Which solution to turn to for KYC outsourcing, between BPOs, technological tools and innovative solutions?
In order to fight against the risks of fraud and corruption, but above all for optimal compliance with the fight against money laundering and the financing of terrorism(LCB-FT), the KYC(Know Your Customer) procedures of banking and financial institutions are increasingly outsourced.
Delegating KYC to an external service provider saves the company a considerable amount of time and increases its flexibility. By outsourcing certain tasks to an external service provider, the company is able to react more quickly to changes in the market.
But while there are many reasons to outsource KYC to an external service provider or innovative technology solution, there are risks to be aware of. Every system has its limits and the same goes for compliance automation solutions.
Even if the range of solutions currently on the market is substantial, it does not always meet the needs of organisations in terms of KYC processes: risk is often still present, automation is sometimes more theoretical than practical and the level of trust varies significantly.
Outsourcing compliance operations to a BPO
BPO, a safe bet...
The first solution to outsource the KYC process is to use BPO, Business Process Outsourcing. This is an offer used for many services, not only for the regulatory and legal aspects, but since the rise of KYC, service providers have developed specialised offers in this field.
It is simply a matter of outsourcing part of the company's activity to an external service provider (the subcontractor). The promises of this type of business process outsourcing method are numerous, ranging from increased flexibility to improved performance, through a tenfold increase in business efficiency and a consequent reduction in costs by limiting personnel costs.
In reality, this is true most of the time. By delegating certain business processes, the company saves valuable time that can be spent on high value-added tasks and strategic missions. BPO providers are generally specialized in their field of activity and offer expertise that the company does not possess.
To deliver their services, BPOs rely on three main pillars: expert teams in their fields of activity, flexible and scalable technologies and solid and proven processes. They are key players in the digitalization of business processes and the digital transformation of organizations.
Should we rush to this type of solution when the question arises of outsourcing compliance operations in connection with the KYC process? The answer is not so obvious, because despite their age, BPOs are not without their flaws.
... as long as you choose it well
Despite the flexibility and processing capacity they offer, BPOs can sometimes be a less than optimal solution, or even risky - especially in the case of outsourcing customer knowledge processes.
Indeed, by setting up a partnership with a BPO, a company will share data, sometimes sensitive. In the context of KYC procedures, this data relates to the identity of individuals. By sharing this data in clear text with an external service provider, the company exposes itself to a risk: that it may be unintentionally distributed or misused.
BPOs perform manual data processing operations on a large scale. These tasks are costly and have very little added value for the organization. This is why they are often outsourced to these providers. In the case of offshore outsourcing, the risk is that it may be difficult to communicate with the supplier or to deal with cultural differences. This is why it is recommended to choose a French-speaking provider.
Finally, outsourcing business processes can involve costs that are difficult to predict. The amount of work may have been incorrectly estimated. Moreover, BPO activities involve a lot of human effort. We are not immune to processing errors: bad indexing, omissions, input errors, etc. that will impact the delivery of the project.
In conclusion, the use of a BPO can be a very interesting growth lever for the company because it gives access to expertise, brings flexibility and efficiency to business processes that are often underperforming and allows for cost reduction. But outsourcing part of its business processes can be risky: data sharing, cultural differences, delays and unforeseen costs... The decision must therefore be well thought out and the service provider properly evaluated.
KYC technology solutions
Clear advantages for OCR and image recognition systems (RAD-LAD)
The technological solutions on the market, most of which are based on OCR(Optical Character Recognition) or automatic document recognition and reading systems (RAD-LAD), have certain advantages.
Firstly, this automation of the KYC process allows :
- Optimisation of the entire KYC in accordance with legal requirements
- The assurance of maintaining flexibility - these solutions can integrate any document into their algorithm
- Cost control, especially for small and medium-sized structures
- The development of an important lever for efficiency and management of the organization's capacities
- The possibility for all employees to concentrate 100% on their job thanks to substantial time savings.
- Drastic reduction of the risk of error in the KYC process and thus of the risk in the controls
These advantages are mainly made possible by advanced technological solutions that are not without flaws. In fact, several problems are added to the benefits mentioned above.
Sometimes contrasting results
The technological solutions around automatic document recognition and reading have some limitations.
First of all, there is a risk of rejection of the supporting document because of an image of insufficient quality. Thus, a blurred or not bright enough photo will be rejected in the best case by the application which will ask the user to take it again. This can have a very negative impact on the user experience. Onboarding is a critical phase in the customer journey. Any friction - no matter how small - can lead to a dropout.
If the photo is accepted, the algorithm may not be able to extract the data cleanly. In this case, a manual verification by a human will be necessary. This procedure will add significantly to the process. This will have an impact on the processing time and the customer experience.
Another problematic issue is how some of these solutions work. Indeed, most of them check data points on the document. In concrete terms, it is most often a question of consistency validation by cross-checking information: customer service number, page format, font used, etc. Between 10 and 30 data points are checked on the same document.
A level of confidence is thus determined: the service provider will guarantee that the document is 80-85 and sometimes 90% compliant. While most technology providers guarantee document compliance, few go so far as to guarantee the authenticity of the document. However, the difference is significant - especially in a customer relationship process.
RAD-LAD and OCR technology solutions have advantages - particularly around flexibility and automation - but also limitations and some risks that need to be assessed.
Archipels: the paradigm shift
Archipels has developed a solution for the certification and verification of documents and data with probative value.
Most of the technological solutions that exist on the KYC market will verify the information elements of the document at the end of the process. At Archipels, we have chosen to reverse the paradigm by going to the source of the document, directly to the issuer. We will extract a digital fingerprint from the document and anchor it on the blockchain.
The blockchain allows us to maintain a time-stamped, immutable and traceable proof of document integrity. Our customers can query it using our APIs and thus verify the authenticity of the document - not just its consistency or compliance. Indeed, Archipels guarantees the integrity of the documents and thus ensures that they have not been modified or altered - significantly increasing the level of confidence in a customer relationship.
Archipels is the result of a consortium of French trusted third parties, guarantors of the identity of individuals and companies in France and in Europe. We have built the Archipels platform with the same requirements around the principles of confidentiality, sovereignty and eco-responsibility.
To sum up, the Archipels solution allows our clients to fight fraud efficiently, reduce considerably the risks and operational costs related to KYC and improve significantly the customer experience. It is possible for issuers to easily certify their documents on blockchain, enhance their data while respecting the regulations in force, and develop their image and innovation strategy.
Outsourcing the customer knowledge process has many advantages but also risks: it is important to ensure that the operation is truly cost-effective, secure and efficient. Cost optimization can have a significant impact on the customer experience, not to mention the regulatory risk.