6 Reasons How KYC is Stressing Out Financial Institutions

Author's Note: So yesterday we talked about how KYC, how it's gonna be a big impact moving forward, and the problems that come with it. But that has been mostly on the end user's side - the hassle, the paperwork, the long procedures. Today, we're gonna look at how it's impacting financial institutions like banks, and why they are pretty much on the worse boat compared to us. This article is also part of my consulting work with Xenchain.io, the company that is looking at helping the financial institutions to fixed these problems.

While most of us have experienced some form of KYC (Know Your Customer) process, that’s pretty much between a financial institution and ourselves, the end users. Sure, as the end user, we may comment that it wasn’t a pleasant procedure. Nobody likes additional paperwork or processes. Certainly when we assume that it is not in our favour, which is where we are wrong. But that’s topic for another day.

Let’s take a look at the other end of the spectrum, and you’ll realize that the financial institutions are not having a great time either, and so are their corporate clients.

Here are a few reasons why:

###1. Onboarding Costs

Since the regulators have laid down the guidelines for KYC, financial institutions had been rushing to onboard their corporate clients and end users. As a matter of fact, as the regulators are requesting for more data points, the onboarding costs increased as well. According to Thomas Reuters, financial institutions spend an average of $150 million on client onboarding each year, and that cost is expected to increase by 13% in 2018.

###2. Onboarding Time

The average onboarding time was 28 days in 2016, and it has grown to 32 days in 2017. One of the longest recorded to onboard a corporation was 65 days. To manage this issue, additional headcounts were added to improve the speed, but that is not a long-term solution because it is not scalable. Furthermore, there is a limited supply of skilled staff in this area.

###3. Costs of Data Refresh

If the onboarding time and cost are not bad enough, financial institutions are required to intermittently update their data, which further increases the costs. In the same research by Thomas Reuters, it was discovered at only 11% of the financial institutions has dynamic monitoring, and only 25% of them are intermittently checking for risk and any underlying changes.

###4. Negative Customer Experience

Due to the stringent process and requirements, financial institutions are reporting that 84% of their clients have a negative experience with KYC, causing 12% of their clients to look for alternative banking relationship.

###5. Investment in Technologies

Over a quarter of the annual client onboarding costs are dedicated to the improvement of technology, in an effort to speed up the process and enhance the overall customer experience. This cost is expected to rise linearly as the onboarding cost as well.

###6. Risk Management

Lastly, there seemed to be a discrepancy, perhaps a disconnect even, in the data from both the financial institutions, and their corporate clients. For example, during the Thomas Reuters’ survey, the banks were being asked how many touch points were made during the KYC process. The banks answered four, while the clients replied eight. On another question, in which how often does each party feel that they have the most updated of records, the banks believe their clients update them 70% of the time, but on the client side, the number was in fact close to 30%.

What this meant is the financial institutions are running on false assumptions on their data, and may be taking more risk that they actually should be.

You can watch this short video for the full interview.
https://youtu.be/pJnntDDKec8

One of the clear solutions for financial institutions to combat this pressing problem, is to outsource their KYC process to trusted, external parties, or extract the data from trusted sources. Xenchain is one of the companies with the necessary experience in this vertical, to solve this issue for the financial institutions. As a matter of fact, as mentioned by CEO of Xenchain, Steve Rao, he believed that their eKYC app can be used across different industries, from ICOs to digital exchanges, and e-commerce to healthcare.

Because it is built and powered by the blockchain technology, Xenchain can encrypt and store users’ personal data on a decentralized public ledger, making it safer compared to traditional storage practice. Xenchain combines super intelligent text identifiers, facial recognition and digital ID scanners with social validation, to create a simple and seamless customer onboarding and ID verification process. Users and Validators on the Xenchain platform will be rewarded with Xencoins (XEN) when their info are being requested and/or validated.

Private token sale of Xenchain is open right now, so register your interest at www.xenchain.io.

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Hi there! Thanks for stopping by. I mostly blog about Steemit Success Strategies, business, marketing, entrepreneurship, psychology, community and random thoughts.

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