Six Nordic banks form alliance to offer KYC as a service

Some of the Nordic region’s biggest banks have formed an alliance to offer businesses know your customer (KYC) capabilities as a service.

The move is in response to growing competition from emerging technology actors such as Apple and Google.

The Nordic Know Your Customer (NKYC) joint venture will create a common Nordic platform based on advanced data management technologies to enhance the collection and management of bank customer information. The partners in the initiative are Nordea Bank, Skandinaviska Enskilda Banken (SEB), Danske Bank, DNB, Swedbank and Svenska Handelsbanken.

Although the primary target is to enhance data competence, the joint venture also aims to raise the technology competence of the six participating banks against the wave of well-resourced global tech giants entering the financial services space.   

It is currently expected that the NKYC will be ready for commercial launch in 2020.

NKYC has been set up to operate as a company that will operate independently of its owners, with each of the six banks owning an equal equity holding. At the operating end, NKYC has already obtained approval from the European Commission to operate as a jointly owned finance company under the EU’s merger control rules.

Initially, NKYC will offer KYC services to Nordic companies, with a special focus on large and medium-sized enterprises headquartered in the Nordic region.

Fredrik Millde, NKYC’s interim CEO, said pan-Nordic IT collaboration between banks has become more important in the face of increasing competition from international competitors.

“The degree of collaboration between all banks involved has been effective and successful,” he said. “In just a short period of time, we were able to work on a Nordic KYC utility standard for compliant KYC information and explore alternatives for a future digital solution.”

The creation of NKYC demonstrates how the financial services industry is evolving to become even more data-driven. There is now more emphasis on the data that goes through banking systems, and banks are investing more resources on collecting, storing, analysing, categorising and optimising data.

One of the chief technology-led priorities for banks in the NKYC alliance is to develop a Nordic platform with standardised processes for handling KYC data. The underlying objective of the alliance is to improve customer experience by simplifying the KYC data processes for corporate customers.

Also, Nordic banks regard enhanced KYC competence as a positive that will enable them to strengthen their own anti-money laundering (AML) and general financial crime prevention IT systems and processes.

Nordic bank shareholders see the NKYC’s capacity to support AML and financial crime prevention initiatives is seen as a significant dividend of the joint venture. This is particularly the case as Nordic banks face new regulations and stricter requirements related to KYC processes.

Recent money-laundering probes by Nordic and Baltic financial supervisory authorities into suspicious transactions at branches operated by Swedbank and Danske Bank in the Baltic states, has emphasised the need for compliance with AML rules and protocols. In recent years, compliance with requirements for processing customer data has also become a critical component in fighting financial crime.

NKYC’s offerings will help to provide simplified solutions to manage customer data better, said Millde. “Bank customers sometimes struggle with what can be time-consuming KYC information requirements,” he said. “These requirements often include different banks and formats. More efficient KYC processes can make transaction processes faster, improve administration and reduce risks.”

An important objective for NKYC will be to deliver consolidated, efficient and accurate processes to serve customers, banks and society better. This will require the development of an efficient, common, secure and cost-effective Nordic KYC infrastructure, said Millde.

Although the incorporation of NKYC is the single biggest pan-Nordic collaborative initiative to improve IT data competence, individual banks are also increasingly elevating their technology-based knowledge, capabilities and expertise through partnerships with financial technology firms (fintechs). 

 Johan Torgeby, CEO at SEB, described the advent of fintechs in the financial payments domain as a positive development for banks wanting to grow their presence in the retail space.

“We are the smallest of the big banks in the retail space in Sweden,” he said. “So for us, the presence of fintechs has an enormous benefit. By cooperating with fintechs, and using new technology, we can achieve an equal footing with banks that have a larger retail presence. We are not trying to solve everything ourselves.”

All of the banks in the NKYC alliance are actively engaged in upgrading their customer-focused digital, artificial intelligence and machine learning capabilities in partnership with fintechs.