Companies active in regulated markets must perform Know Your Customer (KYC) Checks before they accept new customers, to be in line with anti-money laundering (AML) and counter terrorist financing (CTF) laws. To make matters worse, these laws are different from country to country and change regularly. Staying compliant while not frustrating the customers to much is difficult for both legal- and IT-departments.
The purpose of KYC is to protect all participants in a transaction. Besides maintaining compliance, proper KYC processes help to avoid data breaches, phishing, identity theft and other scams that often start with a fake registration.
Typical checks include verifying a customers identity, address, financial status and what fraud risks they may pose. This includes checking government IDs, databases and financial records. There are many ways to implement KYC, from asking customers to visit a local branch office to fully digital processes.
Unfortunately, many companies fall short in providing a pleasant onboarding experience because of the costs of creating and maintaining a seamless and easy to use KYC process. The result are severe abandonment rates: Some regulated industries lose 4 out of 5 prospective customers during registration.
Why promising leads get lost
SmartInsights researched financial websites: “In fact, the main reasons customers abandon financial products is because of the amount of prerequisite information required and the length of time to complete the forms. “
Balancing fraud detection and user conversion is often seen as a trade-off. Too much time spent on KYC formalities leads to a drop in conversions, but overly simple onboarding processes will opem the gates to fraud and circumvention of checks, which then lead to violations of AML and CTF laws – which can lead to steep fines or loss of concessions.
The main challenge for KYC projects is to combine available technologies into the smoothest possible process. It has to be easy and quick to handle for promising customers but at the same time strict enough to keep the bad apples away.