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How Artificial Intelligence (AI) Tackles the Problems of Know Your Customer (KYC)

Know Your Customer (KYC) is an essential barrier to fraud. 

But it’s labor intensive and expensive.  

How expensive? A Thomson Reuters survey found that most financial companies spent an average of $60 Million on KYC compliance.   

The Local Part of Know Your Customer (KYC) 

While there are some fully automated systems for fraud detection, along with global sanctions and watchlists, this is just a slice of the KYC pie. The larger part of the KYC pie is all local 

Anti-Money Laundering (AML) is a local crime. Money laundering activities such as placement, layering and integration occur within and between banks. Elder abuse, embezzling and identity theft are local crimes, too.  

Employee-based KYC efforts are vital to: 

  • Protection 
  • Enforcement 
  • Compliance  

But there are drawbacks, to be sure: KYC is:  

  • Expensive 
  • Error-prone 
  • Slow 

Customers entering a branch or calling customer service are confronted with a KYC gauntlet of questions. It creates a barrier to good customer service and is viewed as something you must endure so you can do the bank business you came to do in the first place.  

KYC is no fun for anyone involved – for the customer or the employees. We simply tolerate it as a necessary evil. Yes, it’s very important – but it’s labor-intensive and comes at a big cost.  

But help is on the way. And in some cases, it’s already here. 

How Will Artificial Intelligence Help KYC? 

Artificial Intelligence (AI) will solve the problems and challenges associated with KYC faster than we might think. 

AI is already integrated in many vendor systems for: 

  • fraud detection 
  • fraud modeling 
  • identity validations and verifications 
  • sanctions and watchlists 

Customers are already interacting with AI Chatbots, which are common and improving rapidly. Vendors are using AI to learn, develop and test code-making innovations quicker.  

Impacts of Artificial Intelligence on the Banking Industry 

KYC back-office automation and improvements are rapidly evolving. In a few years, you will see AI-enhanced systems that will perform the following functions: 

  • Enhanced due diligence: AI algorithms will analyze large amounts of data and identify patterns that may indicate money laundering or other illegal activities. This will streamline and possibly eliminate the human/machine processes used today.  
  • Streamlined onboarding: AI will automate the process of collecting and verifying customer information, which could help banks onboard new customers more efficiently.  Imagine your commercial loan process going from days to mere minutes!  AI is more trusted and accurate than the old methods of analyzing customer information.  
  • Improved customer profiling: AI will analyze customer data to create more detailed profiles of individual customers, which will help tellers, CSRs and Managers understand their needs and preferences quickly and dynamically.  This will take KYC to an entirely new level – talk about providing great customer service and better sales, too!   
  • Enhanced risk assessment: AI will assess the risk associated with individual customers or transactions by analyzing data such as the customer’s financial history and the nature of the transaction. AI will provide decision makers with clear, relevant, and fresh information.  

Overall, the use of AI in KYC practices will improve the efficiency and effectiveness of back-office operations and customer service experiences.  

AI is rapidly changing the way we do business: it’s very possible that within the next seven years, we’ll see fully automated customer service where customers are pleased to get an AI over a person.  Why? Because they will know the AI is better at service and KYC is immediate. It’s not sci-fi – it’s coming faster than we think.  

I founded my company, Gilman Patrick LLC, based on the belief that the banking industry is facing a major disruption – with local banks in a unique position to benefit. As this disruption takes place, I want my clients to be the winners in what I see as a once-in-a-lifetime opportunity. To learn more about how I can assist your organization navigate inevitable change, reach out anytime & we’ll chat.  

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