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Know your customer (but don’t annoy them)

Posted March 14, 2019

For financial institutions, the concept of KYC — know your customer (or alternatively, know your client) — is inherent to managing risk and reducing fraud. For businesses of all kinds, it can be used to improve the customer experience.

The Customer Identification Program (CIP) and Customer Due Diligence (CDD) guidelines set out in the 2001 Patriot Act involve identifying and verifying customers, such as when they’re signing in to an online account. The big challenge for companies has been finding a way to do this quickly and accurately, while also building trust with customers.

In other words, how do you strike the right balance between customer security and a convenient and effortless customer experience? The answer lies in utilizing the right technology and establishing customer service best practices.

Use the right technology

When considered in the context of customer service, the advantages of KYC to companies like banks, retailers, airlines and travel-booking engines are huge. Using KYC to verify consumers’ identity and intended activity, either before or after they become a customer, can reduce the risk of fraud and non-compliance for your business.

“Every company has different needs and faces different challenges in the area of money laundering,” says Shani Koren, a KYC specialist with Berlin-based blockchain equity platform Neufund. “I personally believe the right place to start is understanding the customer. Being sentient of the risks helps executives choose the best tools to prevent money laundering.”

Too often, however, efforts to improve security are at odds with what the customer wants. “The only thing more frustrating than having to authenticate is having to authenticate again when you get handed off to a new customer representative,” explains Peter Fader, a marketing professor at the Wharton School of the University of Pennsylvania and co-founder and director of customer-based corporate valuation company Theta Equity Partners. “That’s really unnecessary.”

Diligent organizations work toward improving their security, while also striving towards an effortless experience that engages with customers on their platform of choice. Although challenging, it can be done, confirms Fader; it’s just a matter of “figuring out the right combination of technology and psychology.”

With this in mind, companies should be investing in KYC processes that reflect their customers’ device usage, media behavior and preferences. Web- and mobile-enabled identity verification are a must, but many organizations are also exploring biometric technology, like facial recognition and fingerprint authentication. These kinds of authentication measures make it easy for customers to prove their identity and get on with their day.

“At some point biometrics will take over, and not just facial recognition, either. Eventually we’re going to catch up to Sweden, where people are implanting tiny microchips under their skin,” Fader says, referring to the biohacking technology some Swedes are now using to circumvent the need for a traditional ID card.

“More hybrid biometrics are coming,” adds Fader, “and this could be the way to turn what has been perceived as a problem for consumers into a solution that makes life better than it was before.”

Create positive customer interactions

Even with the help of technology like mobile-enabled verification and biometrics, authentication efforts can impede a customer’s interaction with your brand. The problem has become so serious that some financial institutions are pushing back against KYC protocol of old.

Bloomberg recently reported that banks in Norway are calling for a change, referring to the current KYC model as “extremely time-consuming and even annoying for our clients. “Embracing a simplified KYC framework could appease consumers who tire of multiple steps and repetitive processes.

“While we still have a lot of work to do around awareness, I think that as an industry, we should strive to make the process of verification itself a lot more user-friendly,” Koren says. “Making the process transparent, sending a clear message and never asking for more than is needed are a few principles we believe in.”

To deal with know-your-customer challenges, companies should also implement best practices in the contact center. That involves maximizing the efficiency of hand-offs and sharing data between departments where security allows. This way, customers won’t find themselves back at square one after a lengthy authentication process, when a customer has trouble logging in or when they need to be transferred to another department.

For his part, Fader believes that while new systems designed to improve inter-departmental alignment will continue to emerge, organizations already have access to all the tools they need to create a better KYC experience. “If a company is genuinely customer-centric, and they really make a cross-division hand-off a priority, then they could easily fix all of this,” Fader says. “But for all the talk, few companies are really trying to create that seamless cross-divisional interface.”

As long as each division within a department has its own form of authentication, problems will persist, Fader adds. “I want to see companies make it a strategic priority to never have to re-authenticate. In a way, it’s more of a human nature issue than a technological one.”

Company needs and consumer preferences don’t always line up, but there’s no arguing the value of KYC when it comes to security. Take a closer look at your processes, and you may find a few tweaks is all it takes to be more customer friendly.

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