Know Your Customer processes show savings potential for banks

The prevention of money laundering and the prevention of money flows to terrorist organizations have gained a high level of public attention in recent years. Although financial institutions spend billions annually to keep pace with increasingly stringent and extensive regulatory regimes, compliance with Anti Money Laundering (AML) and Know Your Customer (KYC) regulations poses strategic challenges for banks.

Know Your Customer processes as a cost factor?

The results of the latest "Know Your Costumer" study by Strategy&, the strategy consulting firm of PwC, show that banks could save up to 65% of their AML and KYC operating costs with an efficient, network-oriented approach. This is because targeted measures to increase productivity and reduce factor costs can in many cases simplify processes, reduce costs and improve the customer experience, according to a finding of the study, which took a close look at the Know Your Customer processes of various financial institutions.  

Globally, banks paid approximately 21.9 billion Swiss francs (€23.2 billion) for AML/KYC sanctions and related legal fees from 2015 to 2019. This represents a 26-fold increase compared to spending between 2005 and 2009. In Europe alone, banks incur an estimated 11.4 billion Swiss francs (€12 billion) in annual operating costs to maintain and ensure KYC compliance processes. In addition, there are further technology expenses of around 6.6 billion Swiss francs (€7 billion) per year. Only 20% of the costs are incurred for the enrolment of new customers and their data collection, whereas a full 80% are incurred in carrying out scheduled and ad hoc checks on the personal and business data of corporate customers. It is particularly striking that most of the costs are incurred by large international groups among corporate clients, even though their number in the overall portfolios of banks in the European core markets is manageable, for example in comparison with small and medium-sized enterprises.  

Dissatisfaction among corporate customers

Corporate customers themselves also express dissatisfaction with the status quo - they would like to see uniform procedures from their house banks and more convenience, e.g. in digital interaction, the study found. Eight out of ten banks are already implementing notable KYC optimization programs, yet 54% of the companies rate their experience with KYC processes as negative.  

Across the board, financial institutions are already working internally on processes to improve their response to future directives and efficiently manage their own KYC processing capacities. In addition, banks are also commissioning external service providers to take over certain KYC tasks or are using regional "utilities" that bundle data management for several institutions. Numerous networking approaches have also emerged in the market to facilitate data exchange between banks, corporate clients, regulators and data providers within an easily accessible ecosystem. While the results of the study show that coordinated multiple use of existing data sets, automated fill-in formats, targeted staff training and the employment of KYC analysts in low-cost countries can save up to 65% of the current start-up operating costs for AML and KYC measures, the key benefits can only be realized through a "best of breed" approach with the empirical values of all measures already deployed. 

Cross-border KYC networks as a solution

To achieve this requires a cross-border KYC network that connects banks, their corporate customers and data, regulators as well as other service providers via specific access points. At the heart of this network are corporate customers and their seamless customer experience. They can centrally control their data using digital solutions and securely share it with selected banks on demand. Fundamental to the reusability of existing KYC data assets is the development of a common data standard recognized by national and international regulators and the ability to share data securely across borders. Regulators can also play a role in the network, providing a useful means of monitoring compliance. With the possibility of flexible scalability, the network could be expanded to include additional service providers to introduce new services tailored to banks and corporate clients. 

"The model will be successful if the network is used in a variety of other ways by companies and banks in addition to standardized and international KYC data management. Numerous applications are conceivable, for example, for the identification of players along the supply chain of companies, for the exploitation of information across several companies in a group or even for the cross-industry provision of data for business transactions. Only in the free exchange of all participants can efficiency gains fully unfold and new offers and services emerge," explains Markus Weiss, Director at Strategy& Switzerland. "By increasing the level of digitalization and automation of all processes and using technologies such as blockchain or artificial intelligence, banks can additionally improve the efficiency of their overall business activities." 

Source: Strategy&