Regulation 7 August 18

Digital KYC – why it’s finger-clickin’ good

Matt Rowntree
By: Matt Rowntree
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Know your customer (KYC) is still one of the biggest stumbling blocks to enhancing customer experience in both B2B and B2C financial services. Authentication and data capture typically requires several items of paper-based evidence. Worse still, many of these items need to be from a specific period and almost all of them need to be original documents. As such, KYC admin is a proven customer deterrent. Just look at the facts:

  • 40% of consumers have abandoned bank applications
  • More than 1 in 3 (39%) abandonments were due to the length of time taken
  • A third (34%) were due to needing too much personal information and the abandonment rate is increasing
  • Those who have applied for a product in the last 12 months have abandoned more than those who last applied more than 12 months ago (45% vs 26%)

Source: Signicat

However, as more systems can accept electronic documentation, and systems such as blockchain are able to provide more secure digital authentication, the concept of KYC takes on an entirely different flavour. Now, it becomes a quick and seamless way to validate critical details with financial institutions, digital paper trails become so much more convenient than paper ones and customers’ sense of security is reinforced. For this seamlessness to become a reality, however, several factors need to align, ranging from the data readiness of individual organisations to a global appetite for e-documentation.

Electronic ID

The universal availability of electronic documentation, such as identity cards, is a fundamental building block without which a fully digitised, automated and near real-time KYC capability proves difficult. Progress towards this is being made, notably in developing nations where the challenge of undocumented segments of the population was tricky until digital solutions became available. The Unique Identification Authority of India (UIDIA) was established in 2008 to give a digital identity to every resident. This ‘Aadhaar’ ID now gives access to many key services, including banking.

Estonia, frequently at the forefront of digital innovation, has also been leading western forays into electronic ID. The Economist reported:

“Estonia’s approach makes life efficient: taxes take less than an hour to file, and refunds are paid within 48 hours. By law, the state may not ask for any piece of information more than once, people have the right to know what data are held on them and all government databases must be compatible, a system known as the X-road. In all, the Estonian state offers 600 e-services to its citizens and 2,400 to businesses.”

With one of the charges against KYC being that it doesn’t match up to the overall seamlessness of many other consumer interactions, the Estonian model is an example of true, joined-up thinking. However, this success has arguably been driven by a strong Governmental mandate, a reasonably small population and high levels of investment in digital for the greater good. Most countries – and companies – don’t enjoy the same levels of investment or have data architecture that has been built, fit for purpose, from the ground up.


On the surface, the General Data Protection Regulation (GDPR) seems to have added to the restrictions that businesses face in managing customer data, rather than expanded them. However, the procedures that companies now need to follow for compliance will stand them in better stead to manage the data demands of a digitised KYC.

The UK’s Security Watchdog website noted that: “Adequate KYC procedures can be powerful AML and risk management tools. The amount of digital data and the simplicity with which it can be shared creates a heavy burden on those who hold it.”

Organisations can’t afford to ignore the need to improve the way they onboard and process customer data. The volume is only going to increase. But they should also think of regulations such as GDPR as essential guidance as well as compliance. It is the necessary nudge that will get the finance sector in the shape of its life and ready to meet the demands that digital – and customers – will place on it in future.

Cloud-based KYC

Banking chiefs are naturally wary of hosting sensitive customer data in the cloud. This generally stems from a misconception over the type of cloud they should be using to store their KYC data.

Certainly, individual organisations hosting client data in the public cloud is not advisable. But true cloud-based KYC relies on centralised, protected data sources maintained by experts to remain current and compliant. Such systems have Governmental support, wide-ranging system compatibility, industry-leading security, and provide users with speed of access which, in turn, they can pass on to customers in the form of an enhanced experience.

Cloud is particularly important when it comes to cross-border payments. Whether it’s finding common integrations across different national banking systems or using different international vernacular for validating customer IDs, cloud becomes the central hub where these exchanges can take place. Currencycloud itself operates from Amazon Web Services (AWS) platform, which runs under a host of compliance programmes and tight data centre controls.

A GSMA study found that the consequence of creating electronic identification, plus digitising and integrating data, has been to speed up e-KYC, including electronic identity documents. In developing nations, this has so far been primarily in the mobile sector, but with implications for mobile network operators (MNOs) to become payments banks for low-income customers. In doing so, it reduced the cost of KYC processes from $0.60 per customer to $0.07.

Cost is certainly a factor when competition is high, and margins are squeezed. But financial services providers looking to encourage new customers (or those switching from other providers) need to look to digital KYC as a vital tool.

Erin Taylor, a researcher at Holland FinTech, summarises the challenge ahead: ”If ‘sign up to a new digital bank’ lands on a consumer’s to-do list, there is a very real danger that they will never get around to the task. New financial services need to take consumers from ‘interested’ to ‘converted’ immediately, and a fully digital onboarding experience is key.”

To understand more about how regulation, digitisation and secure cloud impacts know your customer and customer experience, download Why the future of payments is modular and cloud-based: how to access these new, agile services.

Matt Rowntree
By: Matt Rowntree

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