In the banking industry, the KYC automation process has enhanced and organised its productivity and resulted in an increase in the efficiency of complicated projects. Well, the KYC onboarding process has become one of the most challenging tasks, but it has helped many companies reduce costs.
According to Booz Allen Hamilton, compliance failures are expected to be the most costly in the future. Moreover, as per its research on AML, some consultancy notes that are being hired by financial institutions tend to increase AML operations by 500% in the next few years.
In addition, this report also analysed that the AML experts only spend 10% of their time in the analysis process. However, the remaining 90% procedure is done through global KYC automation that not only helps with quick onboarding but reduces costs as well.
In this blog, we have highlighted how KYC automation can transform your whole process and is useful for your employees and clients.
What is KYC Automation?
KYC automation, also known as automated KYC, refers to the use of technology, such as machine learning algorithms and digital identity verification tools, to streamline and automate various aspects of the KYC process. This can include tasks such as document verification, facial recognition, and risk assessments. The goal of automated KYC is to improve efficiency, reduce costs, and enhance compliance while also providing a better experience for customers.
Challenges Encountered in Manual KYC
Well, the purpose of automated KYC is to reduce or completely eliminate the challenges faced in the traditional KYC process. The manual KYC encounters numerous obstacles that are mentioned below:
i. Extended Processing Periods
The time that flows during the KYC procedure, from scratch to the end of the process, is the waiting time by the user. However, manual or traditional KYC onboarding may delay these processes drastically, which may frustrate the customer. Well, conventional KYC processes could be one of the major reasons for response delays.
Due to this, your team will be overstressed by the amount of workload. Not only this, but your customers will also have to wait a long time to get a response to their request. Therefore, prolonged wait times are a significant obstacle in the customer experience.
ii. Sky-High Costs
Numerous financial organisations have been found spending approximately $50 Million to $500 Million annually on their KYC onboarding and due diligence processes. Thus, the actual costs of the KYC processes include internal employees' salaries, technological costs, customer identification process, third-party licensing, KYC remediation costs, compliance fines, and other expenditures. Thus, it’s no surprise that financial institutions continuously strive to make onboarding procedures more cost-effective.
iii. Time-Taking Process
Manual KYC is a time-taking process, in which teams have to carry out the information manually from the documents and insert this information into the database. However, the challenge arises when each team has multiple documents to process at the same time and it may take lots of time and effort. Some information may demand double-checking with the chamber of commerce, proof of residence, or other sources that may consume lots of time.
iv. Lack of Security
With the application of GDPR post-financial challenges, financial organisations need to address some strict requirements related to the storage and management of client information, which may lead to significant fines for non-compliant firms.
v. Huge Error Risks
Manual KYC requires manual typing, which increases the possibility of huge errors. Since each customer requires multiple documents to be processed, and employees handle multiple users simultaneously. Manual errors can cause significant problems for your organisation. A small mistake such as a misplaced letter or number can lead to the incorrect recording of an identity. Typically, the error rate for manual KYC checks falls between 2 to 5 per cent.
Benefits of Adopting Automated KYC
By considering several challenges in manual KYC, numerous financial institutions are moving towards global KYC automation. However, automated KYC delivers numerous benefits to these organisations along with reducing processing costs.
KYC automation can save a lot of time. Not only time but money as well. Automated KYC onboarding and verification processes can be executed within seconds. Eventually, KYC teams will get rid of long-term tasks and can concentrate on more powerful projects of the company while getting KYC projects done automatically.
ii. Reduced Costs
So, the first and foremost advantage of adopting automated KYC is lower costs. As per the estimations by Celent, financial organisations are expected to spend almost $37.1 billion globally to make their companies KYC-compliant. However, a significant portion of costs come from reviews that occur regularly or in response to specific events, which involve teams manually inputting data into systems after reviewing documents.
iii. Improved User Experience
Another incredible benefit of automated KYC is enhanced customer experience. Your client will receive updates quickly without waiting for days. Moreover, your KYC teams will also get relieved from repetitive tasks and getting frustrated. They are more predictable in projects that are vital for the company's productivity and growth.
iv. Enhanced Security
As more people prefer digital interactions over in-person, it's harder for banks to thoroughly evaluate customers. This increases the risk for the bank. Automating the process of KYC can improve security and consistency. Using AI in KYC blockchain with automation can also aid in verifying the authenticity of customer documents, further reducing risks.
v. GDPR Compliant
Managing a large number of identities can be difficult, as the information is sensitive and must comply with GDPR regulations. An automated KYC solution can assist in this by automatically obscuring or removing certain data from documents to meet these regulations. This ensures the confidentiality of the information as it is only accessed by the software.
The KYC onboarding and verification process could be one of the most complex tasks you would ever experience. Manual KYC may lead financial organisations to several challenges such as high costs, time-consuming processes, lack of security, and significant error risks. These are some factors that may turn financial organisations into poor customer service.
Fortunately, innovations in technology have introduced automated KYC that allows these financial organisations to incorporate global KYC automation to their onboarding services and procedures. Doing this helps these firms reduce their costs to a great extent as compared to the traditional KYC processes.