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Navigating KYC Challenges in an Increasingly Digital Banking Environment

Today’s banking processes are increasingly moving to a fully digital environment. This move was expedited by the pandemic and the need to allow people to work from home – resulting in more banks enabling self-service and online access to products, services, and even onboarding. But, while COVID19 pushed adoption it was simply a reflection of a pattern that was already there – as can be seen in the proliferation of small financial startups offering self-service, mobile apps, and fully digital offerings.

Digital banking is here to stay, and even the largest banks are now being driven towards it. In fact, the EBA reports that in 2021, some 80% of European banks implemented measures to either introduce or improve digital onboarding solutions. But, even a digital signup process isn’t enough. One Lightico study found that 40% of millennial applicants abandoned bank account applications, citing lengthy verification processes and paperwork as reasons. Generation Z shows similar trends. Banks have increasing motivation to deliver strong digital solutions, and that means fast and simple online onboarding.

Opportunities and Risks in Digital Banking

Those trends create numerous and obvious benefits. Banks can offer wider opening hours and better accessibility – with reduced costs and reduced costs of customer service. Customers can access their data and their money around the clock, sign up for an account when it’s convenient, and apply for everything from loans to new products from an app or portal. Most importantly, digital access to banks, products, services, and apps allows banks to collect data on usage, decision-making processes, and how people manage their money. Even major banks have to adopt digital products and services to keep customers and to continue to connect with customers – but they also get a lot in return.

It also creates the pressing need for better Digital Identity management. That’s especially true as the EU supports the creation of a new Digital Identity.

The largest issue here is the increased complication of Know Your Customer procedures. With the shift to a faster, simpler, and smoother online client onboarding, maintaining control of the Know Your Customer process presents unique challenges. That’s especially true considering the FATF guideline on digital identity creates strict guidelines for the quality and reliability of non-face-to-face digital identification. However, that guideline also suggests that with risk-mitigation in place, online onboarding may be lower risk than traditional ID systems.

As online onboarding becomes more common, banks are increasingly outsourcing those processes and software. Here, it’s important for banks to invest in the right outsourcing agreements – while ensuring outsourced products meet requirements for reliability and independent verification.

How Can ACE Help?

Making the shift to online products and services and even online onboarding is inevitable for most banks. For many, it also means implementing significant technical changes to ensure the data management and risk-based approach you need to maintain good KYC are in place. That might mean assessing existing processes and implementing new checks and balances for data quality and customer verification.

As experts in both change management and regulatory change, ACE can contribute to that process. Our position gives us unique insight into the upcoming changes in process and procedure, meaning we can offer consultation in risk-management and data management, alongside project outsourcing, and KYC training and awareness.

If your financial organization is moving towards a more digital environment, ACE has the expertise to offer insight. Contact us to start a discussion around your strategy, policy, or the digitization itself, we’re happy to help.