The concept of Know Your Customer (KYC), which describes the process of verifying the identity of customers and assessing their legitimacy as a client, is now firmly established in financial services.
KYC procedures are meant to prevent banks being used by criminal elements for money laundering activities. Related to this are processes to enable banks to better understand the relationship their customers have with the bank and their financial dealings, further enabling them to manage risk.
In addition to the anti-money laundering focus, KYC has expanded to specifically include anti-terrorist financing measures.
Compliance with KYC procedures has seen banks, insurers and other financial institutions require more information from customers as part of the due diligence process.
In addition to KYC requirements, international anti-money laundering laws require user checks to prevent suspicious transactions. This includes screening for politically exposed persons (PEP)—those who are members of a government and their families and associate--and sanctions lists (including both terrorists and criminals). To do this, banks analyse gender, job title, industry, city of birth, nationality, tax residency and tax ID number.
Most banks now check the first name, surname, country of residence, date of birth, password, phone number and mailing address (if sending out a physical payment card).
But many challenger banks, such as Atom, Monese, Monzo and N26, are taking KYC concepts to a new level, as they focus on achieving a superior customer experience to traditional banks, while also complying with local regulations.
Traditional high street banks start the KYC process when customers open a new account. Customers are asked about their job, how they intend to use the account, and so on. This takes time and can be inconvenient, impacting the customer experience.
According to financial and risk business Refinitiv, the average new customer onboarding times have risen from 28 days in 2016, to 32 days in 2017.
In contrast, challenger banks in Europe offer this process within their mobile apps, making it possible to open a new account in minutes. Technology, such as video identification, voice recognition or photographs of ID documents, have helped make this possible, along with a verification payment.
Some challenger banks currently claim account opening takes between three and 10 minutes. For example, Monzo’s KYC process starts when customer sign up for an account but then continues during the time they are a customer. The app may ask for more questions or extra information, such as the range your salary falls into and whether you have any dependents. Or, if a transaction is of a higher value than normal, such as transferring a large sum of money for a house deposit, more detail about the transaction may be requested. Transactions involving cryptocurrency may require a similar level of detail.
Pan-European bank N26 requires customers to perform a brief video call in which they interact with a human operator to verify their identity matches their device. Customers are asked to verify details from their registration form, as well as entering a code sent to the phone number they registered with. In addition, customers are asked to show their ID document to the camera in different angles, so they can be verified as being legitimate.
Monese has employed geolocation technology to perform additional checks on customers. The technology enables Monese to see if a customer is in an unusual location, during the sign-up process, which could contradict the information they are providing. If there is a discrepancy, a Skype interview is conducted to review the unconfirmed details.
Atom, meanwhile, has voice and facial recognition security, in addition to PIN security.
These challenger banks have found success through superior customer experience and flexibility, and it seems that when it comes to Know Your Customer, they are also showing traditional banks how it’s done.