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REMOTE KYC: A COMPETITIVE ADVANTAGE FOR MOBILE ONLY BANKING

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REMOTE KYC: A COMPETITIVE ADVANTAGE FOR MOBILE ONLY BANKING 1

The required procedures for Know Your Customer (KYC) have finally broken free of branch-based face-to-face meetings, and now enable banks to use videoconferencing and biometrics to verify a customer’s identity remotely. This is a big deal; early implementation of new KYC processes can seriously enhance the mobile banking customer user experience, making services more attractive and convenient with the added bonus of being a much more cost-effective alternative.

In today’s digitized world, where mobile banking now exceeds branch banking and consumers manage a vast array of daily tasks directly from their devices, it seems curious that they should still be required to visit a bank branch to open an account. As regulations change, each European Union country has its own Anti Money Laundering (AML) Authority regulations relating to identity verification, meaning banks in some countries can now offer alternative remote identity checks.

Performing KYC has, traditionally, been a face-to-face affair. This process of identity verification, which enables banks to ensure that a customer’s commercial interactions are accurately attributed to that individual, has historically required customers to take paper-based ID into a branch, where a bank representative will judge if they are indeed the same person that is pictured on their ID credentials. Widely known as in-person KYC, this process is not only inconvenient for customers, it is also questionable from a security perspective. In-person KYC relies completely on the bank representative. Human error introduces opportunities for fraudsters to present tampered ID credentials, for example, or for criminal collusion to take place between the bank representative and the applicant.

Beyond the branch

As mobile adoption has grown, banks have been under increasing pressure to find digital alternatives to in-person KYC. According to CACI research, consumer visits to retail bank branches are set to drop 36% between 2017 and 2022, with mobile transactions rising 121% in the same period. Specifically, in the next five years, CACI estimates that 88% of all interactions will be mobile.

The level of engagement that mobile apps can enable between a bank and its customers is incredible, so the race is on for banks to develop a seamless digital customer experience, particularly when onboarding new customers. Effective remote KYC will provide a competitive advantage for true mobile banking.

Videoconference KYC: the next step

Videoconference KYC implementation usefully offers banks the chance to verify the applicant’s identity remotely, but remains dependent on the operator’s human capacity to match the person to their documentation, and also to identify when fraudulent activity is taking place.

While videoconference KYC undoubtedly makes the KYC verification process easier for the customer, it can make things harder for the bank. The complexity of the process is increased because the operator has had no physical contact with the customer. Each country has its own technical requirements for videoconference KYC. To maintain security controls are in place and tampering with the image quality will lead to rejection of the application and require the customer to visit a store.

Both face-to-face and videoconference KYC depend on a weak point in the verification process: the human validation of the applicant’s identity.

One mitigating step is to implement automatic biometric face recognition within videoconference KYC. This has serious potential. It can combat many of the model’s security frailties and enable banks to embrace this model as a stepping stone toward the delivery of a fully remote KYC solution.

Fully Remote KYC

This process utilizes automated controls for identity verification and provides the highest level of convenience for customers.

By replacing human judgement with other identity technologies, higher levels of verification accuracy can be achieved in a fraction of the time. The lack of regulation, however, coupled with regional variations in this area, are making the industry reluctant to engage, meaning that live implementations of secure, seamless and fully remote KYC remain scarce.

Biometric technology is a true enabler

In all cases, the introduction of automated biometric verification technologies is the key to making KYC faster and more convenient for customers. For each model, technologies such as digital face and fingerprint recognition systems can provide additional security, either by replacing the operator’s judgement entirely or by confirming their judgement and alerting them to anomalies that may otherwise have gone undetected.

A face matching score can be used as a risk indicator during Videoconference KYC, for example. If the matching score is low, the bank representative could ask the applicant to produce additional forms of ID. Conversely, if the score is high, the identity verification process could be streamlined. Furthermore, the validation will be completely transparent for the users, improving their overall service experience.

The sophistication of Biometrics technology is increasing rapidly and is now widely accepted by customers, gradually removing the need to remember strong passwords.

From September 2017, TSB will be the first bank in Europe to use retina scan technology to allow customers to access online bank account details. This new technology could be seen as risky and consumers will inevitably be concerned about the safety.  Hacking the system is not impossible. Indeed in May, the Chaos Computer Club in Germany posted a video showing that it could fool the retina scanner using a photo and a contact lens. Clearly investment in friendly hacking must continue if consumers are to be kept safe, but nonetheless, it is proof that the technology is now becoming mainstream in preventing massive identity theft attacks.

New biometrics technologies are in constant development and, over time, will become increasingly accessible to the consumer.

Fingerprint scanners, for example, are evolving to map the whole hand, not just read the fingerprint. Comparatively, the finger is a small area, and when combined with the vein structure another layer of security can be established. Hackers recently proved they could hack the fingerprints displayed in celebrity photographs. Such a move would be far more difficult to recreate if the celebrity’s fingerprint had to be combined with their unique vein structure.

This type of payment authorization technology, known as naked payments, is already being trialled in Chicago where palm secure touchless readers use infrared to take a photo of the vein structure to enable consumers to pay for items such as their morning coffee or newspaper. This removes the need to carry cards and cash as well as your mobile phone.

There is little doubt that the deployment of biometric readers in bank branches would surely help combat in-person KYC fraud. However, it remains expensive and in many ways fails to answer the remote access needs of today’s digital customer.

If banks are already trusting remote biometric technology to authorize payments and account access, why should it not also be used as a form of fully remote KYC?Here, the customer’s biometric verification takes place on their device and requires no human validation. In this model, the possibility for human error is mitigated and the desired remote customer experience can be achieved. The complexity of this solution lies in the verification of the ID document itself.

What is the answer? A step by step approach

To answer the needs of an increasingly digitized customer base, banks must move toward a fully mobile and digitized service experience, one that includes a fully remote ID verification process that enables them to onboard new customers.

This will not happen overnight, however. In the meantime, videoconference KYC can provide an interim solution which, despite being cumbersome to manage from the bank’s perspective, could reduce time-to-market.

Biometric verification technologies are key enablers of digital and remote KYC and can be used to replace or augment KYC processes that depend on human judgement.

Fully remote KYC, powered by biometrics, is the future. There is little doubt that banks that can develop and harness this technology quickly stand to gain an early-mover competitive advantage in the new era of digital financial services.

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Banking

UKRSIBBANK, part of BNP Paribas Group, announces a strategic partnership with financial wellbeing startup Dreams, to enhance the digital user experience of its 2 million customers in Ukraine

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UKRSIBBANK, part of BNP Paribas Group, announces a strategic partnership with financial wellbeing startup Dreams, to enhance the digital user experience of its 2 million customers in Ukraine 2
  • The technology powering popular consumer app, Dreams – which has helped 460,000 users save over 440M EUR – will be made available to UKRSIBBANK’s users in Ukraine.
  • Through the integration of the Dreams platform within UKRSIBBANK’s own digital tools, customers of the bank can set and achieve money-saving goals, track and improve their financial lives.

Dreams (https://www.getdreams.com/en/b2b/), the Stockholm-born fintech empowering millennials to save and feel better about their money, today announces a strategic partnership with Ukrainian commercial bank UKRSIBBANK, a subsidiary of French international bank BNP Paribas Group.

This partnership follows the announcement earlier this year of Dreams’ first enterprise partnership with banking software provider Silverlake Symmetri, and the recent unveiling of a new department in Stockholm dedicated to the development of Dreams’ B2B partnerships. The announcement marks an expansion of the company’s business model as it consolidates its B2B offering and evolves its services as a provider of white label solutions for financial institutions.

Through the integration within UKRSIBBANK’s own digital tools of the Dreams Platform – which is rooted in scientific principles – customers can set and achieve money-saving goals through clever, automated saving features, in addition to nudges and saving hacks.

The Dreams Platform will be included as part of UKRSIBBANK’s digital banking offering for its 2 million+ customers, and is set to grant millions of potential consumers across Ukraine access to products which will help keep their finances on track and improve their financial lives.

The rise in digital self-help tools has long been anticipated by Dreams and forward-thinking financial institutions. The current global economic uncertainty brought about by the COVID-19 pandemic has also placed significant strains on people’s finances, and the demand for better personal finance tools has only accelerated. The partnership with Dreams is welcomed by UKRSIBBANK which is currently striving to equip its customers with the best possible banking solutions whilst helping them achieve a more sustainable lifestyle.

Dreams is firmly established as an authority in its industry, having launched its consumer-facing app in its native Sweden in 2016 and Norway in 2018 – where it has already achieved a 16% market share of all 20-39 year olds.

Henrik Rosvall, CEO and founder of Dreams, comments: “It’s a true honour to be partnering with UKRSIBBANK and BNP Paribas Group, and we’re incredibly excited to be introducing the Dreams solution to UKRSIBBANK’s customers and the wider Ukrainian market.

“Dreams and UKRSIBBANK can now lead the charge, with BNP Paribas Group’s corporate strategy having shifted in recent years to focus on guiding customers towards responsible consumption and sustainable personal finance management. I’m confident that our mission of helping millennials save more and feel better about their money makes us the ideal partners.

“Our financial wellbeing platform – which is built upon behavioural science and personal finance management principles – will provide the perfect tool for UKRSIBBANK to help its customers make better financial choices and become more sustainable in the way they handle their finances. This partnership will also help UKRSIBBANK safeguard the loyalty of its customers and futureproof its digital banking offering against a growing number of challenger banks and fintechs.”

Konstantin Lezhnin, Head of Retail at UKRSIBBANK BNP Paribas Group, comments: “I believe that banks have a role to improve their customers’ lives. Planning and saving for important life events improves our quality of life by reducing stress levels, and we wish to make our customers feel more confident and in-control of their lives.

“UKRSIBBANK has always applied innovative ways to assist our customers in financial planning, so we are very happy to now be working with Dreams, the best European player in behavioural savings. They have an extremely solid track record in Sweden and Norway based on scientific research, so we are confident that this partnership will work positively for our customers in Ukraine. This also demonstrates our strategy to cooperate with startups and innovative companies that seek ways to expand their operations.”

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Banking

Three times as many SMEs are satisfied than dissatisfied with COVID-19 support from their bank or building society

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Three times as many SMEs are satisfied than dissatisfied with COVID-19 support from their bank or building society 3
  • More SMEs are satisfied (38%) than dissatisfied (13%) with their COVID-19 banking support
  • Decline in SMEs using personal current accounts for business banking as more seek access to the Government-backed lending scheme
  • Fewer SMEs believe nearby branches are important when choosing a bank or building society
  • 15% of SMEs use mobile or online banking more often than before the COVID-19 pandemic
  • When SMEs do look to switch, low or no charges for business banking remains the most important factor (47%) in selecting a new account

Three times as many SMEs have been satisfied than dissatisfied with the COVID-19 support available from their bank or building society, according to YouGov research commissioned by the Current Account Switch Service.

Overall, four in ten SMEs (38%) were satisfied with the support they received from their business current account provider since the pandemic began. This contrasts with one in ten SMEs (13%) who were dissatisfied.  In general, more than half of SMEs (55%) are satisfied with their current business bank account, compared to 8% who are dissatisfied. However, inertia remains a problem as half of SMEs (50%) said they would not look to switch business accounts even if they were dissatisfied with their current bank or building society.

When SMEs do look to switch, low or no charges for business banking remains the most important factor (47%) in selecting a new account. Advanced digital features (35%), good interest rates (34%), and a personal connection through a relationship manager (33%) also mattered.

The SME banking research was conducted both in February and in September 2020. It also reveals that since the start of the pandemic, the proportion of SMEs using business current accounts has increased from 69% in February to 74% in September as firms are required to have a business account to receive access to the Government-backed lending schemes.

However, one in five SMEs (20%) still use a personal current account for their business banking needs, despite the risk that tax liabilities get confused, and calculations are made incorrectly. These businesses are also missing out on a range of business-only banking benefits such as integrated accounting software or invoicing tools offered by different providers.

In addition, the research shows the importance of branches to SMEs has declined over the seven months. When asked in February, more than a fifth of SMEs (22%) said the availability of nearby bank branches was important when selecting their bank or building society, compared to 17% in September.  However, the Post Office could be fulfilling the role of branches in some areas.

The declining importance of nearby branches was most noticeable in the North East region where 35% of SMEs believed branches were important in February, falling to 18% in September. The importance of nearby branches also varies between industries. One in ten IT companies (11%) said nearby branches were an important factor compared to nearly three in ten (29%) leisure and hospitality businesses.

While branches are less important, digital banking use has increased for some SMEs. Several firms have started to use online banking for the first time as 15% of SMEs say they use mobile or online banking more often than before the social distancing measures were introduced.

Maha El Dimachki, Chief Payments Officer of Pay.UK, owner and operator of the Current Account Switch Service, said: “Across the country, banks and building societies have been working hard in difficult circumstances to meet customer needs. Thanks to that work, small and medium-sized enterprises are more likely to say they are satisfied than dissatisfied with the support they received from their business account provider since the pandemic started. But lockdown has changed small business behaviour dramatically, in a way that points to significant changes to their banking needs both now and in future.

“It’s encouraging to see many small businesses are generally satisfied with their business bank accounts. However, even when businesses are unhappy with their bank, some don’t consider switching as an option, despite the many benefits available. We’ll continue to raise awareness of the benefits of switching among small businesses to help them get the most from their bank account.”

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Banking

The Next Evolution in Banking

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The Next Evolution in Banking 4

By Young Pham, Chief Strategy Officer at CI&T

Everything we know about banking is about to change. A new industry around the sharing of financial data is primed to give birth to a host of new consumer services, all thanks to Application Programming Interface (API) technology. Already known for being the safest place for money, there are opportunities for banks to expand that relationship to other aspects of the customer relationship. Banks will no longer simply be just a place to deposit and withdraw your cash, but a one-stop-shop for a range of data-sensitive services.

The passing of GDPR and the Payment Services Directive (PSD2) were the first steps in this process of banks modernising how they handled their customer data. However, incumbent institutions have so far not engaged enthusiastically. Rather, it was only after growing pressure from fintech challengers and government regulation that they were forced to open up and share their data. This should not be treated as a regulatory challenge, but rather a way to grasp the unique opportunities that banks have to reposition themselves as the most trusted resource for their customers.

Expanding offerings

It is hard to overestimate the breadth of possibilities arising from open banking, should banks choose to take advantage of this evolution. While the public rarely holds bankers in high regard, it still puts a high level of trust in banking institutions. People are more willing to hand over their sensitive data than they would be to almost any other private entity. Furthermore, banks have a unique perspective into their customers’ behaviours, needs and desires. Spending habits, income streams and risk appetites are just a few examples of the data that no other institution can tap in to.

There is certainly appetite to expand offerings. In our recent study of business banking customers, over 68% of respondents indicated that they were open to their financial institution providing digital non-banking services.  This includes services such as tax support, managing payroll, or invoicing to help them with their day-to-day businesses.

More banks should consider how open banking can maximise their digital capabilities and create a greater range of services for customers to enjoy. Such offerings could be tailored according to each bank and their particular customer audience. For instance, banks could offer everyday services for most users, such as insurance for individuals or business management tools for business accounts. Alternatively, banks could offer more exclusive and specialised services for high net worth individuals to meet their specific needs, such as art appraisal and investment management.

The idea that a firm can expand its offering into new verticals is hardly new. Many of the world’s largest tech companies, such as Apple and Amazon, already offer diverse products including hardware, software, entertainment and cloud services. They are able to do this thanks to the vast quantities of data they have gathered, which provide invaluable insights into consumer behaviour and demand. Banks are in prime position to follow the example of these top tier tech companies thanks to their monopoly on key financial data.

Disruptors vs incumbents

The business model described above is already being adopted by numerous challenger banks. These firms have led the innovative charge thus far, thanks largely to their agility afforded by their smaller size. Indeed, some fintech banks already provide a range of non-banking services to their customers. Revolut, for instance, offers users several types of travel insurance as well as access to airport lounges as part of its premium service for a monthly subscription.

These offerings are not a sign that the challenger banks are about to topple the large incumbents. Rather, these disruptors have always flagged the gaps in the market that larger institutions have been too slow to fill. It is now up to the established banks to learn from their example.

While challenger banks may have a first-mover advantage for these services, the incumbents have two key advantages: capital and credibility. Firstly, the top banks have enough cash to fund this overhaul of their business models. While the challengers have been able to afford to do so in recent years, they lack the reserves to tide them over during economic downturns such as the current pandemic.

Secondly, even though challenger banks are perceived as more convenient and are less vilified than traditional banks, the public still trusts the latter. Many of these large banks can point to their extended histories and long-term investment success – accolades young challengers simply cannot match. In short, people don’t have to like their bank to trust them with their cash and their data. These two advantages strongly suggest that large banks are better positioned to take advantage of the open banking business model in the long term, despite being slower to adopt and adapt.

What’s next?

All this opportunity is within reach. We already have the technical capabilities for data sharing, and the regulatory framework is not insurmountable. Rather, the key for this evolution of the sector lies in banks’ appetite for risk and willingness to reinvent their business model.

Banks need to take a leap of faith and leave behind the business paradigm to which they’ve become accustomed. They should embrace transparency, run towards regulation and take advantage of opportunities to invest in these areas or collaborate with outside technology firms. Only then will banks be able to make the most of their data assets, creating value for the customer and further strengthening the relationship.

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