The Know Your Customer (KYC) workflow and client onboarding is critical for banks because it establishes the tone for future client experiences, relationships, and service levels, all of which have a financial impact. A McKinsey study found that every one-point increase in Net Promoter Score (NPS) on a scale of ten increased customer revenue by 3%.Unquestionably, banks must rethink the KYC process, putting the client at the center, to maximize the value of customer onboarding. Unfortunately, many customers are still onboarded via a paper-based, manual process that is inefficient, costly, and error-prone. On the other hand, simplifying KYC procedures, developing open communication channels, and improving the integrity of consumer data are all critical initial steps for transforming KYC obstacles into opportunities.
Learn regulatory lessons from the past
As a result of the 2008 global financial crisis, governing bodies placed stricter regulations on banks, and financial institutions were increasingly impacted by an unexpected rise in compliance costs. For instance, the regulatory load has caused some banks to cease lending to small businesses, divert resources away from product development, and face significant fines for failing to keep up with apparently constant regulatory changes. This burden is sometimes regarded as an inevitable evil.In addition, due to multiple high-profile money laundering and corruption scandals, financial institutions have been forced to establish stricter KYC processes. Organizations of all sizes are trying to keep up with the new laws and rising compliance expenses, ranging from more arduous due diligence in the onboarding process to the more severe monitoring and reporting requirements of an expanding Bank Secrecy Act (BSA).Further, KYC standards have been enhanced due to regulations such as Dodd-Frank and FACTA to prevent rising counterparty risks. Implementing additional KYC onboarding and reporting standards to combat tax evasion, illegal organization financing, AML, and politically exposed individuals may reduce customer risk. The prompted even further KYC changes. For example, the Customer Due Diligence Final Rule went into effect to identify the actual owners of company bank accounts.By raising the difficulty and cost of adopting a compliant KYC procedure, banks have to become more creative in determining how to turn these issues into opportunities. As a result, a new value proposition can help re-instill trust, which has always been a pillar of a successful financial institution. Thus, consumer protection is no exception when it comes to the issue of trust.
