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AI Helps you KYC Better, Faster

By: Rahul Mahna, Managing Director of Managed Security Services, EisnerAmper

Rahul Mahna, Managing Director of Managed Security Services, EisnerAmper

According to Thomson Reuters, certain major financial institutions spend upwards of $500 million each year on Know Your Customer (KYC) and client due diligence. Furthermore, Forbes estimates that regulatory compliance costs will increase from 4% to 10% of bank revenue by 2021.

Not Another Acronym

KYC is the process of an organization verifying clients’identities and assessing their potential risks of illegality via their financial assets. It encompasses illicit activities such as money laundering and the financing of criminal/terrorist activities. KYC was born of the 2001 USA Patriot Act, which was in response to the September 11 attacks.

The Need

In no-doubt an increasingly dangerous world, the geopolitical reasons for banks knowing who their customers are is somewhat self-evident. In addition, individual countries began taking a more micro-focused view by developing KYC guidelines on where their clients’ money is coming from, who is using the money, and what they are using the money for. In any event, both the geopolitical macro and individual sovereign micro reasons underscore the steady march toward increased government regulation.

Client Impact

Yes, KYC has arguably made the world a safer place. (In its somewhat limited existence, there has yet to be a definitive, quantitative study). However, you cannot escape a simple fact: It has made the customer experience worse. As part of the KYC due diligence process, the time it has taken customers to open bank accounts, apply for credit cards and so forth has become elongated. And for the banks, steep penalties for non-compliance loom large.

"You are able to make that leap to becoming a personalized marketplace where the customer can meet all of their needs in one forum"

Tech to the Rescue

Once again, in a manner of speaking, technology has come to the rescue. In fact, regulatory technology (aka reg tech) has become an entire discipline devoted to improving the processes brought about by ever-increasing regulatory compliance. Whether it is Dodd-Frank, Sarbanes-Oxley, or some other form of financial regulation, technology has a major role to play. The most recent antidote for mandatory banking compliance red tape has become artificial intelligence.

This is best illustrated with an example. We have one client in the banking sector that is in the midst of KYC compliance. Previously, each branch of the bank had one person who manually entered the information and then sent it to the corporate headquarters nightly. Our Process, Risk and Technology Solutions Group developed a custom bot that could distill the compliance information in minutes. It wound up saving this bank as much as 3,000 hours per week, per branch. Just imagine the impact on customer inquiries and approvals and, therefore, satisfaction.

What a Bot the Vendors?

There are a variety of software providers with whom you can work to develop a custom AI program. And you would perform the same due diligence as you would with any vendor, taking into consideration experience, service, price, training and so forth. There are still discernable differences between these software companies. However, as time marches on, these may evaporate and AI software could become commoditized.

 

The Sum Is Greater than Its Parts

Just what are the possibilities when a bank, business advisor and software vendor become a power trio? First, the customer experience becomes better. What customer wouldn’t be predisposed to bank loyalty when you can decrease the credit card approval process from 10 days to 10 minutes? 

Second, you are able to make that leap to becoming a personalized marketplace where the customer can meet all of their needs in one forum. The customer who uses his or her bank of choice for a mortgage may now be able to obtain home insurance, landscaping services, a real estate lawyer, television provider and so forth—all from one source. If this sounds a lot like Amazon, that’s the aspirational model. This is all made possible because financial service firms can obtain, process and leverage big data in real-time thanks to technology. Evolving to fulfill and anticipate customer needs is what cultivates that “stickiness” or loyalty.

Adapt, Anticipate, Align

Regulations aren’t going anywhere. If businesses have proved anything, it is that they are adaptable, whether it’s HIPAA, GDPR, KYC or some other. However, to be fully client-centric, they need to be able to see what’s coming around the corner. For example, there are some who want to take KYC to the next level, KYCC, “know your customers’ customers.” The key is to align staff and processes using technology and astute business advisors to turn customers toward you, not away from you.

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