KYC FinTech in the U.S. Financial Industry

Goals

Identify how the use of FinTech "Know Your Customer" (KYC) technology has impacted the U.S. banking industry, including how KYC technology is used for the betterment of the companies in the banking industry, when and how it is used, the types of banking businesses that make use of KYC FinTech, and the value of the KYC market in the U.S. banking market in terms of revenue generation.

Early Findings

KYC Impacts on Revenue of U.S. Banking Industry

  • Thomson Reuters found that customer onboarding time as a result of using KYC technology has increased for banks by 22%, and by 2017, this value was expected to increase by an additional 18%.
  • About 12% of banks actually lost money as a result of KYC compliance issues, and as a result, ended up switching providers to combat these losses.
  • According to Thomas Reuters, banking companies will spend between $100M and $500M annually for KYC technology. The average, however, is about $48M per year.
  • The costs of customer onboarding as a result of KYC FinTech increased by 19% from 2016 to 2017, and were expected to rise by 17% in 2018.

How Banks Use KYC FinTech

  • KYC technology used in the banking industry has four key elements:
    • Customer policy
    • Customer identification procedures (CIP)
    • Risk assessment and management
    • Ongoing monitoring and record-keeping
  • In short, KYC technology identifies and verifies the identity of potential and existing customers, works to ensure the nature of a person's/business' relationship with a financial institution is in good nature, and regularly monitors the relationship to prevent money laundering.

Why Financial Institutions Use KYC FinTech

  • Financial institutions are required to follow compliance guidelines set in place by the Financial Industry Regulatory Authority (FINRA) Rule 2090 in 2012, in addition to the FINRA Rule 2111 when making use of KYC technology.
  • The Bank Secrecy Act of 1970 implemented by the U.S. Department of Treasury requires that financial institutions comply with these rules to ensure that they are doing customer due diligence (CDD), keeping records of transactions over $10,000, and helping to prevent money laundering.

Who Uses KYC FinTech

  • Any financial institution that is working with customers, businesses, or investors is required by law to use KYC technology at this moment in time.

Proposed next steps:

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As the initial research was able to briefly identify who uses KYC FinTech in the banking industry, how it is used, and why it is used, we suggest moving forward with research that will identify 2-3 best practices regarding how to successfully implement KYC fintech into a business in the U.S. banking industry. For each best practice identified, we will explain 1) what the best practice is, 2) how we determined it to be a best practice, 3) how the best practice results in success for banking companies, and 4) 1-2 examples of banking companies that have implemented this best practice and any success metrics of doing so, as available.
Additionally, we suggest moving forward with research that will locate 2-3 case studies regarding how banks/financial institutions in the U.S. have implemented KYC FinTech into their organization, and how they feel it has helped/hurt them. For each case study located, we will identify who the financial institution was, what area of the banking industry they participate in (i.e. who their customers are), how they implemented/use KYC tech, and any metrics of success, struggle, or revenue gain/loss as a result of this tech.