Anyone who has ever tried to open a new bank account is likely to have encountered frustrations in proving his or her identity. The issues can be numerous, ranging from a tax bill with a former mailing address to an electricity bill without your name on it but only that of your partner. The reason behind these difficulties: “Know Your Customer” rules.
Know Your Customer or KYC can be thought of as an identification process that enables financial services companies to know and understand clients, their financial backgrounds, and the source of their funds. While it enables banks to better know the people with whom they’re dealing with, KYC rules became more important as banks had to comply with regulations aimed at reducing money laundering and terrorism funding. The process implies different identity checks using personally identifiable data such as name or address as well as financial background such as proof of income. International standards were developed and a legal and regulatory framework was set-out (a good example being the Financial Action Task Force (FATF) that was created in 1989) to fight threats to the global financial system.
However, the KYC process causes a lot of headaches not only to consumers but to banks as well. For example, onboarding is often a long and costly operation for the bank as the process is very time consuming and often manual. According to Forrester Consulting and based on a study conducted last year, onboarding takes up to 34 weeks and costs as much as US$25,000 per new client (or US$6,000 on average). Banks also face challenges such as securely storing client data and updating it regularly as the clients’ details change. On the other hand, clients may not be comfortable to give up their private information, especially if they don’t know how that data will be stored and secured.
In addition, regulations make the process even more difficult by being conservative and rigid. For example, banks cannot ask other financial institutions to validate the identity of a new client, so the entire KYC process has to restart from scratch every time for each new client. In Asia and particularly in Hong Kong, regulations are strict and require in certain cases a face-to-face meeting where documents need to be signed before an account can be opened.
As a consequence, Hong Kong has become one of the toughest places in the world to open a simple bank account for individuals or companies, and there is some fear that this situation could lead to the loss of business.
The good news is that FinTech companies have launched solutions to eliminate some of these pain points and can help enable a seamless KYC process thanks to new ways of communicating securely. For example, a client can take a picture of his or her documents and send them to the bank without fearing data theft thanks to encrypted secured solutions. This results in substantial cost savings for the bank and enhanced user experience for the client for any on-boarding process or new bank account opening. FintTech solutions also help banks deal with the archiving and storage of the sensitive data once all the KYC process is completed.
Financial services firms need to consider, adopt and adapt some of these new solutions provided by FinTech firms if they want to remain competitive and offer an enhanced customer user experience to clients whilst complying with the various regulations.
Regulations also need to adapt to the times and allow financial institutions to use some of the latest technology enabling as good if not better KYC on clients but substantially cheaper and faster and with a better user experience for end clients. In March of this year, the Monetary Authority of Singapore released its “100 problem statements” that the financial services industry is facing and invited the FinTech industry to solve these. Some of these problems are proposing a different approach to authentication not reliant on passwords or tokens as well as new solutions to KYC. This is a step in the right direction and another reason to stay optimistic that the KYC headaches may hopefully soon be a thing of the past.
Digital Security Perfected – APrivacy Ltd. is an award-winning company which combines military-grade data security with a seamless user experience on any platform, any device, anywhere. APrivacy Ltd.’s enabling technology now allows the financial services industry to confidently communicate with clients using their favourite channels leading to increased revenues and reduced costs while meeting the strictest regulatory requirements.