What comes to your mind when you hear know-your-customer, better known as KYC? Probably phrases like: “It is necessary for risk mitigation”, “We must make sure we meet all regulatory demands” or “They changed it again, my branch employees will not be happy with this”. We all know or have read about the consequences of not adhering to KYC processes. Billion Euro fines have been handed out to a multitude of banks for breaching the guidelines. However, this time we do not want to talk about fines and stricter regulatory requirements.
It is time to focus your attention on turning regulatory compliance into a business opportunity. You will find here different cases of financial institutions that use their KYC processes to generate revenue.
First, let us tell you a story
It’s the year 2020 and a new generation KYC process has been implemented by most banks. Sarah is an expat professional who recently relocated. She expected to face many administrative challenges while moving to a foreign country. However, the bank’s knowledge about Sarah positively surprised her, saving an enormous amount of time and money. As soon as Sarah moved, she logged in to her internet banking system through her smartphone using a smart facial recognition system and did all the actions below in less than half an hour. She:
- declared her new tax residency.
She did this by simply selecting a new host member state (her bank knew her tax code and was able to automatically notify other authority about her action);
- got a push notification that advised her to open a local bank account.
Following the successful implementation of PSD2 her bank was able to provide many different packages from a multitude of service providers she could choose from. Sarah granted permission to the bank (in line with GDPR) to access her name, address, date of birth and some other data which is stored in her data vault and verified by a third party. Sarah chose a bank account which she preferred with one click, signed terms and conditions and all mandatory KYC data was shared with the
new bank. As a result, the account was opened instantly;
- liked the app she was using for her account aggregation and payment initiation purposes.
She decided (in line with PSD2) to aggregate all her accounts (from different banks) in this app. This allows her to have a clear overview of her financial position and for her bank to a get better understanding of Sarah’s needs;
- arranged a direct debit for her new rental house.
Subsequently, her bank advised her to use a pre-approved loan to buy new furniture for the house. The bank was able to provide a loan at a competitive interest rate as they knew Sarah’s risk profile. A few clicks later the money is in her account with an automatic set of payments to facilitate this instant lending;
- installed an additional functionality.
This allows her to make contactless payments to transport service providers. All she needs to do is to put her phone next to the ticket scanner to check in and check out once she enters public transport. As a result, Sarah fixed her tax residency, opened an account, aggregated all her accounts in one app, set up re-occurring payment, got a loan and obtained traveling arrangement! And all this was done in one app, within a short period of time and in a very user-friendly way thanks to new generation KYC.
To some of you, this story might seem a bit far- fetched. We do not believe so and there are currently multiple examples around the globe where countries and banks have taken steps to improve their customer experience and create business cases at the same time. We have picked out two of these examples within the European Union as a showcase of how banking in general and KYC specifically might work in the future.
Case 1: banks providing identity verification to third parties
Scandinavian countries are often considered to be advanced and innovative. Historically, multiple reasons for advancement and innovation were provided: including the long, dark and cold winters where there is simply no other way to keep yourself occupied other than trying to innovate and make things happen (source Global Innovation Index 2017, WIPO). Which could be why in the banking sector, we see that Swedish customers are what one could consider rather mature. Sweden is quickly becoming one of the first cashless countries in the world with only 2% of all transactions being made in cash (source: Capgemini World Payment Report 2017).
People usually prefer the way of the least resistance. This means that Swedish banks are offering services that are easier and more comfortable for people to use rather than going to an ATM to withdraw cash. How did Sweden manage to make this happen? Swedish bank lobby on different levels and offer standardized solutions for all their customers, no matter which bank they use.
Swedish banks decided KYC is something they must do, it is burdensome and costs some money. So why not earn money with it as well? Eleven of the biggest retail banks have collaborated to offer a service called BankID which in its first stage was only used to authenticate a person in the online banking system. Banks are starting to provide these authentication and verification services to third parties. They already checked my ID, know my address and all other personal information, so would be better suitable than a bank to authenticate who I am?
If I were a company and I wanted to verify a person online, it would be enough for me if a bank says: “Yes, he/she is who he/she is pretending to be”. Banks are charging a fee for this service which, depending on the volume of verifications, is approximately 3 cents per transaction. It is very similar to other websites currently allow a user to access their website via a Facebook or Google+ sign-in, but with verified customer information rather than possibly wrong personal information provided via social media. BankID is gaining market share within all kind of different applications and is no longer used only for banking or governmental applications.
In our second blog post we present another European use case and we go more into depth on how we think KYC will evolve within Europe in the next years. If you wish to further exchange on this matter, feel free to reach out to us: Arune Aleksonyte or Martin Alexander Mühlmann
About the author
Martin Alexander Mühlmann is a Senior Consultant within the Corporate Excellence and Transformation Unit at Capgemini Consulting. With multiple years of experience, he engages in the topics of KYC, payments and related regulatory challenges.
Co-author: Arune Aleksonyte