Digital Banking Automation: Level Up Your Manual Review Process for Risk and Cost Reduction

Manual reviews for many banks and credit unions are a mixed bag: sometimes entertaining but often unnecessary. In this increasingly digital world, it may not just be inefficient to use traditional analog manual reviews — it could be detrimental to your organization’s growth. Consider the world of venture capital and the increasing investment dollars in the fintech space. Why does any individual upstart fintech take on an entrenched traditional brick-and-mortar megabank? Answer: to capitalize on existing inefficiencies via nimble effectiveness.

In our world, being agile means delivering meaningful solutions quickly. No one wants to wait. According to Paul McAdam, Senior Director of Banking Services at J.D. Power, “Industrywide scores also declined for certain metrics like problem resolution. That deterioration was likely driven by labor market shortages, which resulted in increased wait times at call centers.”

What Is a Manual Review?

A manual review is a process completed by an individual or a team with the goal of verifying potentially fraudulent, suspicious or outlier transactions or accounts. Lowest risk transactions — those that fit within organizational parameters — are automatically accepted. Highest risk transactions — those that clearly don’t fit bank and credit union standards — are automatically rejected. Manual reviews mainly focus on the gray areas.

Those transactions in the gray areas require a deeper dive to ascertain whether it is a false positive (inaccurately flagged as potential fraud or high risk) or a true high-risk account or situation where stronger actions may be required. The manual review process is typically more complex and time-consuming because it requires time, resources and manpower to clear these transactions or funnel them into the appropriate risk category.

Call centers are not the only group to suffer staffing problems. According to American Banker, the financial and insurance sector saw a hiring decline of 96,000 employees in 2021: “No matter the size of the bank, financial institutions are dealing with retention and recruitment difficulties.” Fintechs are finding meaningful footholds with traditional banks and credit union users because they solve real-world problems. End users want real-world solutions and may defect to another bank or credit union — or even a neo-bank — if you aren’t able to help them.

Lower satisfaction scores and staffing are just two growing issues for banks and credit unions, and they are central to the key issues with manual reviews, too. Manual reviews, by definition, require an individual or team, usually with a specific skill set to painstakingly resolve a problem, often the result of human error. Now, considering the aforementioned issues: declining satisfaction scores for longer than expected wait times and potentially less team members to physically review risks — it no longer makes sense to continue manual reviews the traditional way. 

How Manual Reviews Work

Interestingly, the traditional Know Your Customer (KYC) manual review process varies from country to country and even among different banks. A standard KYC review process generally will include (not necessarily in this order):

  • Collect key information: obtain basic user information including tax ID numbers, business addresses, sources of wealth and site visits. Your organization collects supporting documents to verify their identity and residence status. The goal is to gather data to be parsed against your organization’s specific KYC internal compliance.

  • Verify Identification: any government-issued identification documents submitted by your end-user will be verified with the issuing body.

  • Verify Residency: domestic or foreign statuses will be verified at this stage.

  • Verify Financial Condition: net-worth statements, applicable collateral, assets and liabilities are verified with supporting documents and contacting relevant issuing banks and credit unions.

  • Monitor Transactions: any user transaction that is outside of bank or credit union standard parameters, including odd, high-dollar amounts or too frequent may be flagged automatically, which may take additional manual reviews.

Each of the above steps can quickly degenerate into “down the rabbit-hole time-sucks,” if your bank or credit union doesn’t already deploy strategic, proactive AI and machine learning solutions.

The Risks and Costs

The risks of creating a dissatisfied end-user (and one who questions their loyalty to your institution) increase the longer the problem takes to be resolved. In a 2015 survey commissioned by Fifth Third Bank to gauge their users’ patience yielded eye-opening results. Of the survey respondents, 78% rated themselves as very or somewhat patient, yet the survey hints at a much shorter attention span:

  • Almost all the people surveyed (96%) will knowingly consume extremely hot food or drink to the degree it may cause their mouth to burn; 63% regularly and continuously do so anyway.

  • 62% wait less than one minute on hold before hanging up.

  • 76% consistently ignore speed limits (they go much faster) to get to their destinations.

 “Patience may be a virtue, but it’s no longer a reality,” said Maria Veltre, senior vice president and chief marketing officer, Fifth Third Bank. “In our increasingly fast-paced society, every second counts.” This is relevant to manual reviews. If most users don’t have the patience to wait for a cup of coffee to cool down at the known risk of burning their mouths, what level of patience can a bank or credit union expect from users during a contested, unexpected manual review?

Some additional manual review costs include:

False positives

When your real end user is flagged for enhanced due diligence because of a name mismatch with someone else (generally a common name or surname) on the Political Exposed Persons (PEPs) or Sanctions list, a false positive is triggered. Generally, 42% to 95% of the alerts are false positives and nearly one-fourth of those require review by higher-level supervisors.

Potential Solution: False positives can be significantly reduced by implementing a custom and robust automated process.

Bad Data and Surprise Risks

The flip side of false positives are false negatives. This is where a user who is on the sanctioned list -either directly or by association manages to escape enhanced due diligence. Failure to comply with KYC and AML regulations may result in serious damages: fines, tarnished reputations, criminal proceedings and even sanctioning.

Potential Solution: Continuously review and upgrade your screening processes.

Weak Record Keeping

Multilayer systems from multiple different methods, whether from previous upgrades or mergers, often prevent records from being updated on a timely basis. Clearly, this becomes an extra challenge during annual audits. Users need to be monitored on a constant basis and that activity needs to be presentable. Failure to do so can result in additional and unnecessary risk exposure.

Potential Solution: Automate these tasks through a purpose-built digital banking platform to streamline and speed up your existing processes.

The Power of Upgraded Tech Partners

KYC and AML compliance, or for that matter, many other analog processes, can be made more efficient and effective through proactive automation. This is in stark contrast to existing reactive manual reviews. The pandemic catapulted users to demand more and expect more from banks and credit unions and today’s users are more impatient than ever. 

At the same time, regulators are demanding more from your organization despite knowing you may be working with declining resources. By working with a proven digital banking solutions partner like Lumin Digital, your bank or credit union can leapfrog ahead of your competition and reduce overall costs. Pre-pandemic times are over. It’s time to move forward.

Marty Aquino has been a passionate writer on venture capital, technology, forecasting, risk mitigation, wealth and entrepreneurial topics since 2009. He is the founder of Carbonwolf Energy, a venture-capital firm specializing in world-changing and status-quo-defying technologies and people. 


American Banker – Customer satisfaction falls at big banks amid staffing challenges

The Fraud Practice – Manual Review

American Banker – Labor shortage in banking will persist long after pandemic subsides

Corporate Finance Institute – Know Your Client (KYC)

Daily News Journal – Survey says ‘patience no longer reality’

KYC2020 – Solving The False Positives Paradox in Sanctions Screening