For financial institutions (FIs), the internet is both boon and bane. If the goal is top-line growth that translates into bottom-line black ink, the digital realm is one that can bring new customers to the financial arena on a mass scale. There are, of course, more would-be customers online than might find their way into bank branches, ready to transact at any hour of the day and across currencies.
That is, all provided FIs can make the leap from brick-and-mortar to digital channels with speed and surety. Challenges remain, though, when financial transactions are in the offing because digital channels also have inherent risk — with chargebacks, stolen credit cards and stolen data among the dangers.
Thus, the know your customer (KYC) conundrum — where banks and financial firms, in general, must assess who and what is on the other end of the transaction, mindful of compliance and regulatory mandates. KYC means making sure an identity is real, that a customer is authorized to use the data that they are presenting and that the FI can indeed do business with that would-be customer.
These are heady considerations, as well as urgent ones. The answers are not easily or readily available within FIs, but KYC must be done with speed and minimal friction as firms identify the data that is on offer from customers’ applications.
In an interview with Jose Caldera, CPO of IdentityMind, he said that FIs have been grappling with the challenges of navigating a much more robust fraud environment — and against that backdrop, technology can be a salve, separating good customers from risky ones. The key is to form a holistic view of a customer with data gleaned from disparate sources.
“Financial institutions need to change their mentality to adopt these new ways of creating a user experience,” he said.
This proves especially tough in traditional FIs, where one team has dealt with, say, credit cards, while another has dealt with loans. Each of these teams has different functions and is siloed within an organization.
"If you had an internal structure that allowed all those different components to have an understanding of who those users are and have a clear taxonomy to leverage information across groups," that bundled approach can be an optimal one, he said.
Easier said than done. The hurdle must be overcome in the next five years or FinTech is going to come and take away a lot of its business, said the CPO. To break through the silos that stymie the best assessments of risk and reward, the fundamental change can be a painful one. The approach should be piecemeal, Caldera cautioned PYMNTS.
“Communicating success and implementing that success [across the firm] requires a very focused approach,” he said, of efforts to separate out good customers from bad, optimize transactions and drive top lines. This can all be aided by technology, he added, pointing to his own firm’s trusted digital identity technology offerings.
A common misconception by stakeholders within an FI is that they see KYC as a one-time event. “You have to maintain a real-time view of that user,” he said, which allows for real-time risk assessment. The user’s risk profile can change. Every user’s risk shift changes the risk profile of a business.
He noted that verification — where data is collected to make sure that people are who they say they are – differs from authentication, where verified data is validated and customers are granted access to the goods or services they desire.
Done well, the processes — which include making sure that an FI is allowed to do business with a customer — can be streamlined, with at least some nod to what Caldera termed “portability.” Using the history of a customer’s attributes and feedback from trusted third-party sources — rendered in real time and forming a trusted digital identity — cuts down processes for both the FI and the customer. The result is a reduced transaction time, with markedly reduced friction.
Caldera told PYMNTS, “It’s not just about who you are doing business with, it is about how they will affect your business.”