biometrics KYC

Challenger banks gear up for KYC battle

Challenger banks are in fierce competition to build economies of scale as they square up to traditional players. But they face a stiff test in onboarding customers quickly and easily while also meeting increasingly onerous know your customer (KYC) regulations.

Challenger banks such as Revolut, Atom and Starling are growing rapidly and grabbed 13% of new accounts opened in January to June 2019, according to the State of Pay report.

Their digital models rely on customers having a quick and seamless online experience, including the joining process.

But research by Refinitiv shows that, despite technological improvements, client onboarding times for banks have risen, and KYC compliance-related headcounts have increased.

Meanwhile, the global expansion of digital identification systems is bringing more pressure. Digital payments are growing at 12.7% annually and 70% of world GDP is forecast to be digitised by 2022.

The Financial Action Task Force (FATF) says banks need to recognise the risks in integrating large digital ID systems such as privacy, fraud, governance, identity theft, and data security. These risks ‘could be more devastating than breaches associated with traditional ID systems due to the potential scale of the attacks,’ says FATF.

Another KYC-related issue facing challengers is differences in local regulations and cultural preferences.

John Devlin, founder of P.A.ID Strategies, says a selfie, along with a photo or contactless read of a physical identity card or passport be enough to meet ‘liveness’ requirements (to prove the applicant is a live person) in some countries, but others may require a selfie-video.

‘Even then, some countries require a direct interaction, such as a video call to customer service,’ he says. ‘In addition, people in some countries, or in some demographics, are cautious about sharing personal information and may not be comfortable with using biometric ID systems.’

A report by Oxford University says these differences are forcing successful challengers to adopt a highly flexible approach to KYC as they expand across regions.

KYC process challenges

So, challenger KYC teams face many tough and competing pressures. In addition to meeting regulatory demands, they must make sure they get the full value from the data they gather. And they need the best adverse media screening possible to avoid the number of false positives which use up resources to review and clear.

In the face of these challenges, some are struggling to meet the ever-increasing expectations of their digitally savvy customers. They are in danger of allowing these issues to impact the excellent customer experience that has brought such rapid success to date.

The good news is that KYC teams are responding with a range of rapidly advancing technologies.

Martyn Sukys, a Digital Product Management expert in Barcelona, posted on his useful research with the KYC processes of European challengers such as Monzo, N26, Revolut, Atom, Starling, and Monese. He found they all offer in-app processes that enable rapid account opening – joining times range between three and ten minutes.

To achieve this speed, they have embraced online ID technologies such as biometrics; video and digital photograph identification; and payment verification technology. And they are rapidly adopting advanced technologies such as fingerprint and face recognition; behavioural biometrics; and artificial intelligence in the ID process.

‘Today, biometrics provide instant access to banking with an acceptable level of security,’ says Sukys. ‘The big focus is on simplifying authorisation to make the process as frictionless as possible for users while still meeting regulations.’

Devlin says: ‘The challenger banks have been much quicker to adopt and implement technology as part of their strategy to build services around the customer, offering greater functionality and improved features.’

Rapid advances in biometrics have increased their appeal with smartphone users. Challenger bank customers have become comfortable using fingerprint and facial recognition for securing devices, services and data.

‘This fits neatly with the latest regulatory need for more definite confirmation of ID – something you are, know, and have – especially for KYC,’ says Devlin.

‘Pins, passwords, device and biometrics work well together to fulfil this need. Meanwhile, behavioural biometrics add another dimension to security and fraud prevention. Combined with location and other factors, these provide greater security than traditional in-person and online transactions.’

These technologies have also enabled challengers to make their operations leaner and increase customer intelligence from app usage. This, in turn, helps them scale their user base.

Devlin adds that P.A.ID Strategies’ assessment of UK traditional and challenger banks’ account opening processes found notable differences between the two.

With challengers, customers can open a new account in five to 10 minutes, including validating yourself, authenticating ID, and knowing your card is coming. With traditional banks, they nearly complete the process but then have to send proof of ID in the post or take it into a branch.

Cloud-based tools

In a blog, Phil Cooney, director, financial services UK and Ireland for Accenture, said there is a range of software available to help automate complex KYC processes while maintaining top customer service.

Digital ID and verification tools can be integrated to auto-validate customers, using multiple methods such as selfie-based authentication and biometric facial recognition.

Digital document upload technology can obtain digital copies of ID documents, validated automatically and using details to pre-populate the rest of the application, says Cooney. Combining these with artificial intelligence techniques can also improve straight-through success rates and increase the number of accepted document types.

External data integration is also key, using APIs linked to trusted external data sources to validate customers and corroborate regulatory information demands.

Finally, banks can use software to screen for adverse mentions of potential customers across traditional and social media, says Cooney.

Seamless KYC experience

Customers expect a seamless experience, so the key is to provide instant feedback where possible, but if you cannot, let them know.

The aim is to make the application experience as engaging, intuitive and as hassle-free as possible.

Regulation will only make it harder to open a bank account. But with customer-centric design and a keen eye for cloud-based technological advances, challenger banks can keep winning the KYC battle.

Tim Cooper

Award-winning financial journalist, has written regularly for publications including The Times, Sunday Times, The Spectator, London Evening Standard, Guardian Weekly and Weekly Telegraph.