Understanding customers is more important, than just knowing them
from the development perspective of both banks and national
economies. All the more so, because the age old process of ‘Knowing
Your Customer’ (KYC) has been practically reduced to a ritual of
collecting and archiving documents! Neither has it effectively served
the purpose of combating money laundering among other things,
despite all the supporting international laws - at least not as yet!
KYC is today perceived as a stumbling block, instead of being seen as
a golden opportunity for expanding business and eliminating /
minimizing non-performing assets. It has been used as a device to
keep customers away from banks, especially the not-so-well heeled
and poorer sections of society, resulting in financial exclusion and
stunted growth, more so in the developing world! KYC is used as a
means of collecting documents said to be required for entertaining
customers without seeking to understand them; their background,
their character and their usefulness in furthering business in a healthy
and mutually prosperous manner.
‘Understanding Your Customer’ (UYC) is thus more relevant and
meaningful than the superficial act of KYC. With the onset of digital
transformation, Big Data, the ‘Internet of Things’ (IoT) and supporting
software applications, what was earlier considered to be a tedious and
unreliable process is proving to be a boon to banking in general - all
the more so for those embracing technology with an eager mind, an
open outlook, a discerning eye and a human touch.
Needless to say, every customer is a potential consumer and an
advertiser of the services from banks and thus offers immense scope
for business expansion and growth. The entry of banks into the
insurance business, share broking and consigliere services bears
testimony.
Customers can be individuals or institutions and beyond collection of
documents, the failure to appreciate and understand their strengths
and weaknesses is evidenced by the ever increasing accumulation of
bad debts, losses on account of frauds, generation of black money,
lack of financial inclusion and other ills that plague the economy.
It is time to recognize that UYC helps to address many of the issues
that are regularly faced by banks, governments and economies at
large. The behavior of customers whether they are individuals or
institutions can be easily captured through compilation of their profiles
and intelligent analysis of their operations, interpretation of the inputs
they submit to banks to comply with the various provisions of different
laws and regulatory requirements. Periodical face-to-face interaction
with them has not been given adequate attention in the present
scheme of things, which needs to be addressed through technology.
Though the regulator has ways and means to stricture the banks for
their failure to comply with the regulatory prescriptions, as recently
witnessed in the case of some banks, they have perhaps not helped to
serve as an important tool to understanding the customer. Things are
however changing:
• Bad debts and NPAs could be dramatically reduced through
judicious credit decisioning using platforms like the ones offered
by Bosch, Experian, Kabbage, OnDeck and others.
• Customers could be guided to improve their credit ratings by
helping them to sincerely understand the evaluation processes
followed by rating agencies such as Brickworks, CRISIL, Experian,
Fitch and ICRA.
• Banks could advice and assist customers in managing their
working capital more efficiently by seeking periodic live access
to their inventory control systems. Even SMEs could be advised
to adopt conventional or cloud based ERP systems such as the
ones offered by CDC Software, NetSuite, TCSiON, Syspro and
others, thus making electronic monitoring and audit eminently
feasible. A stitch in time could thus save nine.
• Hitherto it has been difficult for banks to physically and effectively
monitor the operations of customers located at great distances.
Even distances of 25 to 30 miles have proved to be inconvenient
for various reasons. Remote monitoring through a mix of CCTV
systems, teleconferencing and telecom software platforms like
Skype, Instagram, Google Hangouts and others would
significantly mitigate such inconveniences, militate against fraud
and add some meaningful human touch to the supervision and
audit processes, besides gaining vital insights to the profile of the
customer.
Through the above means, beyond what is garnered from quarterly
operating statements, balance sheets, tax returns and press reports,
even institutional customers and large accounts could be better
monitored and guided to get a firmer grip on reducing NPAs and
raising profitability and growth.
The very idea of understanding the customer is to lend credibility to
the banking operations, ensuring ethical practices and adherence to
accepted standards in the conduct of business leading to healthy and
sound business growth for the benefit of the whole economy. The
adoption of appropriate and state-of-the-art technologies alone would
serve to supplement the human endeavor that is today struggling to
raise allround productivity, profitability and growth. Technology in use
in the banks and other financial institutions needs rapid upgradation if
the merit of UYC is to be established, in letter and spirit.
It is always good to know your customer but it would definitely be that
much better to deal with a known and mutually well understood
customer.
Dr.T.V.Gopalakrishnan
(This article is published in Q Factor BFSI in their April Issue 2015.))
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