KYC (know your customer) serves as the foundation for effective Compliance and Financial Crime programs. KYC starts at the earliest stage of the client lifecycle during customer onboarding and informs a financial institution (FI) about a customer and their expected activities – who they are, who are the beneficial owners, why they opened an account, the types of transactions they will normally perform, expected transaction volumes, and more.
AI and Automation can help make KYC faster and more efficient, as these technologies combine to speed up the customer onboarding and data collection process while also surfacing information about a customer that operations analysts normally would not discover. That’s because automation brings in information from third-party sources and open-source locations, with AI and ML then being applied to look into and analyze a wide range of documentary and non-documentary sources to extract key insights about a customer. As a result, the FI has a robust master profile matched to each customer.
Despite the initial efficacy of the KYC process, FIs are often at risk a short time later, because a customer’s master profile has suddenly changed, and the FI is unaware of the changes that have occurred. This scenario plays out often, as customers are dynamic entities with up to hundreds of related parties – all operating dynamically to optimize their business. Considering the fact that most FIs only perform a KYC data refresh on high-risk customers once per year and lower-risk customers even less frequently, FIs face a lot of risk from their dynamic, changing customers.
FIs can no longer risk waiting long periods of time between reviews of KYC data. This is why pKYC (perpetual KYC) is being planned at numerous FIs today. pKYC is a continuous approach to KYC in which an FI collects customer data in real time and only investigates when a KYC refresh trigger event occurs. The trigger event may include such happenings as a change in business ownership, a business name change, or expansion of a business into a new market or geography.
The most common trigger events can be broken out as internal versus external to an FI organization, as follows.
Common Internal Trigger Types:
- Transaction monitoring alerts
- New products and services triggers
- Updates from a Relationship manager
Common External Trigger Types:
- Changes in ownership
- Sanctions screening alerts
- Adverse media detected
- Document alerts
- Corporate registry updates
- Credit agency alerts
Just as with KYC, FIs are looking to new AI-driven tools and automations to perform pKYC fast, intelligently, and efficiently. According to McKinsey benchmarks, the biggest differences between top-performing and low-performing KYC programs were in the areas of quality and risk effectiveness, data management, and technology enablement.[i]
By combining AI-led intelligent document processing (IDP), machine learning (ML), and automations, an FI is positioned to analyze all incoming data – both structured and unstructured documentary and non-documentary sources – and initiating a workflow to send all relevant current information to downstream KYC processes. When leveraging the data and presenting it to financial crime operations teams, an FI not only makes the FinCrime function more efficient, but it also presents opportunities for the function to improve customer retention and better position the FI strategically in a market characterized by new competitors that offer streamlined services.
On the customer retention front, FIs can improve the customer experience (CX) via pKYC. McKinsey also recently noted that banks with top CX scores enjoy a 3 percent growth rate, 15 percent revenue increase, and a 4 percent efficiency ratio.[ii] Rather than querying customers for updated KYC information, an intelligent, automated KYC solution obviates that need and enables compliance analysts to get the latest information they require without having to ask the customer. For customers operating in multiple geographies, they frequently receive duplicate requests for information from an FI’s compliance analysts who are unaware that an analyst from a different region recently made the same request. That represents bad CX.
In addition to no longer querying customers too many times, because the most recent customer data is known, the FI can streamline the customer experience surrounding such activities as RTP (real-time payments) and approvals for newly requested services.
FIs can even repurpose their rich pKYC profile data and customer behavior to make strategic decisions. The AI-led IDP has already understood and classified documents, gathered information insights from documentary and non-documentary sources, and digitized everything to make them dynamically usable. While having potentially millions of discoverable documents and customer insights available greatly improves compliance operations, the FI’s revenue centers can start to offer new products and services based on what they continuously learn about their customers. These are the things that excite leaders at the world’s leading banks and other FIs to start embracing pKYC.
[i] Five actions to build next-generation know-your-customer capabilities | McKinsey
[ii] Five actions to build next-generation know-your-customer capabilities | McKinsey