Know your customer (KYC) programs are intended to verify a customer’s identity, protect against fraud, and facilitate anti-money laundering (AML) compliance.
In general, there are two formats for KYC programs. In traditional KYC programs, the customer drives to the business and presents various forms of identification to a staff member who confirms the client’s identity via various manual reviews. Modern KYC programs go about this differently. Customers enter their information online, and their identity is confirmed automatically against numerous electronic databases.
Though many companies have made the switch to modern KYC processes, some are hesitant to make the change. Though maintaining the status-quo may feel like the “safe” option, there are significant costs to clinging to a poor KYC program.
A Thomson Reuters survey of bank patrons found that a staggering 89% did not have a good KYC experience, and 13% changed their financial institution as a result. It is clear that consumers are dissatisfied with current on-boarding processes, and businesses are doing nothing but losing profit by driving customers away.
The primary complaints about KYC processes are the amount of personal information required, the lengthy forms, and the need to submit information in person or via mail. None of these factors are outside a business’s control; each can be improved with the implementation of an efficient modern identity verification service.
Companies that use in person identity verification may not realize that they are losing out on a large untapped customer demographic. A survey of 2000 consumers applying to traditional banks found that over half would buy additional services if paper-based identity verification was not needed.
Businesses would be short-sighted to risk losing their customers to other companies who are offering a better onboarding experience.
Another issue with traditional KYC processes is that they place too much reliance on inefficient and error prone manual reviews. When it comes to properly identifying your customers, accuracy and reliability is essential. KYC missteps can lead to a whole host of secondary issues such as fraud, money-laundering, and fines. Notably, recent legislation calls for higher fines when breaches in KYC compliance occur.
The need for staff to perform manual review of documents significantly contributes to the high cost of KYC compliance. Businesses have a compelling opportunity to mitigate these costs by using automated KYC processes, with simpler monitoring systems and lower error rates. With the proper partner for KYC, the reliability of digital processes offers a way to minimize costly manual review and human error.
Some companies are hesitant to upgrade to a modern KYC process due to the mistaken belief that the transition would be costly. However, there are substantial financial gains to making this change. Consult Hyperion, an independent technical consultancy, asserts that the average-sized financial institution can save $6.2m in operational costs by using mobile technology for KYC compliance. They report that this is a conservative estimate, and businesses likely stand to benefit even more than this.
However, there are pitfalls even amongst modern KYC programs. For example, processes that rely heavily on customer-entered data are especially vulnerable to phishing attacks. Also, knowledge-based identity verification has a notoriously high failure rate of up to 20% due to data quality issues.
Some identity verification services such as Cognito have found a unique solution to circumvent these KYC pitfalls. Cognito begins the KYC process frictionlessly, requiring nothing more than a name and phone number. Cognito can securely confirm a customer’s identity using highly regulated data, and if you combine this with a simple one time passcode, you can confirm they are in possession of the phone associated with their identity.
Within modern KYC programs there are many systems that can provide an excellent user experience, though not all are created equal. Cognito is heavily focused on security and user experience. After all, it is far easier to authenticate possession of a phone than to answer numerous intrusive financial questions. In turn, a frictionless onboarding process means increased conversion rates and financial gains. It allows companies to catch and keep the customers who would ordinarily be turned away by lengthy forms.
There is a significant opportunity for businesses to improve the user experience, minimize operational costs, and reduce the risk of sanctions by switching to a low friction modern KYC program. These processes will increase conversion rates, drastically reduce manual processing, and be much less prone to error compared to their traditional counterpart.
Don’t let your company be complacent with your current KYC program if it is costing you customers and profits. Cognito is here to help your business provide a secure frictionless KYC program.