By N. Shashidhar, Global Platform Head, Edge Platforms, EdgeVerve
In the modern digital landscape, businesses frequently encounter the hurdle of compartmentalised functions. This results in a lack of cooperation and fragmented processes, creating isolated data pools, operational shortcomings, and overlooked opportunities, affecting companies in various sectors. This is particularly evident in financial institutions regarding their Know Your Customer (KYC) practices, where the stakes are notably high.
Financial organisations predominantly deal with extensive paperwork in their primary operations, necessitating the daily processing of a multitude of paper documents for distinct activities. A key component among these is the KYC procedure, a crucial element for financial entities, enforced by regulations to authenticate the identities and appropriateness of their clients. Regulatory guidelines mandate these institutions to execute customer identification and risk assessment during client onboarding and to undertake periodic re-KYC.
This procedure encompasses three critical elements:
- Customer Identification Program: This involves verifying the identity and address of a retail customer using documentation such as a passport, utility bill, national ID card, or driver’s licence. The verification of a mix of identity documents presented by customers is required.
- Customer Due Diligence: Before onboarding and opening accounts, it’s imperative to acquire and confirm information about the identity of customers and beneficial owners, for both retail and corporate clients, to prevent money laundering, fraud, and terrorist financing.
- Continuous Monitoring: After onboarding, regular assessments of account holders are necessary to identify and sever ties with high-risk individuals, fictitious companies, and corporate bodies with branches or affiliates in nations on sanctions lists.
These tasks are notably labour-intensive. The sheer diversity and volume of documentation present a significant challenge. Despite an average annual expenditure of $150 million on KYC operations, numerous financial institutions continue to battle inefficiencies and ineffectiveness in their processing centres.
When KYC document tracking originates from disjointed sources, critical challenges arise. These challenges lead to departmental isolation, operational inefficiencies, and missed opportunities, which in turn create regulatory risks. Failures in onboarding capabilities can have severe repercussions, ranging from client dissatisfaction to breaches of regulatory compliance.
The Technological Landscape
In this era of digital transformation, a primary challenge for organisations, especially financial institutions, is to expand digital solutions beyond initial experimental stages. The Boston Consulting Group reports that 70% of companies do not succeed in advancing their digital innovations beyond the pilot phase. This results in operations remaining isolated, limiting the scope for comprehensive organisational transformation. This challenge is particularly acute in KYC processes, where outdated systems frequently obstruct smooth data integration and interoperability. Such disjointed technological frameworks impede efficient access and sharing of vital customer information across departments, leading to operational inefficiencies and redundancies. Overcoming these obstacles necessitates a strategic approach that includes financial investment, technological innovation, and commitment to organisational change.
Understanding the Root Causes
The root causes of siloed KYC processes in financial institutions stem from departmental autonomy and outdated technology systems. Various departments like compliance, risk management, and customer service often operate independently with their own KYC protocols and technologies. This independence, while offering flexibility, leads to duplicated efforts, delayed decisions, and fragmented data due to poor integration. Additionally, reliance on old systems and underestimating modern technology needs result in a complex blend of outdated and new systems. These factors, combined with stringent KYC regulations, inevitably lead to inefficiency and disruption.
The Consequences
The fallout from these isolated KYC operations includes operational inefficiencies, heightened regulatory risks, and data security threats. Departments working in silos cause redundant work, delays, and elevated costs, jeopardising regulatory compliance. The absence of centralised document management heightens the risk of unauthorised data access and theft, particularly with outdated systems. This fragmentation complicates compliance adherence, increasing the potential for regulatory penalties and reputational harm, while also making consistent and error-free customer profiling more challenging.
Breaking Down Silos in KYC: A Platform-Based Approach
At first glance, risk management and technological innovation might seem incompatible. However, addressing the challenges of KYC processes shows that embracing digital solutions is the most effective way to dismantle silos.
For instance, a prominent global bank faced the task of managing over 25 million KYC documents. To enhance its KYC processing, reduce manual data extraction and validation, and ensure robust regulatory compliance, the bank adopted a unified platform-based model. This model, integrating smoothly with the client KYC application, established a data pipeline inclusive of supervised and unsupervised learning for document discovery. As a result, the bank achieved cost reductions and enhanced efficiency while bolstering regulatory compliance through complete visibility via a single platform.
For organisations to successfully address the challenges of isolated KYC operations, the implementation of an AI-powered platform is essential. This platform must seamlessly unite AI capabilities, enabling transformative change. This approach encompasses more than just technological integration; it involves re-envisioning the entire KYC process through innovative solutions:
- Reimagine Experiences through Single Pane of Glass: Consolidate all essential data into a unified interface, allowing risk analysts efficient access without switching between different systems and applications.
- Reimagine Document Processing through Document AI: Employ Document AI to automate the extraction and processing of information from various documents, converting raw data into actionable insights for decision-making.
- Reimagine Actionable Information through a Single Source of Truth across Multiple Data Sources: Compile and harmonise data from diverse internal and external sources, offering a consolidated and reliable basis for information verification, independent of individual analyst expertise.
- Reimagine Decision-Making through Co-pilots: Enhance decision-making with AI co-pilots that utilise generative AI technologies to contextualise and summarise key policies and procedural manuals.
- Reimagine Journey through Transformation Blueprint: Transition from labour-intensive, manual processes to a streamlined, system-driven approach, reserving expert intervention for exceptional situations only.
In conclusion, the integration of AI-powered platforms in KYC processes signifies a major advancement in the financial sector. By revolutionising every aspect of KYC operations, from document processing to decision-making, these platforms address the challenges of compartmentalised operations and lay the groundwork for a more efficient, secure, and client-centric future. Financial institutions adopting this innovative approach are setting new standards in compliance, efficiency, and customer engagement. This transformative journey goes beyond mere compliance, fostering a culture of innovation and excellence in the banking and financial services industry.
