How SMBs’ Digital Banking Demands Change The KYC Challenge For Banks

While small businesses often struggle with a lack of integrated digital tools from their traditional financial service providers, the friction in small business banking is often acute even before an SMB opens an account.

The onboarding process can pose major headaches for small businesses in an ecosystem where online and mobile banking are in demand, yet not always available at the caliber banking customers have come to expect. What’s more, the digital shift is adding new pressures on financial institutions (FIs) themselves, particularly when it comes to the onboarding and KYC process, as PYMNTS’ latest AML/KYC Tracker discusses.

Recent research from J.D. Power found that small businesses continue to embrace mobile banking, with its 2019 U.S. Small Business Banking Satisfaction survey finding an 8 percent year-over-year increase in the percentage of SMBs using their bank’s mobile banking app (61 percent this year, compared to 53 percent last year).

However, separate research from BAI published earlier this year found that businesses continue to lack digital options from their banks, with most of the 600 business owners surveyed reporting that they had to go to a physical bank branch to open accounts, including checking accounts and loans. That’s despite the majority – 70 percent – that say they would prefer to open a deposit account online.

These business owners cited a better in-person experience at the bank branch and an enhanced omnichannel experience as the top banking improvements they would like to see.

KYC Complexity

One of the largest challenges FIs face today in providing digital experiences to their small business customers is enabling a seamless onboarding experience.

Offering digital and omnichannel platforms also creates a broader landscape for cybercriminals and fraudsters to infiltrate. This means a more complex anti-money laundering (AML) and know your customer (KYC) compliance strategy.

“Because the online environment continues to evolve at a fast pace, our AML strategies need to be fluid to keep up with the increased functionality and continual evolution of technology our customers expect and deserve,” explained Synchrony Financial Executive VP and Chief Customer Engagement Officer Michael Bopp in an interview with PYMNTS last month.

And when businesses seek to open a new account from their mobile phone or computer, KYC and AML – critical components of the onboarding process – must be approached with a digital-first strategy, in a significant disruption to the status quo of verifying identities in-person at the bank branch.

Digital Banking, Digital Onboarding

PYMNTS’ latest AML/KYC Tracker explores the emergence of video conference KYC, an important tool to address the demand for digital account opening, particularly when working with new clients in other parts of the world. As the report noted, video calls can be more effective and accurate in verifying identities than other electronic tools often used by FIs and other service providers in today’s digital world, including comparing selfies and analyzing scanned IDs and other documents.

As the Tracker noted, Tata Mutual Fund is among the latest financial service providers to deploy video KYC tools, now requiring new clients to record themselves saying “hello,” click certain buttons and display ID documents. This footage is then reviewed to confirm a person’s identity.

Earlier this year, Freelancer.com CEO Matt Barrie spoke with PYMNTS about video identity verification, a tactic useful for service providers beyond the banking world. While this KYC strategy is among the most secure,  he warned that it relies on a high level of human expertise, a resource that not every business can afford.

Further, the Tracker pointed to other pitfalls – the threat of a fraudster uploading prerecorded videos of other people or the use of deepfake technology, for example – showing that while video KYC strategies could address business’ and other clients’ demands for a digital account opening and onboarding experience, they also create new challenges for FIs’ compliance operations.

“Both prerecorded and live video KYC methods encounter similar challenges,” the Tracker explained. “FIs looking to securely and conveniently serve far-flung customer bases need rigorous ways to remotely verify identities whiles ensuring that onboarding is fast enough to dissuade churn.”