Crack the KYC Jigsaw. Ease Onboarding Compliance.

Stumped with KYC implementation?

You are not alone. Several Financial Institutions (FIs) are working out their way through KYC puzzle to oust financial crimes and ensure compliance.

Now, KYC is critical for any financial institution. It is indeed the first step when you choose to use a financial product or service in India.

So, what is KYC?

For starters, Know Your Customer (KYC) is the process to confirm a customer’s identity while onboarding a financial institution. RBI has ensured the implementation of a robust KYC system to helps financial institutions understand their customers better while ensuring their legitimacy. Click here to know more about KYC in India.

Digital Avatar

With the rise in paperless onboarding, KYC has taken a digital avatar. The digital KYC saves a lot of time and effort involved in the process and helps tackle onboarding issues in a quick and seamless manner. It also prevents money launderers/fraudsters from masking their true identities and manipulating stolen information for their personal gains.

Though the benefits of the process are immense, implementing digital KYC is not simple. Financial institutions such as banks and fintechs need to overcome significant challenges in deployment.

Key KYC Challenges

The upswing in the recent money laundering, fraud, and tax evasion cases has brought KYC into a new light. Accordingly, RBI has enforced strict laws concerning non-compliance with the KYC directives. However, financial institutions are grappling to keep up with the legal framework for KYC compliance.

Experience Vs Compliance

Right from onboarding and screening to monitoring customer data, they face complex challenges every step of the way. This puts banks and fintechs in a tricky spot because customers seek seamless experience and quick onboarding with minimal documentation, and FIs cannot compromise on the verification process. Ensuring compliance without compromising customer experience is a huge challenge for FIs.

Connected Risk Identification

KYC involves extensive paperwork and supporting documents. Often, customer data files are incomplete or lack critical pieces of information or documentation. This heightens the risk of fraud and lays down a cosmic emphasis on monitoring and screening individuals and entities against Politically Exposed Persons (PEPs), watchlists/sanctions, and other regulatory and law enforcement lists.

In addition, the rise of new criminal typologies has inflicted the compliance team to assess an overarching list of compliance and fraud risks. This calls for an all-inclusive, connected risk identification approach for analyzing financial fraud activities, money laundering, and other offenses.

Volatile Risk Appetite

Financial institutions and customers exhibit dynamic risk appetite. For example, a customer might have a different risk profile or status during onboarding and drift into another risk profile over time. On the other hand, KYC regulations are updated periodically, which implies the regulations, risk indicators, and other indices used to determine the risk tolerance score will vary. Hence the outdated records become an impending hindrance to the customer due diligence process. The repercussions of such instances are far-reaching as there is only a fine line between a medium and high-risk customer but a momentous difference in due diligence efforts.

Lack of Transparency

One of the biggest challenges of KYC is the retrieval of corporate ownership documents from registries located across the globe. Successful KYC depends on several sources such as annual reports, financial statements, stock exchange information, third-party data, and regulator websites. However, due to the lack of transparency, KYC analysts bank on limited information on the directors, stakeholders, controllers, and beneficiaries. Additionally, there is a significant cost associated with accessing specific vital documents while others are available for free.

How Financial Institutions can crack KYC challenges

Here’s our take on how financial institutions can tackle KYC challenges effectively.

• Integrate with credit bureaus for seamless customer verification
• Use data deduplication techniques to recognize and eliminate identical records. This is also known as Dedupe check-in.
• Validate customer data against the regulation records to identify unscrupulous individuals/organizations prohibited from making business transactions.
• Conduct rational checks to keep a tab on anonymous bank accounts or those opened with fictitious names.
• Facilitate video KYC for quick onboarding and exceptional customer experience.
• Use algorithms and techniques to categorize customers as low, medium, and high-risk categories, based on the assessment and risk perception.
• Take necessary precautions with customers who come under high-risk segment.
• Monitor customer transactions in a routine manner to keep an eye on any suspicious activities.
• Partner with authorized 3rd party service providers for quick e-KYC checks and video KYC onboarding.

Is third-party KYC partnership a viable approach?

Although KYC is kept in-house traditionally, experts believe it is time to team up with third-party KYC-service providers.

Why?

First off, it is cost and time effective.

Secondly, for high efficiency and accuracy.

From dedicated subject matter expertise to cutting-edge technology access to faster go-to-market speed, third-party partners can provide all-inclusive services within an optimum budget.

These partnerships can enable FIs to invest more effort and time in their core business, rather than focusing on the KYC procedures. Financial institutions that keep KYC in-house could end up with extensive duplication and redundancy across businesses and markets.

On the other hand, third-party partners employ devoted professionals to carry out KYC procedures and documentation. This leaves no room for error, ensuring a smoother onboarding process and regulatory compliance, without compromising customer experience.

With that being said, third-party service providers are the gateway to exceptional customer experience and successful KYC solutions. They enable financial organizations to improve speed and operational performance, minimize operational risks and boost efficiency by consolidating and centralizing functions.

Financial institutions should take apposite measures to understand the complexities that could arise from digital transformation. They must embrace strategic partnerships to develop pioneering approaches to assess customer risks and monitor transactions.

So, do you need solutions to any particular KYC issue? Or want to know more about implementing KYC?

Write to us at business@m2pfintech.com.

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