Urbanization, the expanding middle-class category, budding entrepreneurs, business-friendly government policies, changing mindset of the employed class in terms of how to spend money have all contributed in making India one of the fastest growing economy. BFSI- banking, financial services, and insurance plays a crucial role in every economy and in the past few years we have seen how slowly and steadily “conventional banking” has changed to convenient banking. Banking alone is poised to become the fifth largest contributor to India’s economy by the year 2020.
BFSI industry has managed this seamless paradigm shift because they kept pace with the changing technology and customer needs. Be it Core Banking Solution (CBS), E-banking, Electronic fund transfers, Biometric authorization, or Mobile banking (including Smart wallets), technology is redefining business models and revenue streams across the BFSI industry.
This generation always wants to be updated, depends on gadgets for every task, be it shopping, booking tickets, getting a cab, ordering food or even banking. They want all the power in the palm of their hands; super convenient and quick. To remain competitive, the BFSI sector must transform into completely digitized businesses to deliver seamless experiences across all channels.
This brings us to Know Your Customer/Client (KYC). Though it was introduced way back in 2002, the paper-based KYC and approval processes have stayed mostly untouched by the promise of digitization. As a result, major banks have incurred over $200 billion in fines for non-compliance between 2009 and mid-2016. In India in 2019, RBI has already fined 9 commercial banks for AML breaches, with more to come. Banks have finally started to add stringent controls around their KYC processes, leading to a sharp rise in onboarding and regulatory compliance costs (HSBC added 4,000 employees to monitor suspicious activities). Those most affected—notably FinTech and Financial Services firms—are spending huge amounts of time manually processing checks to protect themselves from penalties or fines.
When it comes to KYC onboarding of companies and entities, the burden of proof is much higher and the type of checks that need to be undertaken are far more complicated. Below is a typical manual KYC process flow, which is standard in the BFSI industry:
The manual KYC process above requires an employee to manually:
- ensure that full contact and financial details (including identity of the customer, address, statutory registration, legality of business) for every customer have been received at the time of onboarding, and
- undertake regular monitoring and due diligence of client behavior, being on the lookout for any suspicious activity that could be an indicator of financial crime.
Simply put, this is very time-consuming, both in terms of man-hours and the potential for human error.
Since it involves a great deal of documentation, compliance checks, verifications, and multiple data entries into separate databases, 2-3 weeks is a common timeframe needed to complete the process. This entails an enormous cost to banks and FIs, including lost cross-sell/up-sell opportunities, and, most unfortunately, it creates a miserable experience for customers.
The need for an intelligent automation solution to tackle on-boarding and KYC of customers is clear. Such a solution eliminates the need for time-consuming manual regulatory compliance checks, helping to improve operational efficiency, security, reliability, and—most importantly—client experience. Automation executes many steps which would otherwise take hours for a team or days for an individual. The right tools can cut that processing time down to just minutes. Automation also helps to better manage the complexity of onboarding and monitoring customers, ensuring that business is constantly protected from money laundering schemes and the implication of involvement in financial crime.
For India’s financial industry in particular, the ideal solution is a mix of high end OCRing coupled with machine-learning algorithms and Robotic Process Automation (RPA) tools. Of course, while most of the KYC processes can be handled with smart technology and automation, banking and FIs will still need humans to steer some top-level functions and handle more complex or borderline decisions. Nonetheless, automation offers the ability to significantly improve straight-through processing based on internal policies and processes.
And these solutions are available now. There’s no need to wait for these kinds of advancements—current, newly developed intelligent automation solutions (iKYC) can help institutions significantly lower manual intervention today. Moreover, automation solutions also improve efficiency, accuracy, and control over KYC processes. For the banking industry, these solutions offer only advantages, with no drawbacks in sight.
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