Why AI-Powered compliance is imperative to know your customer

Financial services leaders have invested heavily in the information technology that supports customer-facing digital platforms and applications. These tools have made massive inroads over the past decade, thanks in part to the power of artificial intelligence (AI) and machine learning (ML). The challenge now is for financial leaders to leverage technology and the digital experience to improve another key dimension of banking operations: knowing your customer (KYC). 

KYC is a critical tool for banks on several fronts, first and foremost providing hyper-personalized services that are truly 1:1 through digital channels. While this has been heavily discussed, achieving a personalized 1:1 has been far from reality. In addition to controlling and managing risks, legal and reputational risks need to be addressed to customers. Those risks include anti-money laundering fines, which can be up to $500,000 or double the amount of property involved (whichever is more), for each violation.  

These risks are not an abstract threat. The U.S. Treasury has estimated that $300 billion is laundered through the U.S. annually, and roughly 1,000 cases are reported in the U.S. each year, according to the Sentencing Commission. In 2021, Capital One was fined $390 million by the U.S. government for its “failure to guard against money laundering” and allowing “known criminals to use and abuse our nation’s financial system unchecked.” 

Automating compliance processes with AI to protect customers 

As bad actors continue to harness the latest technology, the pace of adoption must accelerate across financial institutions, as knowing and protecting their customers becomes extremely critical. Financial institutions can generate a significant amount of high-quality synthetic data to create deep patterns which, when applied to their customer profiles, will key them in on potential attacks. Humans can now detect fraud and continuously look for vulnerable patterns. 

For example, today Infosys is working with banking and automotive captive finance organizations to provide analysis and automation of loan origination processes, ensuring that any defaults are reported to the regulatory authorities as per law. In addition, Infosys works with customers to look up sanction lists or any compliance required for the customer and then automates the validation process using AI. As a result, automated compliance processes help reduce costs, ensure accuracy and drive profits, as firms can easily scale to reach more customers.  

Ensuring security with AI-powered fraud detection 

While customers are going to prize security, they are also going to continue to place a premium on convenience, such as a single swipe of a finger or their face being adequate to establish their identity. While they will continue to prioritize convenience, an incident can completely dilute the loyalty they’ve built over the years. Today’s digital environment generates huge amounts of data and leaves multiple footprints at different channels. Vulnerabilities continue to increase, and the cost of manually looking at patterns is becoming cost prohibitive. Adopting generative AI can largely reduce the number of manual hours spent looking at this since AI can flag potential fraud and humans can then intervene to prevent it, therefore enabling enhanced customer satisfaction.  

Infosys works with many banking and financial institutions to reduce fraud by using AI to look through patterns of large amounts of transactional data and protect the customers. Infosys analyzes risk patterns, assigns probabilities and introduces additional checks to determine if the probability of risk is high. 

Convenience, coupled with security, will also drive the proliferation of technologies that help meet customer expectations in 2023 and beyond. Biometrics will continue to make inroads, thanks to smartphones, and will grow in popularity with individuals and institutions amid evidence that PINs and passwords can be compromised. Deeper integration with technology companies is looming. It’s been reported recently that “Apple, Google, and Microsoft are spearheading a movement to replace passwords with digital passkeys.”  

Monitoring regulatory movements 

AI advancements have led to significant progress in regulatory compliance, given the changes that are happening across different industries. Shridhar is seeing significant use cases in healthcare, financial services and insurance in the U.S. alone, given vast changes in statewide regulations. The monitoring of these changes has become easier, though—for example, Infosys is working to monitor changes in laws across different states with the help of AI to spot changes, differences and recommendations on products for one of its healthcare clients. 

With generative AI taking mainstage and the rapid proliferation of AI into every facet, optimizing these technologies and others like them will be critical, and enabling employees to use them will be the most challenging part. Financial institutions must ensure that training curricula are included with the technologies they acquire, as well as access to human experts who can provide insights into real-world applications.  

These tools enable institutions to know more about their customers, as well as the next wave of KYC, which is knowing the customers’ customers (KYCC). When done right, KYC can deliver a better customer experience while promoting security and risk mitigation for the holding institution—helping to curtail the illicit activities enabled by money laundering. 

Shridhar Iyengar Raman is the Global Sales Head, Digital Experience at Infosys.