The banking industry is facing a significant crisis as poor KYC practices—specifically slow and inefficient onboarding processes—are causing a record number of client losses. Recent research conducted by Fenergo, a leading provider of KYC solutions, client lifecycle management (CLM), and transaction monitoring, reveals that more than two-thirds of global banks have suffered client attrition due to these inefficiencies. This alarming trend highlights the urgent need for banks to reassess their KYC procedures to retain their clientele and comply with regulatory demands.

The Impact of Poor KYC Practices on Client Retention

A global survey done by Fenergo and involving over 450 C-level executives from corporate, institutional, and commercial banks found that 67% of respondents reported losing clients because of poor KYC practices. This figure represents a staggering 19% increase from the previous year, underscoring the growing severity of the issue. Notably, banks in Singapore have been hit the hardest, with 87% of them acknowledging client losses linked to inefficient onboarding processes. However, the trend is not limited to one geographic area; every region surveyed indicated a year-on-year rise in client abandonment due to poor KYC practices.

The ramifications of these losses are compounded by the high costs associated with conducting KYC reviews. According to Fenergo’s research, corporate and institutional banks face annual KYC review costs estimated at $60 million, while commercial banks incur even higher costs, averaging $175 million. These figures illustrate the financial burden that poor KYC practices impose on banks, further complicating their operational efficiency and resource allocation.

Factors Contributing to Client Abandonment

The survey results reveal several internal and external factors driving clients away from banks with poor KYC practices. A significant 86% of banks cited poor data management and siloed processes as key contributors to client loss. This indicates that many institutions struggle with effectively managing the vast amounts of data required for KYC compliance, leading to inefficiencies that frustrate clients.

In addition to data management issues, 77% of respondents highlighted poor customer experience and delays in processes as critical factors contributing to client abandonment. Clients today expect seamless and rapid onboarding experiences, and any delays can lead to dissatisfaction and eventual attrition. Furthermore, complex onboarding procedures were identified by nearly half (45%) of the banks as a primary reason for client loss, indicating that many institutions have not streamlined their processes to meet client expectations.

This situation is particularly concerning given the increasing regulatory pressure banks face to combat sophisticated money laundering tactics. KYC processes play a crucial role in ensuring compliance with anti-money laundering (AML) regulations. However, the growing volume of information that financial institutions must collect and process exacerbates the internal challenges they face in maintaining operational efficiency and resource allocation.

The Role of Technology in Addressing KYC Inefficiencies

Despite the pressing need for improvement, the survey revealed that only 4% of banks have successfully automated the majority of their KYC workflows. This lack of automation is a significant barrier to improving operational efficiency and reducing the risk associated with poor KYC practices. However, the findings also suggest that many financial institutions are turning to artificial intelligence (AI) to address these inefficiencies and data management challenges.

According to the survey, 42% of banks aim to enhance operational efficiency through AI, while 40% are focusing on improving data accuracy. The integration of AI into KYC solutions offers the potential to streamline processes, reduce human error, and ultimately enhance the client experience. As financial institutions continue to grapple with the challenges posed by poor KYC practices, leveraging technology will be critical to achieving compliance and retaining clients.

Stella Clarke, Chief Strategy Officer at Fenergo, emphasized the urgency of strengthening KYC procedures in the current regulatory landscape. “With regulators tightening their grip on illegal activities, the risk of fines has never been higher,” she stated. Clarke also noted that banks that fail to improve their KYC processes risk frustrating clients who have become accustomed to fast and user-friendly interfaces in other sectors. As the financial and reputational costs of poor KYC practices escalate, enhancing internal procedures could transform effective KYC practices into a competitive advantage for banks.

Conclusion: A Call for Action

The findings from Fenergo’s research serve as a wake-up call for banks to reevaluate their KYC processes. As client losses due to poor KYC practices reach unprecedented levels, financial institutions must prioritize the enhancement of their KYC procedures. By embracing automation and leveraging AI, banks can not only comply with stringent regulatory requirements but also improve client satisfaction and retention.

In an era where clients expect seamless interactions, the ability to efficiently manage KYC processes is crucial for maintaining a competitive edge. Banks that invest in modernizing their KYC frameworks stand to gain significant advantages, positioning themselves as leaders in an increasingly complex regulatory environment. As the landscape continues to evolve, addressing poor KYC practices will be essential for banks aiming to secure their client base and thrive in the future.