The number of global banks losing clients to slow and inefficient know-your-customer (KYC) onboarding practices has surged to a record high this year, according to new research from Fenergo, the KYC, client lifecycle management (CLM) and transaction monitoring solution provider.
Through a study of over 450 C-level executives across corporate, institutional and commercial banks, Fenergo found that more than two-thirds (67 per cent) have lost clients due to slow and inefficient client onboarding and KYC, up 19 per cent from 2023.
Those based in Singapore were hit hardest by this trend, with 87 per cent of banks reporting lost clients, but every region reported a year-on-year rise. The decline in successful onboarding applications is compounded by high costs for performing KYC reviews at onboarding and periodically during the client lifecycle.
According to Fenergo’s research, the annual cost for performing KYC reviews at a corporate and institutional bank is estimated to be $60million and $175million for a commercial bank.
According to the findings, the high abandonment rate is attributed to a combination of internal and external factors:
Poor data management and siloed processes (cited by 86 per cent of banks).
Poor customer experience and delays in processes (77 per cent).
Complex onboarding processes (45 per cent).
The news also comes amid a continued push by regulators worldwide to address rising and increasingly sophisticated money laundering tactics, with KYC playing a critical role in ensuring compliance and enhancing the effectiveness of anti-money laundering (AML) regulations.
The growing volume of information financial institutions are required to collect and process to meet regulatory requirements is believed to be exacerbating the internal challenges firms face regarding operational efficiency, resource allocation, and the ability to streamline KYC processes.
Taking action
The survey also revealed that only four per cent of banks have successfully automated the majority of their KYC workflows. That said, the survey findings suggest financial institutions are looking to AI to solve inefficiencies and data challenges. Forty-two per cent are aiming to increase operational efficiency with AI while 40 per cent are focusing AI on improving data accuracy.
Stella Clarke, chief strategy officer, Fenergo
Stella Clarke, chief strategy officer at Fenergo, said: “In today’s fast-evolving regulatory landscape, it has never been more important for firms to strengthen their KYC procedures. With regulators tightening their grip on illegal activities, the risk of fines has never been higher. In addition, banks that fail to streamline and improve their KYC processes risk frustrating clients, who have now become accustomed to the slick and speedy user interfaces in every other aspect of their day-to-day.
“As the financial and reputational cost continues to rise, enhancing internal procedures could turn effective KYC practices into a competitive advantage for banks across all regions. It can no longer take a back seat. With the advent of AI into KYC solutions, financial institutions can realise the benefits of automation faster, reducing risk while making significant operational efficiency gains and improving customer experience.”
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