Mitek and Consult Hyperion report finds millions lost on KYC processes

A new research report released by digital identity verification specialists Mitek and technical consultancy Consult Hyperion claims “a typical Europe bank” could save up to €10 million annually by implementing better know your customer (KYC) processes.

The report, The Cost of Compliance and How to Reduce It, deduced a European bank serving 10 million customers, could save up to and avoid growing fines by the regulator.

It also uncovered the annual cost of punitive non-compliance fines has risen to €3.5 million following new EU Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) rules.

“It’s no longer good enough for banks to simply accept the costs associated with inefficient processes – the consequences are now much more serious,” explained Steve Pannifer, author of The Cost of Compliance and How to Reduce It and COO at Consult Hyperion. 

“The biggest change in the past two years has been new EU rules around KYC related compliance. This has led to many more punitive fines for banks who fail to comply – and the size of the fines has grown in tandem. 

“We’ve seen the Financial Conduct recently issue fines to several major banks, amounting to £176 million. Then, even that fine was dwarfed by the €775 million fine handed to a single bank by Dutch authorities.”

On top of the monetary fines comes the risk of reputational loss, losing license to operate and possible personal liability of senior management – with card ID theft in the UK rising by 59% to £47.3 million last year the risk doesn’t seem to be heading anywhere. 

Pannifer added: “That banks could lose €150 million in new business in just five years is a stark reminder to keep a close eye on what customers want. While the figures are troubling, it’s not all doom and gloom. 

“Banks can prevent this loss by investing in technology that exists today and, in the process, cut the cost of KYC compliance by up to €10 million. They just need to know where to look.”

Complex KYC processes also present profit risks to firms, with the cumulative lost opportunity could ultimately result in costing banks an excess of €150 million across 5 year period.

Research by the two firms found a 56% abandonment rate for banking customers – up from 40% two years ago. 

Rene Hendrikse, EMEA MD at Mitek, described the future as “bleak” for those who do not focus on the seriousness and effective implementation of KYC processes.

“Technologies such as digital identity verification could help banks overcome the hurdles holding them back. The technology enables customers to onboard themselves with just a selfie and a photograph of their ID document – online or on mobile apps. 

“In turn, this drastically improves customer experience, reduces banks’ reliance on manual processing, and helps them avoid heavy fines from the regulator. 

“To avoid falling far behind their nimble challenger rivals – and behind the traditional counterparts who are turning to innovation to survive – investing in the right technology at the right time will be crucial.”