The finance and banking sector is evolving rapidly due to changing consumer behavior, technological advancements, and increasing competition. One of the most significant changes is the shift towards digitalization. As a result, many traditional banks invest heavily in digital channels and mobile banking apps to offer customers more convenient and personalized services.

Additionally, the rise of fintech startups and the adoption of new technologies like blockchain, artificial intelligence (AI), and machine learning are disrupting traditional banking models and introducing innovative products and services. Companies are leveraging AI-powered solutions to enhance their customer service through tools like OpenAI, advanced analytics for trend analysis, and reports that aid in better decision-making.

In the banking and finance sector, AI has emerged as a crucial technological advancement that not only helps businesses stay competitive but also caters to customer demands. Do you know AI technologies could add up to $1 trillion in extra value to the banking industry annually? And are you utilizing AI to its maximum potential?

Overall, the finance and banking sector is undergoing a transformational shift, and you should stay up-to-date. So here’s a great read - PluggedIn - What 2023 Has In Store for Banking and Finance. Learn all about Open Banking, the expansion of Neobanking, future predictions, and the rise of AI in Banking and Finance.

Get PluggedIN Now

For approximately 5,000 years, physical notes and coins have served as a reliable medium of exchange, enabling commerce to take place with relative ease due to their widespread acceptance and trustworthiness. In modern times, the older financial instruments, such as checks and promissory notes hindered the settlement process, as clearing often took significant time.

However, in the digital age, such payments moved to online platforms. They expanded further, minimizing the friction associated with physical financial transactions, expanding geographic access, and more with the emergence of mainframe computers revolutionizing electronic payments.

With the rise of e-commerce and digital transactions, online payments have become integral to modern business transactions, providing convenience, speed, and security to customers and businesses alike.

Online and real-time payments enable customers to purchase from anywhere and anytime, allowing businesses to reach a global audience. In addition, online transactions provide a streamlined payment process, eliminating the need for physical cash and checks.

Understanding Real-time Payments

Real-time payment (RTP) (also known as “immediate payment” or “instant payment” due to its speedy nature) refers to an account-to-account funds transfer. It enables immediate availability of funds for the recipient and instant transfer for the sender. With real-time payments, the balance is confirmed in real time, and the payer's account is debited instantaneously upon authorization of the payment. Although settlement timing may vary across systems, it typically takes only a few seconds to complete. Real-time payments are also known as immediate payments or instant payments due to their speedy nature.

It's worth noting that real-time payments are irrevocable, which means that once the payment is initiated, the payer cannot cancel the transfer. In the past, early RTP systems were limited by nightly, weekend, and holiday restrictions. However, the latest versions offer round-the-clock access, every day of the year.

Benefits of Real-time Payments Over Traditional Payment Methods

First and foremost, they enable immediate availability of funds to the recipient, eliminating the need to wait for payment clearing or settlement. This feature is particularly useful for time-sensitive transactions, such as bill payments or emergency transfers.

Real-time payments also provide a high level of payment certainty, as the payer's account is debited instantly upon authorization of the payment. This reduces the risk of fraud or non-payment, as the payer cannot cancel the transaction once it has been initiated.

Furthermore, real-time payments offer increased convenience and flexibility for both consumers and businesses, enabling transactions to take place at any time and from any location. This can result in improved cash flow for businesses and increased customer satisfaction.

Finally, real-time payments can lower transaction costs, as they are often more efficient and streamlined than traditional payment methods. This can result in cost savings for businesses and increased financial inclusion for consumers who may not have access to traditional banking services.

How Does Real-time Payment Work?

Real-time payment enables near-instantaneous transfer of funds between accounts, with the recipient receiving the payment immediately upon authorization. The exact process for real-time payments can vary depending on the payment system being used, but the following steps provide a general overview:

1. The payer initiates the payment using a payment system or app, which connects to their bank account or credit/debit card.

2. The payment system verifies the payer's identity and funds availability before authorizing the payment.

3. The payment is transmitted to the recipient's bank or payment system in real time.

4. The recipient's bank or payment system verifies the recipient's identity and account details before crediting the payment to their account.

5. The payer's account is debited instantly upon authorization of the payment.

6. The payment system or bank provides confirmation of the payment to both the payer and the recipient.

Real-time payments are typically processed within seconds, offering a fast and secure way to transfer funds between accounts. To ensure the safety and security of online transactions, various measures such as encryption, authentication, and fraud prevention are employed to protect both customers and businesses during these transactions.

Real-time payments are changing the world by revolutionizing the way we exchange money and conduct financial transactions. Get in touch to learn more.

Banks and financial institutions face many challenges in their operations. One of the most prominent challenges is the know-your-customer (KYC) process. This process helps organizations determine who they're able to provide services for, prevents risks from those committing fraud, and ensures that the institution remains compliant with local and international regulations.

The KYC process can be incredibly time-consuming, requires many resources, and can come at a significant cost, which often creates obstacles to customer onboarding. At the same time, any errors throughout the process can be costly, delay customer onboarding, and create issues further down the line for the organization. And this is just for onboarding! KYC continues beyond this into monitoring for suspicious activity.

KYC automation is key for banks and organizations to overcome these obstacles. According to Polaris 2022 Market Research, automation in electronic KYC (eKYC) was worth $447.53 million in 2021 and is expected to grow at a compound annual growth rate of 22% between 2022 to 2029. Financial organizations are understanding the importance of KYC automation and the competitive advantage it offers them.

Common Challenges in KYC

With so many moving parts to the KYC process, various challenges arise as the operation advances. To begin with, organizations request applicants to provide information regarding their identity along with their financial activity. The applicant submits the documents to the bank which, depending on the bank, can be done offline or online.

From there, the firm's employees manually check the customer's documents to confirm their accuracy and then transcribe the information into a database. Given how many documents are required, it is a lengthy process from start to end, often requiring more documentation than what was presented above. If there are any errors or if changes need to be made, this can further delay the process.

Finally, the firm continues to monitor for suspicious activity.

This is a high-level overview of the KYC process and its inherent challenges, including:

Significant Spending

The first issue is that this process is costly. According to a LexisNexis Risk Solutions 2022 study, the total cost of financial crime compliance across financial institutions rose significantly, from $213.9 billion in 2020 to $274.1 billion in 2022.

Time-Consuming Processes

Due to the many steps that are required, the KYC process takes a significant amount of time, especially with manual processes involved. While manually inputting data into a database could take hours, KYC automation completes the task within minutes and sometimes seconds.

Inaccuracies

As the saying goes, “to err is human.” Humans make errors and, unfortunately, it can lead to many issues, from delayed processing to non-compliance. All it would take is inputting one missing letter or number for the identity to be captured incorrectly. At the same time, employees typically inspect multiple client documents at a time for many different clients which could increase the potential for human error.

Lack of Security

Physical documents are typically less secure than digital documents. Physical documents are passed from hand to hand, need to be stored properly, and need to be handled with care. However, with manual processes, none of this can be guaranteed.

Changing Regulations

With the regulations for anti-money laundering (AML) and counter-terrorist financing expanding or changing, financial organizations face pressure to stay up to date and remain compliant. At the same time, these institutions need to ensure that they maintain a smooth and optimized client onboarding experience, or else they may provide poor customer service. It is a delicate balance.

KYC Automation to the Rescue

Automation benefits many areas of the KYC process. Since the majority of the process involves repetitive tasks, data entry, and documents, automation excels in KYC. Technologies such as robotic process automation and artificial intelligence possess the capabilities to collect many data points into a single source, identify any inaccuracies within documents, flag items, and more. AI also can monitor customer transactions in real time and flag any possible suspicious activity. KYC automation improves the verification process by extracting the data and inputting it into the organization's database while also comparing the documents to ensure accuracy and authenticity.

There are many benefits to adding technology to the KYC process. The obvious benefits that we’ve already touched on include improved efficiency and cost savings, but there are more benefits to consider.

Making the process more efficient by adding automation has downstream effects and one of those is improving client relationships. Whereas a manual process can take up to 60 days, automation cuts that time down significantly and creates a smoother process for onboarding the customer. This provides the customer with a better experience and helps the organization to remain competitive.

Another downstream effect is reallocating resources. Manuel KYC processes require a significant amount of employees to sift through and verify the documents. With KYC automation, businesses can reallocate resources where they would be better needed to not only improve the KYC process but other processes in the company.

Finally, companies experience immediate savings that come with automating the KYC process, including reallocating resources and accelerating the process. However, there are also long-term savings to consider. With the reduced risk of fines due to improved compliance, companies will find that they spend less all around. So it's not just immediate savings, but continued savings in the long term.

Implementing Digital Transformation in KYC

Exela’s KYC/AML Platform elevates KYC/AML solutions by using both physical documents and digital footprints, also known as Social KYC. Social KYC is a risk-based approach to KYC/AML compliance for digital-first businesses. Through our platform, users verify customers’ identities using their unique digital footprint and online social media identities.

Our platform extracts information from over 80,000 sources, including news, publications, social media, watchlists, public records, proprietary datasets, and open websites. Then, it aggregates individual information to create a robust customer profile for enhanced KYC/AML operations. A single dashboard provides real-time visibility into each stage of the customer onboarding process.

The platform also automates transaction and account monitoring to provide real-time fraud detection and risk monitoring. A closed-loop system architecture enables continuous improvement over time as the system interacts with more cases and a larger data set. The system sends out notifications and alerts, flagging relevant accounts for teams to investigate.

Reduce processing times, errors, and operating costs while accelerating customer onboarding and streamlining document management with our KYC/AML Solution. Enhance your processes with the right KYC solution. Contact us today for more information.