To carry out a Know Your Customer (KYC) registration process, 85 percent of banks said KYC process constitutes a significant cost to the lenders, with 71 percent anticipating that the cost of KYC will continue to increase, according to a report by KPMG, a global network of professional firms providing Audit, Tax and Advisory services.
According to the KPMG report, the direct costs for banks include address verification, Corporate Affairs Commission (CAC) verification for corporate customers, identity verification, and ongoing monitoring of accounts.
Indirect cost, covering staffing the compliance function/sanctions screening desk, procuring, deploying and implementing technology, storing and managing KYC data, regulatory reporting / fines, opportunity cost as a result of customers who discontinued the account opening process due to inefficient or cumbersome KYC processes.
“Our analysis of the data reveals that for many banks, the direct cost of KYC is below N50 million per annum, but depending on the size of the bank it can rise to as much as N400 million per annum, analysts at KPMG said.
The report showed that 1 percent to 30 percent of customers who start the KYC process do not complete it, because the process is unnecessarily time consuming. Despite customers agreeing that KYC is an important process, 48 percent of responding customers are not satisfied with the account opening process in their banks. Per the survey results, CBN’S tiered KYC initiative has led to increased efficiency for Tier 1 category of accounts, as 71 percent of banks state that they can complete the on boarding of a Tier 1 customer in one day. It typically takes more than one week to complete onboarding for Tier 2 and 3 customers.
The Central Bank of Nigeria (CBN) on January 18, 2013 introduced the three tiered KYC for banks and other financial institutions (OFIS).
The tiered KYC requirements regime will ensure application of flexible account opening requirements for low-value and medium value accounts and these are subject to caps and restrictions as the amounts of transactions increase.
This means that account opening requirements will increase progressively with less restrictions on operations. However, the main objective of the proposed approach is to promote and deepen financial inclusion.
KPMG report highlighted the topmost challenges with performing KYC in Nigeria, which include identifying complex legal structures, verifying addresses and identities, identifying and verifying PEPS, as well as remediating rather high-volume legacy accounts.
The firm carried out a survey of 25,107 bank customers and aggregated the results to quantify how KYC processes impact customer satisfaction. The results reflect that an efficient KYC process can be a determinant in a customer’s decision to open an account with the bank.
Among 37 other banking procedures, responding customers ranked KYC in the top 18th percentile of importance, indicating that KYC processes employed by the banks are of importance to prospective customers.
Despite the importance of KYC to customers, 48 percent of responding customers are not satisfied with the account opening process in their banks.
How do you know a customer who has no registered legal identity or whose legal identity cannot be verified. KPMG said this is the biggest challenge for banks operating out of Nigeria – where according to the DirectorGeneral of the National Identity Management Commission 100 million people cannot officially prove their identities.
Addressing the KYC challenge in Nigeria the firm explained it is a multidimensional issue, adding that any proposed change has to be beneficial to all stakeholders. For regulators, such changes must meet the leading practice in customer identification and still ensure appropriate accountability of the banks.
For banks, the change should increase efficiency in the KYC process, reduce cost and provide more assurance on the quality of information. For customers, it should enable speed and comfort.