Due to the significant financial risks financial institutions face, it is necessary to understand the customers and analyze their activities in anticipation of potential risks that may arise from consumers. That is the goal of Know Your Customer (KYC), an intervention committed to ensuring that businesses collect all the relevant customer data to understand the potential financial risks of customers. Instead of doing it traditionally, companies commission digital and electronic KYC to boost efficiency in financial risk management.
Digital KYC is ideal for various services and functions committed to analyzing the customers for any financial risks, verifying their details, and continuously monitoring their actions. Therefore, financial institutions such as banks, hedge funds, and insurance companies are currently implementing e-KYC in various activities for financial risk assessment to ensure compliance and protection.
Elements of a Successful Business KYC
A successful KYC must meet various requirements, which are ideal for helping the organization to know the customers deeply, thereby collecting all the relevant financial data.
- Customer Identification Program
One reason businesses should consider digital Know Your Customers programs is to improve the business identification of customers based on their details such as names, date of birth, address, and other social and personal details. KYC involves collecting customer details for issuing various financial services and risk management strategies.
- Customer Due Diligence
The due diligence involves digging deeper into the client’s details, including the financial details, capabilities, traits, and business relationships. KYC due diligence is necessary to assess the risk by analyzing the customer’s financial relationships with other individuals, businesses, past financial history and transactions.
All the collected details are compared and matched with the existing financial data to test for suspicious activities such as fraud and other financial crimes. For regulatory and oversight organizations, enhanced due diligence must be conducted, which involves further scrutinizing global financial history and transactions to identify the risk of potential infiltration, terrorism financing and money laundering.
- Ongoing Monitoring
This is another requirement that financial institutions must meet, including continued oversight and customer monitoring. This is ideal for identifying whether customers lied to access credit, their intention to secure financing and other risky activities. The goal is to ensure the customer consistently complies with financial regulations and that risk profiles do not change.
Why Digital KYC
Unlike traditional KYC programs, introducing digital KYC, or e-KYC, could have additional benefits and impacts on the financial institution.
1. Improved Risk Management
The main goal of KYC is to assess the customers to ensure complete details ideal for risk rating, financial monitoring and other activities. Unlike the traditional models, digital KYC enables you to collect more data from multiple sources such as government databases, social media and work history. With more information, it is much easier to boost risk management practices.
With the digital KYC system, you can continuously monitor the customers and make decisions based on the relevant data. Such data would be suitable for continuously revising the risk management framework to ensure you identify any undetected risks.
2. Faster Decision Making
Coupled with data collection, big data analytics, and financial artificial intelligence systems, e-KYC is ideal for enabling organizations, especially banks, to make faster decisions on the issuance of loans. Since the institution has more data, it is easier to make decisions faster since the analytics can help you rate the creditworthiness and risks associated with the customers.
Due to the complexity, the organization can also formulate faster decisions on diversifying its risk portfolio by offering different types of loans and minimizing advanced risks, which can easily lead to increased debt defaults.
3. Preventing Most Financial Crimes
Ordinarily, the details you get by analyzing KYC data are ideal for preventing financial crimes; however, if you are going to prevent international crimes such as terrorism financing, and money laundering, you need a vast amount of data that run for years and analyzes all the financial data including the hidden one. The goal of having all the data is to ensure you are prepared for all the risks; hence vast data collection systems will be suitable for identifying hidden crimes and taking the necessary precautions in advance.
4. Regulatory Compliance
Regulatory compliance for financial industries is vast and extensive; it includes abiding by financial interests, mortgage, and loan-issuance regulations. KYC is also ideal for compliance with advanced and global financial regulations like money laundering and financial terroris. Financing regulations enforced by international organizations such as IMF, Interpol, and World Bank. Compliance with these regulations is necessary to avoid blacklisting and actions from these organizations.
5. Improved Data Quality
It is much easier for customers to lie about the data they physically provide to financial institutions; however, the data uploaded to the internet and databases are hardly lies. With digital KYC, you can access the data from reputable sources such as regulatory, government, employer, and other internet databases. The data is of higher quality, and even if the customer lies, the data used for decision-making and risk management is legit and reliable, unlike the one collected directly from customers.
Streamlining the Power of Digital KYC
To benefit from digital KYC, the organization must implement programs that meet all the requirements and offer additional benefits. Here are some programs to focus on:
- Financial Risk Analytics systems
This is the most crucial system for preventing all financial risks since it scans all the customer information and compares it with those in financial black lists and credit rating and fraud databases. Therefore, you should integrate KYC and all the data collection as part of the systems to ensure real-time risk analysis and get notifications of all potential risks fast and efficiently.
- Digital KYC Data Collection
To feel the full effects of KYC strategies, data must be the key resource; hence you should streamline the collection process through digital interventions. When customers apply for loans or other financial services from institutions, ensure the processes are digitized to collect all the relevant data from personal, financial, historical, and social data.
Through such systems, you can also verify data legitimacy as soon as the consumers submit it by concurrently verifying and cross-referencing on other databases. This enables you to spot any risks, wrong data uploaded, customer lies, fraud, and other unknown risks.
- KYC Full System Integration
All the financial risk and customer financial services and management ensure you automate all the functions to streamline workflow, case management, policy management, and employee performance. Ensure all the activities are digitally driven to create an excellent team and boost employment performance and decision-making.
Finally, optimize the systems to share real-time data with relevant institutions like federal and global financial regulators. This will also enable you to collect all the relevant data from regulators to boost your risk rating and collaboration with regulators.
Every organization should use digital KYC as the first step and system to prevent financial risks imposed by customers and businesses. It is crucial for collecting all the relevant customer data, financial data, and risk analytics and ensuring compliance with various regulations. Due to its critical role, financial institutions should integrate it into all the systems, processes, and services, thereby enjoying its full potential.