KYC – The challenge of knowing your customer

Card image cap

You must be familiar with KYC (Know Your Customer) forms; your bank, your insurance agent, and other service providers have made you fill them.

And of course you don’t like that: It can be time consuming, you’re obliged to do it, otherwise, you can’t do business with some companies. And what about data privacy?

All these concerns are 100% valid, but no matter how much you dislike it, KYC forms are both necessary and useful.

Let’s take a look at the good, the less good, and the not that good side of KYC forms.


The good

First things first: the purpose of KYCs is not – and will never be – to annoy you.

KYC forms allow banks and other companies to know you better, so they can offer you customized and personalized services.

Good news for everyone. You get to learn about offers and promotions adapted to your lifestyle – if you’re married with children, you don’t care about a wedding account offer, right? You want to learn about tuition settlement or savings accounts for your kids…

And by targeting you specifically, the bank (that’s us) improves its marketing strategy and increases its chances to reach its sales targets.


The less good

KYCs are mandatory for some companies – particularly banks – to verify customers’ identity and eligibility before going into business with them.

This is crucial for banks, since they can be held responsible and prosecuted for handling money used for criminal activities. If you’ve seen ‘The Sopranos’, you know criminal organizations can disguise themselves as legitimate businesses to launder money through banks.

Detecting such activities and reporting them requires careful investigation. Many KYC guidelines are based on recommendations by the Financial Action Task Force (FATF) on Anti Money Laundering (AML) standards and on Combating the Financing of Terrorism (CFT).

That’s why individuals are required to provide personal information (name, address, social status, professional status, source of funds, etc.); companies have to provide their legal status, operating address, industry and activity, and authorized signatories, etc. Banks ask new customers opening an account about the purpose of the account and expected account inflows and outflows.

So yes, KYC forms take some time to fill.

Additionally, the bank’s responsibility to uphold FATF standards means it may require additional information from customers when deemed necessary – for example when an account shows suspicious activity. KYC update activities may require presenting supporting documents or filling a new form.


And the not that good

The ugly side of KYC has to do with the data itself.

Banks have serious cybersecurity measures in place to prevent data theft and protect your privacy (not to mention your money).

But there’s worse than data theft: data corruption.

Technically, you’re required to inform your bank when you change your job or address, or get married so they can update your KYC form. Not many of us do that, either because we don’t know it is necessary, or we forget – or we make ourselves forget.

The bank has no way of tracking such changes. Customer relationship officers know you don’t like filling a KYC form, so they won’t risk getting on your bad side by asking you to update it regularly.

Unless you’re Tony Soprano, you won’t get your bank in trouble by not sharing your new address – at most, the customer relationship officer may give you a disapproving look then forgive you.

But what if a real-life Tony Soprano or Slava Malevsky were exploiting a bank account for criminal activities and remained undetected because the bank was so “forgiving” of the KYC process?


A better alternative?

The KYC form may be annoying but it’s a necessary “evil” to prevent more serious evil. But it needs to be done right, and it shouldn’t cause you any inconvenience.

One way to make it faster and more convenient could be going digital (with blockchain technology, for example), portable, or biometric.

This would also make the data more accessible and useful for banks. If we doubled our number of customers tomorrow, it would take weeks – maybe months – before we could process their data manually and give them access to their bank accounts.

* Your email will be stored in an external database