A typical European bank, serving ten million customers, could save up to 10 million euros a year and avoid growing fines by the regulator by using technology to improve the ‘Know Your Customer’ (KYC) processes. That is according to new research from Mitek, a US-based digital identity verification product company, and Consult Hyperion.
The report, The Cost of Compliance and How to Reduce It, found that following new EU Anti-Money Laundering (AML4/5) and Counter-Terrorist Financing (CTF) rules extending the scope of KYC requirements, the annual cost of non-compliance fines has risen to 3.5 million euros. When things go wrong – which they do, as card ID theft in the UK rose by 59pc to £47.3m last year – these fines could soar into the tens or even hundreds of millions, the report claims. But it’s not all about the financial and business costs. The risk of reputational loss, losing license to operate, and even personal liability of senior management are also increasingly significant for banks who get KYC wrong.
Steve Pannifer, author of the report and Chief Operating Officer at Consult Hyperion said: “It’s no longer good enough for banks to simply accept the costs associated with inefficient processes – the consequences are now much more serious. The biggest change in the past two years has been new EU rules around KYC related compliance. This has led to many more punitive fines for banks who fail to comply – and the size of the fines has grown in tandem. We’ve seen the Financial Conduct Authority [FCA] recently issue fines to several major banks, amounting to £176 million. Then, even that fine was dwarfed by the 775 million euros fine handed to a single bank by Dutch authorities.”
However, fines aren’t the only growing problem when it comes to the hidden costs of KYC. The potential cost of losing just a few percent of new customers to complex manual KYC processes is now as much as 10 million euros a year. After five years, the cumulative lost opportunity could cost banks in excess of 150 million euros, it is claimed.
Inefficient and cumbersome on-boarding is a key driver behind a 56pc abandonment rate for banking customers (up from 40pc two years ago), the report points out. Customers often abandon the process as soon as they’re asked to visit a branch face-to-face with their passport and utility bills. As the younger generation begin to turn to challenger banks providing a seamless in-app experience, traditional banks must respond to these demands or face losing new customers.
Pannifer added: “That banks could lose 150 million euros in new business in just five years is a stark reminder to keep a close eye on what customers want. While the figures are troubling, it’s not all doom and gloom. Banks can prevent this loss by investing in technology that exists today and, in the process, cut the cost of KYC compliance by up to €10 million. They just need to know where to look.”
And Rene Hendrikse, EMEA MD at Mitek said: “The future looks bleak for banks who don’t comply with KYC, or whose processes are so cumbersome that they can’t attract new customers. But technologies such as digital identity verification could help banks overcome the hurdles holding them back. The technology enables customers to onboard themselves with just a selfie and a photograph of their ID document – online or on mobile apps. In turn, this drastically improves customer experience, reduces banks’ reliance on manual processing, and helps them avoid heavy fines from the regulator. To avoid falling far behind their nimble challenger rivals – and behind the traditional counterparts who are turning to innovation to survive – investing in the right technology at the right time will be crucial.”
