are significantly high. Examples from these results indicated that banks with streamlined processes & reduced hand-offs have reduced risks and are more effective.
Risk & Resilience practice in banks through KYC
This research also collected data & findings on the increased Resilience and risk management in banks through improved KYC. look at the exhibit below:
- Banks increased productivity through KYC was from 20 to 50%
- Quality Assurance scored on 13%
- Improved customer experience through reduced customer outreach was 18%
Overall, the Improving KYC processes can have multiple benefits for banks. These improvements can lead to cost savings, better risk management, and a better customer experience, which can increase customer retention. In addition, the data collected during KYC processes can be used in other areas of the business, such as identifying opportunities to offer new products or services to customers based on their expanded business activities.
Impact of KYC-programs on Bank’s Business Models
To successfully implement advanced KYC programs, banks need to focus on five key areas:
- Risk-driven design and customer-risk management
- Digitization and optimization of the customer experience
- Use of data and analytics
- Intelligent process and policy automation
- The creation of a center of excellence
These efforts should involve both technological and non-technological elements. Banks should also strive to build a holistic set of capabilities in each of these areas, rather than relying solely on technology. There are many steps that can be taken to improve KYC processes, such as defining clear roles and responsibilities, resetting risk-based policies, streamlining risk processes, and simplifying requirements. These non-technological efforts can lead to quick wins and significant improvements.
Read Further: What’s Happening in KYC - Countrywise Knowledge
A Global Bank’s Case:
A global bank that had recently grown its KYC team and invested in technology and data was lacking key capabilities in its KYC program, such as a digital rules engine, automation in the due diligence process, end-to-end workflows, and a customer-facing portal. To address these issues, the bank decided to implement the five key ingredients for advanced KYC programs, as outlined in a previous statement. After conducting an assessment of the bank's current state and industry insights, a detailed three-year transformation plan was developed to address areas such as performance management, talent management, and process efficiencies. The plan also included the implementation of "no regret" technology and data capabilities, as well as initiatives to improve the customer experience. The bank expects these efforts to reduce the number of cases requiring customer outreach by 20% and the number of requests for customer outreach to one or two, down from five. The bank also anticipates an increase in capacity for its operations teams of 30-35%.
Further Moves in context of KYC
Implementing an advanced KYC program requires significant resources and dedication from a company, but the rewards can be significant. A successful KYC program can lead to cost savings, improved risk management, increased revenue, a better customer experience, and improved employee satisfaction. When KYC is integrated into the business DNA, customer risk management, customer experience, and profitability can all be effectively managed simultaneously, leading to mutually beneficial outcomes.
Also Read: The impact of sanctions and trade restrictions on KYC and AML for government agencies
