KuppingerCole Report
Advisory Note
By Bruce Hughes

KYC as an Enabler in the Financial Services Business Transformation

The Financial Services Industry (FSI) is undergoing unprecedented evolutionary and revolutionary change. FSIs need to transform their business models to respond to today’s challenges and to position the business with the flexibility required to adapt to opportunities as the business landscape evolves. This report examines the issues and challenges FSIs face with market forces and how KYC can be advanced from just client on-boarding and compliance process sets to a key enabler in business transformation.
By Bruce Hughes
bh@kuppingercole.com

1 Management Summary

Digital Business Transformation is here now and it will change how businesses compete for many years to come. In the financial services area, Know Yo ...

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2 Highlights

  • FSIs must become customer centric, focus on profitability rather than revenue, and increase operational efficiencies, in order to attract customers ...
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3 KYC Digital Transformation Challenges and Regulatory Compliance

Know your customer (KYC) has traditionally been the process of a business verifying their clients for the purposes of preventing identity theft, money ...

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3.1 KYC

The traditional process of KYC entails identifying the customer and verifying their identity by using reliable and independent documents or informatio ...

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3.2 Digital Transformation

FSIs must ensure that their IT investments are strategic rather than just tactical to achieve their KYC goals. FSIs need to transform their core tech ...

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3.3 Transformational Issues

Before embarking upon the KYC transformation journey, FSIs must identify the inhibitors such as siloed environments, inconsistent and varying data qua ...

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3.3.1 Siloed and Inconsistent Data

Customer data is often spread out among many different systems in a financial enterprise. Some data may be missing, and formats may be incompatible. ...

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3.3.2 Analytical Insight Issues

The exponential growth of data flowing into FSIs require people with data analytics expertise. McKinsey & Co. estimates that there will be a personne ...

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3.3.3 Aged Data

Some FSIs are making progress in capturing timely customer data, but slow to distribute this knowledge throughout the enterprise. As a result, critic ...

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3.3.4 Regulation

The regulatory compliance landscape is frequently evolving, putting additional stress on financial institutions.

Recent events have put greater re ...

As regulatory expectations continue to increase, financial institutions need to be increasingly proactive and efficient in mitigating their Anti-Money ...

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4 KYC - Digital Transformation – Technical Building Blocks

The journey from Identity Access Management (IAM) to Know Your Customer (KYC) introduces a new step – Customer Identity Access Management (CIAM) – ...

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4.1 IAM

Identity Access Management (IAM) is defined as a set of business processes, and a supporting infrastructure for the creation, management and use of di ...

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4.2 CIAM

Consumer Identity and Access Management (CIAM) is a sub-genre of traditional Identity and Access Management (IAM) that has emerged in the last few yea ...

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4.3 Authentication

PSD2 requires strong authentication for financial transactions.

“1. Member States shall ensure that a payment service provider applies strong c ...

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4.4 KYC

The Know your Customer (KYC) directive depends upon the elements of the IAM and CIAM. In order to reduce money laundering, cyber-crime, terrorist fin ...

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5 KYC Key Features and Benefits

KYC is no longer just about client on-boarding, compliance, and regulatory reporting. It is now becoming a key business transformation enabler. It i ...

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5.1 Competitive Advantage

The greatest market opportunity is in being recognized as unique and of superior value, by a specific customer segment, and for a specific product. T ...

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5.2 Customer Expectations

Bank customers expect mobile apps with rich feature sets. Customers want a consistent experience, whether via a mobile app, institutional website, or ...

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5.3 Customer On-Boarding and Knowledge

Client on-boarding is one of the most costly and time-consuming functions burdening global banks. A significant amount of corporate business is lost ...

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5.4 Regulatory Compliance

Banks are facing some extreme pressures with continued low-rate environments, the pace of regulatory change and arcane, complex infrastructures. Fine ...

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5.5 Transparency and Omni-Channel Engagement

Transparency across the client journey is essential in addressing the main issues around on-boarding and regulatory changes. FSIs are advised to inve ...

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5.6 Data Analytics

Data analytics is a range of different analysis tools and strategies used to learn about certain types of business related functions, such as customer ...

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5.7 Product Innovation and Marketing

With the knowledge-base of customer interaction and predictive analysis, FSIs can leverage this information to make better product decisions. The cha ...

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5.8 Branch Office Reengineering

Branch Office networks are being downsized and refocused to reduce costs. They are becoming customer service centres to help customers with their fin ...

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5.9 New Market Opportunities

The marketplace is becoming global, digitised and with a demographic shift. In many developed countries, the working population will decline signific ...

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5.10 Key Benefits Summary

The following table summarises the benefits of KYC enabled Digital Business Transformation:

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6 Conclusions and Recommendations

FSIs are now reacting to the need to provide premium customer services. Their infrastructures and business models are generally not geared to this ne ...

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