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KYC Automation for Banks: 5 Biggest Benefits

With KYC in banking, there are a lot of advantages that every bank should know about. Read on to learn more about KYC automation and how it works.
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A quick read of top Google results for “how long does a KYC verification take” highlights one major trend:

There’s not really a clear answer.

The reported times vary from a few seconds to minutes, hours, or (shockingly) stretching into days or weeks. KYC, or know-your-customer, refers to the process of verifying and identifying the customers of your bank. It is a crucial, regulatory compliance step that must take place—but the longer it takes, the worse the experience for your users.

In this blog, we’ll cover the overall KYC process, challenges that many banks face with this process. We’ll also dive into why banks should automate the process and how to go about that.

What is Know Your Customer and why is it important?

Imagine you’re running a bank. A potential customer walks in, claiming to be someone they’re not. They provide false identification, and you open an account for them without proper verification.

Turns out, this person is involved in money laundering or other illegal activities. Not only would this put your business at risk, but it could also harm your reputation and potentially lead to legal consequences.

That’s where KYC comes in. By implementing robust KYC processes, you can effectively weed out bad actors, ensure compliance with regulatory requirements, and safeguard your business from financial and reputational damage.

The challenges of traditional KYC processes

Typically, Know Your Customer processes involve collecting and verifying various types of customer information, such as their name, address, date of birth, and proof of identity. This data is then cross-checked against trusted sources, like government databases or credit bureaus, to ensure its authenticity.

For years, the only way to do this was manually. There would be several people whose sole job was to verify the information provided by the customer. Obviously, this would take time considering people would be pouring over paperwork and cross referencing manually.

New technologies such as AI and ML have streamlined and automated the verification process, making it faster and more accurate than ever before. Manual KYC processes are by their very nature time consuming and inefficient. Likewise, since they’re relying on a person to pay close attention to details for a considerable amount of time, they are also error-prone and risky.

5 Benefits/Opportunities of KYC Automation

Automation can be great but if you’ve got RPA, OCR, ML, facial recognition technology (FRT), and web scrapers, these individual functions may not be able to communicate effectively or you’ll drop data within handoffs.

Done properly, however, automation of a Know Your Customer process for banks can have a variety of benefits. Let’s cover the five biggest benefits of KYC automation.

1) Reduce Organizations’ Overheads on Administrative Staff

With more reliable, automated handoffs between people, systems, and departments there’s less pressure on needing to double check the work being done. This can relieve a significant back office burden from your staff.

2) Mitigate risk of fraud

This is what Know Your Customer is all about. Having an automated, scalable process can ensure your bank is protected from being used in the commission of crimes such as money laundering, fraud, or terrorism.

3) Improve customer experience

Call it the Amazon effect. Call it whatever you want but customer expectations and patience have drastically changed. No customer is going to wait through hours or days to be verified for an account opening. Automation ensures you’re keeping wait times as low as possible while also conducting due diligence on identify verification.

4) Can enhance manual KYC checks

One misconception about automation processes is that it should never, ever involve a person. No matter the process, there will be occasions where manual intervention is required. Automation can make sure that the simpler portions of a KYC process are handled automatically so that your human staff intervenes on the smaller, more nuanced cases or tasks.

5) Reduced errors

As the famous adage from Mad Magazine goes: Pobody’s nerfect. At data centers specifically, a vast majority of data errors (75%) are caused by people. By automating your KYC function, you’re reducing the amount of time people are interacting with data as well as the volume that they’ll need to attend to. This goes a long way to reducing errors and, in the long run, can save both time and money.

Use cases of KYC automation

Banks looking to automate their Know Your Customer processes should consider the following use cases.

Identity verification

This one might seem obvious. After all, this is the primary function of a Know Your Customer process. We’ve already covered this point but it’s important enough that it bears repeating—manual identity verification methods are usually laborious and prone to errors. But with KYC automation, these challenges are both mitigated.

Today’s Artificial Intelligence and Machine Learning capabilities ensure that they make far fewer errors than humans. Automating the overall KYC process enables swift and precise verification of customer identities.

Compliance with GDPR

GDPR compliance can be a daunting task due to its labyrinthine rules around how and where personally identifiable data (PII) can be used. However, KYC automation simplifies this task. By updating your automation to remain in line with regulatory updates, you can ensure you’re always in line with the latest rules, protecting your bank from potential legal issues and fines.

Data collection/enrichment

Depending on the account type being created or the application by the customer, there can be a lot of information collected about them. KYC automation makes it far easier to streamline the collection of data allowing your team to focus on more strategic tasks. With the most accurate and up-to-date information readily available, you can make informed decisions quickly.

KYC documentation and reporting

The amount of documentation required to verify customer identities and monitor for suspicious activity is vast. This makes reporting for compliance cumbersome and difficult. Banks need to gather and continually update all of this documentation to fulfill KYC requirements and satisfy regulators. By automating the process, you can speed up this reporting using a process engine to orchestrate various parts of your Know Your Customer workflows and have far better insight into where bottlenecks and inefficiencies lie.

Risk Profiling and Assessment

The biggest question that KYC seeks to answer is how risky would it be to do business with a certain customer. Are they on a database or watch list? Is their debt-to-income ratio too high to justify the loan they’ve applied for? Automating KYC makes it far easier to assess risk at scale.

How to automate your KYC process with Camunda

How do you implement this transformative solution? The key lies in a process orchestration platform like Camunda. This powerful tool serves as the core of your KYC automation system.

Once you’ve established the rules and flows throughout the process, the process engine orchestrates the automation of these tasks, ensuring efficient and consistent execution. Here’s a quick way to get started.

Step 1: Understand which part of KYC you’ll be automating

Before just diving in and automating everything, it’s crucial to identify the specific parts of your KYC process that can benefit from automation. Assess the tasks and workflows involved in KYC, and pinpoint areas that are repetitive, time-consuming, or prone to errors. For example, automating lead routing for sales teams for mortgage applications can significantly streamline the process and ensure accurate distribution.

Step 2: Find the right tools

Once you’ve identified the processes to automate, it’s time to find the right tools. Camunda offers a powerful and flexible process engine, specifically designed for automation. It provides high throughput even at scale, and offers both flexibility and security needed to meet your internal team’s requirements while remaining compliant.

Step 3: Implement, test, monitor, improve

Now that you have your processes mapped out and the tools in place, it’s time to start automating KYC. Start by configuring and setting up the automation workflows in Camunda.

Test the automated processes thoroughly to ensure they function as intended. Monitor the performance and gather feedback from your team to identify any bottlenecks or areas for improvement. Continuously refine and optimize the automated KYC processes based on the insights gained.

Closing thoughts

Banks looking to protect themselves from financial and reputational damage should pursue KYC automation as a key part of their overall financial process automation.

By reducing overhead costs, mitigating fraud risk, improving customer experience, enhancing manual checks, and minimizing errors, automation opens up a world of possibilities.

So, if you’re ready to embrace efficiency and accuracy, it’s time to automate your KYC process and unlock a new era of security and compliance.

Don’t let manual processes hold you back—embrace the power of automation and take your organization to new heights using Camunda with a free account and 30-day trial of Professional features! If you’re looking to learn more about overcoming common barriers to digital transformation in the financial industry, check out our digital guide, The Financial Automation Imperative.

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