A typical European bank, serving 10 million customers, could save up to €10 million annually and avoid growing fines by the regulator by implementing technology to improve its KYC processes, according to new research from digital identity specialist Mitek Systems.
By following new EU Anti-Money Laundering (AML4/5) and Counter-Terrorist Financing (CTF) rules extending the scope of KYC requirements, the annual cost of punitive non-compliance fines has risen to €3.5 million, found the report. When things go wrong, these fines could soar into the tens or even hundreds of millions. Neither is it all about the financial and business costs. The risk of reputational loss, losing license to operate, and even personal liability of senior management (with the fast-approaching advent of SM&CR in October 2019) are also increasingly significant for banks who get KYC wrong.
“It’s no longer good enough for banks to simply accept the costs associated with inefficient processes – the consequences are now much more serious,” said Steve Pannifer, Chief Operating Officer at Consult Hyperion, a digital transaction consultancy which co-wrote the report. “The biggest change in the past two years has been new EU rules around KYC related compliance. This has led to many more punitive fines for banks who fail to comply – and the size of the fines has grown in tandem. We’ve seen the FCA recently issue fines to several major banks, amounting to £176 million. Then, even that fine was dwarfed by the €775 million fine handed to a single bank by Dutch authorities.”
But fines aren’t the only problem when it comes to the hidden costs of KYC. The potential cost of losing just a few percent of new customers to complex manual KYC processes is now as much as €10 million a year. After five years, the cumulative lost opportunity could cost banks in excess of €150 million.
And the current abandonment rate for new banking customers currently stands at 56% (up from 40% two years ago).
“The future looks bleak for banks who don’t comply with KYC, or whose processes are so cumbersome that they can’t attract new customers,” says Rene Hendrikse, EMEA MD at Mitek Systems. “But technologies such as digital identity verification could help banks overcome the hurdles holding them back. The technology enables customers to onboard themselves with just a selfie and a photograph of their ID document – online or on mobile apps. In turn, this drastically improves customer experience, reduces banks’ reliance on manual processing, and helps them avoid heavy fines from the regulator. To avoid falling far behind their nimble challenger rivals – and behind the traditional counterparts who are turning to innovation to survive – investing in the right technology at the right time will be crucial.”