Digital transformation continues to gather momentum and is making waves on the customer identification and verification front. What are the benefits of digital identity solutions for financial institutions (FIs)?
- FIs are actively investigating innovative ways to help them identify and verify customers more quickly and accurately.
- Digital identity solutions are increasingly able to help organizations fight back against financial crime without damaging crucial customer relationships.
- The benefits of digital identity solutions also include faster turnaround times and lower operational costs.
The digital transformation of financial services continues apace, driven in part by regulations that mandate enhanced consumer privacy and protection.
Other driving forces include the expectations of technologically sophisticated consumers, as well as the increased global use of digital channels and the need for organizations to find new ways to protect themselves and their clients from financial crime.
When it comes to customer identification and verification, manual processes can be slow and tedious, in turn contributing to high customer abandonment rates. On top of this, human error can lead to inaccurate results, inadvertently allowing financial crime to remain undetected.
Consequently, many FIs are actively investigating innovative ways to embrace digital transformation to help them identify and verify customers more quickly and accurately.
Client identity checks
Refinitiv’s March 2019 survey of more than 3,000 managers with compliance-related responsibilities at large global organizations assessed how firms are embracing innovation in the fight against financial crime.
It gathered some critical insights into the value of using technology in the client identification space. We also produced an infographic that pulled together the most compelling stats from the report.
Looking specifically at client identity checks, just over half (53 percent) of respondents confirmed that they undertake KYC on the identity of clients during onboarding, but only 46 percent of these checks are considered to be successful.
Interestingly, there would appear to be clear benefits for those who have embraced innovation: organizations using technology to prevent financial crime are far more successful at performing KYC checks on the identity of clients (47 percent) than those who don’t use technology (28 percent).
Survey respondents indicated that over half (51 percent) of relationships had not been subject to any formal due diligence check during onboarding and only 39 percent of respondents confirmed that they monitor transactions in real-time after onboarding (rising to 47 percent in the financial and insurance sectors).
These compliance gaps could go some way towards explaining why financial crime remains widespread. Over two-thirds (72 percent) of respondents were aware of financial crime taking place in their global operations during the 12 months preceding the survey.
Spending on due diligence checks
Respondents overwhelmingly believe that innovation can turn the tide on pervasive corruption.
A large majority (97 percent) indicated that they believe technology can significantly help with financial crime prevention, but nearly three-quarters (73 percent) reported that they struggle to harness technological advancements to reduce risks and costs.
Slow progress on the digitization front is evident, and may explain this. According to respondents only 51 percent of the data and legal documentation needed to carry out due diligence is actually obtained, but moreover, only 54 percent of this is in a digitized format.
Nevertheless, the digitization outlook is positive and 60 percent of organizations are prioritizing automation and digitization for investment.
Respondents further indicated that spending on customer and third-party due diligence checks is expected to increase by 51 percent in the year ahead, with technology being the biggest investment area.
Benefits of digital identity solutions
Digital identity verification and screening is already available and being used by FIs. The benefits of digital identity solutions include:
- Faster turnaround times, meaning that FIs can onboard and service more customers, more efficiently.
- High levels of accuracy — and better compliance — as manual keying errors are reduced.
- Enhanced security, as dated security features such as passwords and knowledge-based authentication are removed.
- Lower operational costs as a result of the efficient deployment of resources.
- A better customer experience as a result of faster turnaround times and fewer touchpoints.
Protecting the customer experience
High levels of customer abandonment remain evident — for example, a reported 56 percent of consumers in the UK abandoned bank applications in 2018 — and traditional KYC and due diligence processes that are time-consuming, inefficient and costly are at least partly to blame.
Against this backdrop, we recognize the very real need to ensure a good customer experience.
The positive news is that technology and the benefit of digital identity solutions is increasingly able to help organizations fight back against financial crime without damaging crucial customer relationships.
This is a view borne out by 94 percent of survey respondents, who agree that the technology they use to detect financial crime is also enhancing customer engagement.