In a constantly evolving financial world, where regulatory demands and customer expectations are continually increasing, process automation has become an essential asset. Among these processes, customer identity verification, known as "Know Your Customer" (KYC), plays a crucial role. Automating KYC not only transforms how financial institutions manage customer onboarding, but also enhances security, efficiency, and the overall customer experience. Learn how KYC automation can revolutionize banking and insurance while ensuring compliance and customer satisfaction.
Automation for Know Your Customer (KYC) processes
Understanding your customer is already a firm requirement for businesses in the financial sector. “Know Your Customer" (KYC) is how financial institutions verify the identity of their clients, assess risks, and comply with regulatory requirements. Regulated sector companies like banks and insurance are increasingly turning to automated KYC verification to optimize their onboarding processes as regulations governing KYC verification continue to evolve and become ever tighter.
Good KYC processes help avoid involvement in financial crimes such as money laundering, fraud, and financing of terrorism. By verifying customer identities, financial organizations protect themselves and their clients from potential risks. Traditionally, KYC processes have been time-consuming and labor-intensive, involving manual data entry, extensive paperwork, and lengthy verification procedures. This can mean delays in onboarding new clients and increased operational costs.
As it does in many business operations, business process automation offers significant benefits to improve and streamline KYC processes, addressing the challenges of manual systems. (Ask us how we know 😉.)
The benefits of automated KYC solutions
What we have seen with automated KYC verification is already showing significant advantages for financial enterprises seeking to safeguard their organizations and provide exceptional service to their clients.
Moving away from manual processes (which is already well underway throughout the financial sector as digital transformation) means:
Easier and less error-prone data collection
Automation allows the process to gather customer data from various sources quickly. Instead of manually collecting information, automated systems can integrate with databases, social media, public records, and more to gather relevant data efficiently. This speeds up the initial stages of the KYC process.
Faster and better identity verification
KYC and due diligence requirements are being applied internationally in the fight against money laundering and the financing of terrorism. Legal and regulatory frameworks applicable to the banking and financial sector are compelling banks to fully verify every new customer’s identity and source of deposits, and to retain the data from and the traceability of the verification process. Artificial intelligence (AI) and machine learning tools can analyze customer data and compare submitted documents—such as passports or driver's licenses—against official databases to confirm their authenticity. This reduces the risk of identity fraud and ensures compliance with regulatory standards.
Flagging risks (red flags) that may be subtle or missed by human agents
Automated systems can analyze customer data to identify potential red flags, such as unusual transaction patterns or negative news articles. By employing algorithms that evaluate risk factors, an automated financial process can quickly categorize clients as high, medium, or low risk, allowing for more informed decision-making.
Continuous monitoring for changes
KYC processes require continuous monitoring to ensure that compliance with regulations, audit requirements, and customer information all remain up to date. Automated systems can regularly check for new regulatory requirements or changes in customer status.
Smoother customer and employee experience
Automated KYC processes are faster and more user-friendly than manual ones! Clients can complete KYC requirements online in minutes. Employees can complete due diligence with confidence. This convenience enhances both the employee and customer experience in financial services and banking, leading to higher employee and customer satisfaction, retention, and loyalty.
Cost savings
Automation helps reduce operational costs, as fewer hours are needed for manual data entry and verification. Teams can focus their time and attention on more strategic tasks like development of new products and services. Increased efficiency can lead to both cost savings and better resource allocation.
In general, embracing automated KYC solutions leads to more robust, secure, efficient, and customer-friendly financial services.
The impact of automated KYC verification on banking
In addition to the above, banks and financial management institutions are subject to specific international and national regulations. As noted above, automation algorithms can regularly check for new legal requirements or changes in laws and regulations. A few examples, for banks:
- The Basel Accords set global standards for capital adequacy, risk management, and bank supervision to ensure that banks maintain sufficient capital to cover their risks and operate safely, including with KYC automation.
- Anti-money laundering (AML) actions such as the Financial Action Task Force recommendations are intended to combat money laundering and terrorist financing and require banks to implement robust KYC processes, monitor transactions, and report suspicious activities to relevant authorities.
- The International Financial Reporting Standards provide a framework for financial reporting that enhances KYC solutions through transparency and comparability of financial statements across international borders.
The impact of KYC automation on insurance
Insurance providers are also governed by regulations specific to their industry, in addition to general KYC and AML requirements mentioned already. Some examples include:
- The Solvency II EU regulation establishes risk-based capital requirements for insurance companies to ensure that insurers have enough capital to meet their obligations to policyholders.
- The International Association of Insurance Supervisors has established the widely applied standard of Insurance Core Principles (ICPs) which cover governance, risk management, and disclosure for insurance regulation and supervision.
- And of course any data that moves through Europe through any enterprise activity, in the financial sector or elsewhere, is also subject to GDPR data restrictions. (We have some specific advice to offer on that too!)
Case study: A private wealth management company
“Regulations oblige us to precisely verify the identity of each new customer, the origin of funds, and the relevance of our offer in terms of their expectations.”
- Business Applications & Business Intelligence Manager, private bank, 160 employees
Addressing the KYC problem
The rules for international banking have imposed deep and traceable verification when onboarding a new customer, some of whom require highly sensitive handling, for example, for political reasons. The process of customer onboarding for this private Swiss bank offering private business banking and wealth management products and services is complex, requiring strict adherence to these regulations.
Their manual process of verification and information capture was long and complex, and took up to 40 forms and 500 different questions for between 100 and 150 new accounts opened each year.
Building the automated KYC solution
To handle customer onboarding and implement KYC technology simply and efficiently, this financial management company chose to use process-based applications developed with Bonita process automation.
As they learned how to automate KCY processes, the business and IT teams mapped the entire customer onboarding process. They included its many subprocesses end-to-end, step by step, including the many individual points where data needed to be sent to or pulled from other internal and external information systems, such as the proprietary Core Banking system, the CRM, and others.
With around 500 different specific pieces of information to be gathered and verified for each new customer account, the onboarding process is also quite human-intensive. The technical team built a dedicated user portal for their employees who are responsible to complete the manual actions needed at each step of the process.
The deployment of the first client onboarding application took less than two months. Now that the final application has been completed and deployed, this bank has created a full centralized customer database, integrated with their other existing tools and applications.
Example of a KYC process
The value of an automated KYC process
The resulting automated KYC solution, a Customer Onboarding application, is user friendly with customized, responsive UIs, and is robust and scalable for the future. It is already reducing time to onboard 100-150 new customers per year, and has improved the reliability and traceability of information and communication between departments.
With this success, this bank is now looking to digitally transform more of its internal processes.
“Today, as form generation and the verification process is fully automated, we are extending the system to the compliance and back office teams to directly generate the data in our core banking system. We are moving to fully paperless processes.”
- Business Applications & Business Intelligence Manager
In summary
Building an automated KYC application with Bonita process automation helps banks and insurance companies meet verification and compliance requirements, and offers added value to managers who can use a digital assistant instead of fighting with tedious, error-prone paperwork. KYC technology made easy!
It’s also important for high quality customer experience to insulate new clients from what can be an annoying, painful process.
KYC automation with process automation is the way to go!
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Ready to take the next step? See how Bonita can revolutionize your financial business operations and secure your business future. Contact us to learn more about business process automation with Bonita.
