Solving modern KYC challenges

Finextra

15-07-2025

0
This content has been created by the Finextra editorial team with inputs from subject matter experts at the funding sponsor.
In today's digital age, banking is expected to be seamless, frictionless, and to make it plain and simple: easy. However, with a constantly shifting regulatory landscape, increased demand for hyper-personalisation and desire to be digital – financial institutions have obstacles to overcome to keep up with consumer demand.
A pain point in the digital-first agenda is the know your customer (KYC) process, which frequently requires manual, in-person visits to the bank that can complicate and frustrate the onboarding experience. Two out of three consumers today expect a fully digital onboarding experience.
Recent research finds that 67% of banks have lost clients due to slow and inefficient client onboarding and KYC, and the annual cost of performing KYC reviews can range between $60 million and $175 million, depending on the type of bank.
Arsalan Minhas, AVP of solution consulting organisation at Hyland for EMEA and APAC regions, spoke with Finextra on how to find solutions for modern KYC challenges, and where AI can be implemented in the onboarding process to improve overall customer experience and retention.
What are the challenges in onboarding and KYC?
Minhas outlined three key challenges that traditional financial institutions are facing when managing customer expectations in the current digital era of banking:
Lengthy and ambiguous processes Poor functioning technology Regulatory complexity due to evolving KYC regulations
Going into further detail, Minhas cited that 68% of modern-day consumers expect a 100% digital onboarding process, which traditional banks are struggling to meet. Additionally, issues with biometric ID verification or document uploads — especially on mobile devices — are common pain points.
Minhas stated that neobanks are quickly filling in the gaps where traditional banks are falling short, stating that 'tech-first companies are leveraging advanced analytics to deliver hyper-personalised experiences' such as timely real-time notifications on transactions, tailored financial advice, and automated savings tools.
'If you look at these neobanks, they are providing frictionless onboarding and instant access. Opening an account can be completed in minutes, entirely online, with minimal documentation, which is in stark contrast to lending, paper-heavy processes still common in the traditional banking world,' Minhas said.
The mobile-first and fully digital experiences offered by neobanks align with the needs of younger generations. Minhas noted that another area where neobanks surpass their traditional predecessors is in serving the underserved, the populations overlooked by traditional banks that are often in remote or lower-income communities.
'Finding the right balance between security and experience is an important thing,' Minhas said. 'While robust KYC is essential to prevent financial crime, the need to collect and verify extensive personal information can feel intrusive to a lot of customers. If you combine that with the regulations like GDPR and others, it becomes even more complex.'
He added that 53% of consumers expect their providers to use their data to personalise their customer journey, and traditional banks must ensure that they are utilising data to its greatest potential.
How can KYC processes be refined to enhance the customer onboarding journey?
The digitisation of KYC processes though electronic KYC (eKYC) and perpetual KYC have modernised the onboarding experience. Perpetual KYC ensures that customer identities do not become outdated by regularly monitoring and updating customer data. In enabling onboarding through online platforms or banking apps, eKYC increases customer satisfaction and maintains trust without sacrificing convenience for the customer.
Minhas stated that automated KYC can cut onboarding times by up to 80%, and effective onboarding can increase customer retention by 50%.
'By integrating and automating data collection through onboarding and KYC, banks and financial services institutes can prepopulate customer profiles, reducing redundant requests and friction. This enables a single view of the customer and allows hyper-personalised product recommendations, timely communication, and tailored support throughout the customer life cycle,' Minhas said.
In order to refine their KYC processes, Minhas emphasised that banks must leverage technology and evaluate their current systems to identify problem areas. Advocating for a phased approach as opposed to the 'rip and replace' model, Minhas stated that incumbents should outline key problem areas that need to be addressed and zero in on improving those to avoid disrupting existing operations.
'[Banks] have to evaluate their legacy systems to really understand if they are fit for the modern-day world. They need to identify the inefficiencies, risk and the data silos, and then set clear goals. What would they like to prioritise? Is it speed in terms of onboarding and servicing a customer, or is it about reducing the cost? In commercial banking still, onboarding costs around USD $30,000 per customer, which is something neobanks are able to reduce significantly.'
How can FIs balance compliance with customer experience?
Minhas highlighted that automating compliance is essential to keep up with regulatory guidelines. Building compliance into daily processes by aligning it with the requirements of GDPR and AML, for example, can make compliance easier and more efficient.
Minhas said applying AI on both structured and unstructured data will be key to the future of KYC: 'According to the research, 80-90% of financial services data is unstructured, yet only 18% of the banks or institutes are effectively using it. That tells you that there's a huge demand for improvement and to get better.'
Touching on the emergence of 'zero-trust architecture' Minhas said data access must have the highest level of security to minimise the risk of a breach, and enhanced due diligence (EDD) can be automated using AI to ensure security for higher-risk customers.
Giving an example, Minhas said that in Spain, 'BBVA is using AI to trigger additional checks only when the anomalies arise. When it is a normal case where you don't expect an anomaly, it is completely automated, and when it meets some specific conditions or criteria about suspicion or a fraud, then AI is used to conduct an automatic investigation.'
He concluded that financial institutions need to 'adopt a strategic blend of technology, process redesign and customer-centric innovation' to keep up with the pace of the industry. Looking forward, there is no one right way to innovate, but innovation is essential.
To learn more about improving the customer journey, read the Finextra impact study in association with Hyland here.