As Western society demands a more consistent and professional stance on Financial Economic Crime, banks have increased their efforts to uphold the crucial role they play. But there was a price to pay: by stepping up to the plate to do better, costs have ballooned. Higher standards equaled more work as productivity didn’t keep up the pace. So, how to improve productivity in the KYC domain to rebalance the scale?
In our vision the KYC domain will benefit from the upcoming digitization of processes that have made all the difference in other domains years ago. For the KYC domain we identify three major dimensions that each require their own approach.
For now, we will focus on the customer journey. Progress here has been remarkably different, depending on whether you look at private or corporate banking. In private banking things have progressed significantly the last 3 years as Artificial Intelligence created possibilities to realize remote identification and verification smoothly. As you needed a modern touch-point IT-architecture to pull it off, it has become a competitive edge for some.
In corporate banking much has stayed the same. This was not due to higher customer satisfaction. No, the problem was more of ‘the many-to-many’ sort, and therefore harder to solve. Customers often have multiple entities, serviced out of multiple bank branches. The interconnection of all those data sets have been one of the great challenges within the KYC domain. Currently all banks will have multiple truths in their systems. One branch might use a corporate structure which was valid a year ago. Another might have the same person multiple times in their database with different role. All of this results in additional governance and manual checks needed to realize a consistent, up-to-date profile across all systems.
So, what is the next? In our opinion the key to taking the customer journey for corporate customers to the next level is the distributed leger technology, commonly known as ‘blockchain’. Competing against sophisticated payment systems, the alternative currency hasn’t had much impact yet. But blockchain has more and more become a standard bearer in domains that relied heavily on auditable paper trails, like trade and commodity finance but also the KYC domain. By now the underlying technology has reached a state of maturity which can cope with issues like privacy and speed. Assisted by standard set within the R3 consortium founded by Western banks blockchain is starting to create real business value.
So, what benefits does this hold? For one, the corporate customer can have a real-time overview and realize changes consistently. Because changes are made instantly throughout the blockchain. It also will mean that corporates will ‘hold this asset’ to their own and have improved governance on which bank got what data resulting in a corporate e-identity.
For banks this will result in ‘one version of the truth’ of a corporate customer around the globe, without having to manage this themselves. As different banks, but also authorities, will hold the same versions of this e-identity, process costs of ‘doing business’ will fall.
Essential for this to happen is that we are no longer grounded by the current technology. We seem to have embarked towards a future were different countries will team up, sharing data among authorities, banks and supervisors, for the integrity of the financial system. Maybe on a pan-European level first. The LEI initiative of the G-7 has been a guiding hand in this development already. But the volume of data that needs to be connected will not be manageable using current database technology.
Get your toe in the water
So, for an improved customer journey, more efficient global KYC governance and a future proof scale on KYC for corporate customers, it is time to onboard a more efficient platform technology. The good thing is, you just have to get your toe in the water. It’s all out there. You could start a proof-of-concept tomorrow. Your customers will like it, some of them got a taste of it already in commodity finance after all.