Top 4 KYC Problems That Are Strangling Fintech Organizations
Changing regulations, accompanied by inconsistent KYC processes across the globe are causing a great deal of financial burden on numerous government and private institutions.
When asked about the problems leading to such financial pressure, the leaders of top financial institutions say that increasing cost of KYC and changing laws are the two prime reasons responsible for complicating this rather simple KYC process.
These statements by industry leaders, along with the not-so-good KYC experiences of customers, stand as a tall reason for us to list and review the problems which are making the process of customer onboarding and due diligence complicated.
1. Rising KYC costs
The cost factor associated with KYC processes has risen to a whole new level with 10% of the world’s top financial institutions spending $100+ million annually on KYC processes, as reported by Thomson Reuters Survey.
And this is not all, some of the major financial organisations are even spending as much as $500 million annually on KYC and Customer Due Diligence. The same report also shows a rise of 19% in the cost of customer onboarding process in 2017 as compared to 2016 with a prediction of a further 16% increase in 2018.
2. Regulation Changes and PDPA Compliance Issues
The second issue which this industry is facing, and industry veterans are concerned about are the ever-changing regulations which cost them millions of dollars in legal penalties.
JP Morgan, for example, paid £16 billion as penalty for not adhering to local KYC regulations. Learning from this they are now spending upwards of £1.6 billion on their KYC processes, a year.
These continuously evolving laws as well as regulations have turned into a pain for many business owners, who are always worried about new regulations which may complicate the process even further.
Similar is the case of PDPA law compliance.
PDPA laws require that in countries that have such laws, the personal data of the residents is not carried out of the national borders of these countries. What this spells for the companies is that they have to invest in additional resources in deploying servers and manpower in each of the country that has some form of PDPA laws in place.
3. Lack of skilled professionals
Another overlooked aspect leading to an increased pressure on government and public organisations is the lack of skilled professionals capable enough to perform KYC procedures. This has caused the senior members to devote their valuable time towards the processes of KYC leaving other critical revenue related activities on the backburner.
4. Increased customer friction
The research conducted by Thomson Reuters also mentions the customer onboarding time which had increased by 22% in the year 2016 and was forecasted to further increase by 18% in 2017. A bank, on an average, spends 24 days to complete the customer onboarding process according to this survey and such rates depict how complex and lengthy the process of KYC has become.
All these problems are strangling the fintech organisations and have forced them to look for a solution which not only is faster but also easy to adapt.