Know Your Customer (KYC) processes represent a critical component of regulatory compliance within the financial industry. Financial institutions, including banks and insurance companies, are legally obligated to collect and verify customer information to prevent fraud and money laundering. Historically, KYC processes relied heavily on manual document verification, which proved not only time-consuming but also error-prone and inefficient. New-AI powered Intelligent Automation can completely transform the KYC process. This article looks at this important trend and provides an overview of typical KYC process steps and how automation can completely transform them.
Process automation is integral to digital transformation efforts as it allows organisations to restructure their workflows, reduce operational costs, optimise operations, reduce manual effort, enhance productivity, as well as enhance customer experiences. Process automation involves the utilisation of software tools and technologies to automate repetitive and predictable tasks, thereby freeing human resources for more strategic and value-added activities. Two critical components of process automation are process mining and workflow automation. Process mining entails analysing and visualising existing processes to identify inefficiencies and bottlenecks, while workflow automation is the practical implementation of automated processes.Robotic Process Automation (RPA) is a subset of process automation, with a specific focus on the use of software bots to execute rule-based tasks and processes. These bots are programmed to mimic human actions, including data entry, invoice processing, and customer data retrieval, across various systems and applications. RPA excels in automating repetitive and mundane tasks, enabling human employees to concentrate on more complex and strategic work. However, RPA does have its limitations. It is most effective when applied to well-defined, rule-based processes but struggles with exceptions and tasks that require intricate decision-making. To overcome these challenges and achieve greater automation maturity, organisations are increasingly turning to Intelligent Process Automation (IPA).
Intelligent Process Automation, also known as hyperautomation, represents the next phase in the evolution of automation. It seamlessly combines RPA with advanced technologies, including artificial intelligence (AI), machine learning, process mining, and optical character recognition (OCR), to create more sophisticated and adaptive automation solutions.
At its core, IPA leverages preconfigured software components that incorporate business rules, context determination logic, and decision criteria. This enables the initiation and execution of interconnected human and automated processes within a dynamic context. IPA excels in handling complex decision-making, exceptions, and process variations that go beyond the capabilities of traditional RPA.
The integration of AI and machine learning within IPA empowers organisations with predictive and prescriptive analytics. This capability enables organisations to anticipate issues and make data-driven decisions. Furthermore, process mining and task mining technologies are pivotal components of IPA, as they provide deep insights into process inefficiencies and help identify valuable automation opportunities.
Low-code development platforms have emerged as game-changers in automation. These platforms offer a visual programming environment equipped with drag-and-drop interfaces, making it possible for business users to contribute to the design and development of process automation software solutions, with limited technical skills. One of the main drivers of low-code automation is acceleration of the development time frame, and aligns with the broader trend of citizen development, where business users actively participate in application development, to enable automation projects to be delivered faster and with greater focus on the business pain points. Low-code intelligent automation increases the agility and productivity of IT developers by leveraging ready-to-use or less code-intensive resources. This approach enables business users to engage in automation projects using quick-to-adopt visual tools, reducing reliance on traditional software developers and engineers. Instead of navigating the complexities of intelligent automation independently, users can implement visual tools and adopt low-code methods to leverage Robotic Process Automation (RPA) and Business Process Management (BPM) effectively.
Historically, KYC processes relied heavily on manual document verification, but new AI-powered Intelligent Automation is in the process of completely transforming the world of KYC compliance. Here are the typical KYC process steps and how automation is transforming them:
Automated Image Quality Checks: algorithms can quickly detect issues such as blurriness or incorrect orientation and provide immediate feedback to customers. This significantly reduces delays caused by poor-quality images and streamlines the customer onboarding process.
Automated Document Verification: object detection and OCR (Optical Character Recognition) technology is playing a critical role in automating document verification. These models can rapidly and accurately confirm the presence of all required information in uploaded files, ensuring compliance with regulatory requirements and minimising the chances of incomplete or inaccurate data.
Automated Sanction Screening: external data feeds can be integrated directly into the KYC new customer onboarding workflow to automatically screen against sanctions, PEP, and watch lists.
Automated Fraud Detection: effectively detecting fraudulent documents and suspicious behaviour is a critical aspect of KYC compliance. Machine learning models can be trained to identify digital manipulation and inconsistencies in documents. This automated approach significantly enhances the efficiency of fraud detection, reducing the risk of non-compliance and potential reputational damage.
Automated Document Digitisation: once documents have passed image quality checks, verification, and fraud detection, the information needs to be digitised and entered into databases efficiently. Automation technologies can handle this data entry process with precision. Advanced object detection and OCR models can identify fields, localise them, and automatically extract text, reducing the need for manual data entry. This not only accelerates the KYC process but also minimises the potential for human errors.
The solution vendor landscape for KYC automation is busy with many emerging players, particularly in the AI space. For the more established players, Gartner provides a view of the leaders which would include names such as UIPath, Automation Anywhere, Blue Prism, Microsoft, Appian, Pega Systems as well as Salesforce and SAP. In conclusion, process automation, encompassing RPA, IPA, and low-code intelligent automation plays a pivotal role in enhancing efficiency and reducing manual effort across various industries. KYC automation serves as a prime example of how these technologies can transform compliance processes, resulting in faster onboarding, improved accuracy, and enhanced customer satisfaction.
This editorial is part of The Paypers' Fraud Prevention in Ecommerce Report 2023-2024, the ultimate source of knowledge that delves into the world of fraud prevention, revealing the most effective security methods for companies to stay one step away from bad actors and secure their businesses.
Martin Koderisch is a Principal at Edgar, Dunn & Company. He has over 18 years of experience in the payments and fintech domain across consulting and industry roles. Martin has led significant engagements across the payments and digital finance ecosystem, helping clients accelerate digital transformation and drive profitable growth. Prior to joining EDC in 2015, Martin held senior positions at Mastercard, Citibank, pricing consultancy SKP, and mobile payment startup Luup.
Edgar, Dunn & Company (EDC) is an independent global payment and fintech consultancy. The company is widely regarded as a trusted adviser, providing a full range of strategy consulting services, expertise, and market insights. EDC expertise includes M&A due diligence, legal and regulatory support across the payment ecosystem, fintech, mobile payments, digitalisation of retail and corporate payments, and financial services.
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