The process of knowing your clients or “KYC” can be very expensive, especially if you are operating in the financial sector. Banks and other financial institutions spend hundreds of millions of dollars every year on KYC and other related tools.
They do all this to ensure that the people and the institutions they’re doing business with are not doing anything shady on the side, like laundering money and other criminal acts. If caught, the fines and penalties could go to tens of billions of dollars, so spending a hundred million or so as a precautionary measure is just a drop in the bucket.
Financial institutions are constantly looking for the best, and the latest solutions for KYC, to safeguard their best interest. To find the ultimate tool for your KYC compliance needs, you need due diligence to get one that really suits your needs. But this is definitely a worthwhile investment: with regular upgrades and improvements, KYC innovation has created tech that gives businesses strategic advantage over their competitors.
Let’s take a look at some of the examples of innovations that impacted KYC significantly:
Taking KYC to the next level with Machine Learning
KYC most often requires recursive tasks when assessing large, third-party networks, especially if you are dealing with a diverse, global market. You are continuously gathering data, connecting them and building comprehensive database, looking for patterns of suspicious activity, and assessing risks.
All these processes, you can automate, simplify, and improve through artificial intelligence (AI) and machine learning.
With AI and machine learning in place, it will be easier for you to tag users and their corresponding data across millions of documents in your database. Manually doing so would take you years to accomplish, but with machine learning, it you can do it in mere seconds.
It will also be easier for you to cross-check multiple sources of information, and removed duplicates or similar content for a more efficient record-keeping and activity tracking. You can also use AI to map risk relationships, which you can easily flag for further review.
Application Program Interface (API) through the cloud
If your business has no more room for additional hardware, software, and costly maintenance, you can just opt for easy-to-integrate cloud-based APIs. You can install up-to-date KYC tools and solutions without needing new hardware and maintenance costs.
The cloud API innovation delivers the standard data and intelligence service to your existing workflow systems. This helps your business with compliance, empowering your employees to make more informed decisions relating to risk.
Imagine having a small business, with limited budget and resources. You need to comply with industry standards, even if it means busting your budget, which you could just spend for other projects, like sponsored marketing events, and more. By going to the cloud, you save a lot of money by not buying new servers and computers, and you won’t have to worry about paying more employees to run and maintain them. This gives you and edge over similar sized businesses who have yet to adapt, and levels the playing field with big business and their deep pockets.
Exploring new horizons with Blockchain
Blockchain, the record-keeping technology behind bitcoin, is perhaps one of best innovations to surface in the recent years. It keeps “blocks” of digital information spread around a network, and is practically immutable. It offers a very high level of security, and of course, complexity. It also offers greater transparency because of the shared ledger system that can be accessed across the industry.
As a fairly new innovation, blockchain presents a lot of promise in KYC, but it definitely requires ample time and effort to understand and master. But KYC with perfectly executed blockchain tech is a formidable combination that we would definitely see in the coming years.
This is due to its inherent characteristic as a secure, trustworthy solution that can be automated across networks of varying sizes and nature. It is very promising in terms of client experience, operational process improvement, and regulatory compliance, among others.
Fool-proof digital identity tools
Digital identity is a big factor in KYC, as it is used in advanced algorithms alongside third-party data to deliver confidence flags. Confidence flags are important when you want to complete successful transactions and overall eradicate fraud in your business dealings.
These innovations don’t necessarily replace the human factor in knowing your clients. No matter how good your AI is or how fool-proof your digital identity tools are, they would still pale in comparison to nuance, ethics and judgement of a person gauging the clients. Still, these are valuable tools that enable professionals to see patterns of fraud and assess risks more quickly and efficiently.
How technology and innovation shape KYC
When KYC was probably first pitched to a financial institution, the first reaction would’ve been, “why waste good money for that?” But as more and more banks are fined by the hundreds of millions and even billions, many now see these ongoing innovation of KYC as a necessary expenditure. It’s no longer a cost that organizations bear, but an integral part of running a business in the financial industry.
KYC that has been augmented by the latest that modern tech has to offer are more robust, more reliable, and less prone to errors. It is crucial in identifying risks as early as it can, and it definitely gives your business an edge over those who haven’t adapted yet.
It also removes mundane, recurring tasks often perceived as low-value from business professionals.
Instead of worrying about time-consuming KYC processes, they can now focus on tasks that add more value for the company. Or maybe take a much needed break. The resources spent hiring more people to do what one KYC software could would also go towards other valuable business processes.
For financial institutions, knowing your client or KYC is an integral process that may seem costly at first, but could be very cost-efficient in the long run. KYC processes and tools are constantly innovated thanks to modern technology, and it has made life easier for those tasked with risk assessment and digital identity tracking.