Measurable Innovation – How Technology is Transforming the UX in FinServ

Introduced in 2001 as part of the Patriot Act, KYC laws are obligating FIs to deliver on two requirements: Customer Identification Program (CIP) and Customer Due Diligence (CDD). CIP is a particularly important element of performing KYC for any FI in relation to onboarding and CX/UX/UI. To help the government fight the funding of terrorism and money laundering activities, federal law requires FIs to obtain, verify and record information that identifies each person who opens an account.

According to The Federal Deposit Insurance Corporation (FDIC), the CIP must include account opening procedures that specify the identifying information that will be obtained from each customer. It must also include reasonable and practical risk-based procedures for verifying the identity of each customer. Customer verification can be performed through documentary, non-documentary methods, with reliance on other institutions, or through third-party service providers. Regardless of the method, though, the institution is always bearing the risks associated with errors in ID verification and fraud detection.

To comply with CIP, an FI asks the customer for identifying information. Each bank conducts its own CIP process, so a customer may be asked for different information depending on the institution, Plaid explains. KYC, and as a part of it, CIP too, has a strong impact on smooth onboarding and CX.

Traditional methods of ID verification reliant on manual physical ID processing have been time and resource-consuming, involving extensive paperwork. Aside from being a big cost center, it results in the extended time for customer onboarding, and is certainly far from being convenient, not mentioning errors and vulnerability of human judgment to sophisticated fraud.

With significant advancements in machine vision, machine learning capabilities, and overall the shift towards digitization of the value chain in the financial services industry, electronic identity verification (eIDV) — and not just identity, any standardized physical document — has been a significant step towards building the next generation of banking experiences, enabling verification of a person’s identity remotely through digital means without compromising CIP compliance. The underlying technology can also be used to digitize previously high-touch services, like check depositing.

With the increasing demand for eIDV, the market has witnessed various technological breakthroughs applied in this space such as biometric-based verification, machine learning, blockchain, video-based and behavior-based verification. Mobile-only banks and online lenders are an example of what became possible with the adoption of advanced technologies packaged by leading identity verification firms into complete solutions targeting startups and tech corporations/institutions alike.

A case study from Mitek, for example, describing the integration of ID document authentication and automated data pre-fill with Kabbage’s completely automated business loan origination process enables fast, secure, and convenient mobile onboarding in a native mobile application. Kabbage enables its users to automatically populate the loan application form with pre-filled data in less than a second, allowing customers to access the funding they need quicker. The increased accuracy of data from the mobile capture helps mitigate the risk of having the loan application process compromised, either deliberately (where a customer produces fraudulent documents) or as a result of human error (by the applicant manually entering the requested information incorrectly) – an important hallmark, given that IBM estimates the yearly cost of poor quality data in the US alone in 2016 at $3.1 trillion. Qualifying users were able to get approved and begin accessing a line of credit in minutes.

Aside from onboarding, application of advanced technologies for KYC purposes has implications on the activities customers can perform in mobile banking apps, like depositing checks, making payments, performing P2P transactions, and applying to another product/service.

Let’s look at some interesting examples in onboarding and transactional operations, like the deployment of mobile deposits capabilities for the University Federal Credit Union – Austin’s largest locally-owned FI and serves over 150,000 members, and manages more than $1.5 billion in assets. Since many UFCU members are students at the University of Texas and other local universities and their parents often live outside the area, mobile deposits would provide immediate benefits to both students and parents, as well as the broader member community. Three companies were involved in deploying the solution – Mitek (with its mobile imaging technology), mFoundry, and Remote Deposit Capture (RDC), and risk management provider Ensenta – allowing members to make deposits by taking a photo of the front and back of the check, and verifying the amount using a smartphone or tablet camera. As a result, $16 million in deposits were made in the first eight months, and ~8,000 deposits made per month.

With the New Dominion Bank, enabling mobile deposits led to a 45% increase in new account openings, and a fifth of banks’ customers using the feature.

The mobile deposits feature led to a 10% increase in new account openings for Conestoga Bank and $1.5 million in average deposits made through the feature.

The Mercantile Bank of Michigan saw a monthly enrollment for Consumer Deposit Capture (CDC) increase by 400% with the mobile deposits feature. More than 20% of mobile banking customers were using the mobile deposit feature within just four months.

One of the cases closer to KYC is the ID verification solution that was deployed with PayPal, which needed to comply with AML regulations to fulfill KYC requirements before allowing users to make transactions. PayPal needed to find a faster, more efficient way to verify the identities of these customers, who had to go through a lengthy ID verification process, increasing the odds for them to leave the process before completing the transaction. The company needed to mitigate the high abandonment rates by restricted users, who had to wait up to seven days to have their submitted ID documents reviewed. In an increasingly competitive payments market, seven days are not cutting it anymore – those users were finding a different payments provider that allowed them to complete their desired transactions in real time.

Using Mitek’s Mobile Verify – the mobile capture & identity verification software powered by machine learning for the ID documents review process – PayPal was able to instantly authenticate that the ID document presented is an original, government-issued ID document that has not been altered.

Needless to say, it significantly improved customer experience and dramatically reduced churn rates. On an aggregated basis, 92% of the total temporary restrictions halting money movement were lifted. The users’ waiting time went from days to minutes as all the identity verification was conducted in real time.

Digitized ID verification is an inevitable standard given rapidly changing consumer behavior, heavily skewed towards mobile-first, digital-everything platforms. Digitized security-focused processes have significant implications for every aspect of service delivery – customer success, costs associated with customer activities, and overall success of the business in highly competitive marketplaces.

Read more about emerging trends in ID verification industry in a comprehensive MEDICI report containing the landscape analysis: Diving Deep Into the ID Verification Market: A Comprehensive Evaluation of the Competitive Landscape (free download).