by Marty Aquino
For many banks and credit unions, manual reviews are a mixed bag. Sure, they are sometimes entertaining for the reviewers, but as anyone who has ever experienced the process knows, they are often unnecessary. And in this increasingly digital world, traditional, analog manual reviews may not only be inefficient for your banks or credit unions, but they could also be hindering your organization’s growth, impacting its bottom line, and creating a host of dissatisfied customers.
What Is a Manual Review?
Simply put, a manual review is precisely what it sounds like—a manual review of information. In the context of fraud prevention, a human (or humans) manually review data—accounts and transactions—to guide additional actions. This laborious process aims to determine the authenticity of an item that may be deemed fraudulent, suspicious, or just an outlier transaction or account. The best, or lowest risk transactions and the worst, or highest risk transactions are automatically accepted and rejected, respectively. It’s in the muddy middle where manual reviews come in. They help when a closer eye is needed to deem the validity of a questionable item.
The arduous process of manually reviewing these potentially fraudulent accounts and transactions takes time, and costs financial institutions money to perform. To ascertain whether the item in question is actually fraudulent or is simply a false positive requires individuals to tackle these instances one by one, funneling them into an appropriate risk category to come to an eventual resolution. And in today’s climate, many financial institutions are rethinking how to manage this labor-intensive exercise best.
How Typical, Human-Led Manual Reviews Work
The traditional Know Your Customer (KYC) verification process is pretty straightforward, but can quickly devolve into a timely (and costly) exercise. This process also varies, not only by country but also between banks, making a “simple” process much more complicated for the individual reviewers. A typical KYC review process generally includes some form of the following items:
- Collect essential information: obtain basic user information, including tax ID numbers, business addresses, sources of wealth, and website visits. Individuals collect 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: confirm the authenticity of any government-issued identification documents submitted by the end-user.
- Verify residency: confirm domestic or foreign status.
- Verify financial conditions: obtain net-worth statements, applicable collateral, assets, and liabilities that are verified with supporting documents and by contacting relevant issuing banks and credit unions.
- Monitor transactions: observe any user transaction outside the bank’s or credit union’s standard parameters, including unusual, high-dollar amounts, or too frequent to possibly flag automatically. These may take additional manual reviews.
The Cost of Manual Review
The manual review process is not only tedious and time-consuming for employees, but it can also get costly for the financial institution. Aside from the process itself, three key variables—false positives, bad data, and poor record-keeping—can potentially exacerbate your manual review costs even more.
False positives happen when your end-user is flagged for enhanced due diligence because of an inaccurate name match to someone (generally a common name or surname) who is on the Political Exposed Persons (PEPs) or Sanctions list. Typically, 42% to 95% of all fraud alerts are false positives, and nearly a quarter of those require review by higher-level supervisors.
On the other side are false negatives, typically the result of bad data. These happen when a user that is actually on a sanctioned list—either directly or by association—manages to escape enhanced due diligence. Failure to comply with KYC and AML regulations may result in surprise risk and serious damages for the financial institution that missed the fraudster. From fines to tarnished reputations, criminal proceedings, and even sanctioning of the institution, false negatives can be catastrophic for banks and credit unions.
And when it comes to managing information, poor recordkeeping can be disastrous for the manual review process. Multilayer systems from multiple different methods, whether from previous upgrades or data mergers, often prevent records from being updated on a timely basis. This certainly becomes an extra challenge during annual audits. Users must be monitored constantly, and that activity must be demonstrated. Failure to do so can result in additional and unnecessary risk exposure.
The Cost of Impatience
For financial institutions, like any other consumer-driven business, customer satisfaction is vital. And in this age of “instant,” the expectation of immediate resolution from consumers across the board is at an all-time high, putting patience at an all-time low. The manual review process is often the opposite of instant, and the risks of creating a dissatisfied customer increase the longer their problem takes to be resolved. In 2015, Fifth Third Bank commissioned a survey to gauge their users’ patience. The results were eye-opening. Of the survey respondents, 78% rated themselves as “very” or “somewhat patient,” yet the actual results paint a slightly different story about people’s attention spans:
- Almost all the people surveyed (96%) won’t wait for their food to cool and will knowingly consume scorching food or beverages to the degree that it may cause their mouth to burn; 63% regularly and continuously do so anyway.
- 62% of people wait less than one minute on hold before hanging up the phone.
- 76% consistently ignore speed limits (and go well above the speed limit) 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.” So if people don’t have the patience to wait for a cup of coffee to cool down, knowing they are likely to burn their mouths, how patient can a bank or credit union expect their customers to be when their transaction is being manually reviewed? The answer: not very. And as financial institutions want to ensure customer satisfaction, they know that a happy customer gets immediate results.
The Power of Upgraded Tech Partners
In this time of instant actions, staffing shortages, and even more scrutiny around expenditures, financial institutions are no doubt reevaluating how they assess fraud management. Toss in lower satisfaction scores due to the manual review process, and banks and credit unions are starting to realize that it no longer makes sense to continue manual reviews the traditional way. But when managing fraud, which is certainly not going away, how do organizations make the manual review process more efficient? They work with a proven digital banking solutions partner like Lumin Digital.
Fintechs like Lumin Digital are finding meaningful footholds with traditional banks and credit union users because they solve real-world problems—for the banks, and their users. By automating the manual review process, they help organizations of all sizes take their fraud management process into the digital age. They can help you leapfrog ahead of your competition and reduce overall costs while increasing customer satisfaction by simply modernizing this antiquated process. So, if you are ready to make manual reviews a thing of the past, contact Lumin Digital today.
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