BANKING MANAGEMENT DEBATE

About today's client onboarding

Client onboarding is a full process, which users employ when they start their journey as a customer/client of a bank/financial institution. The onboarding experience can define the ongoing relationship the customer has with the organization.

In other words, this process is critical due to key variables such as client loyalty, experience, referrals, and profitability. The future of client onboarding depends on the quality of the involved company’s own onboarding practice and processes. Currently, the process, commonly followed in banks, involves multiple parties/departments within the organization; these are the front office, operations, risk, legal, credit, compliance, tax and more performing various functions. In short, there are many touch points with different departments, and this requires some time to complete the entire process.

FACTS & CONTEXT

A recent survey-article published on the popular Medium states that According to Deloitte, 38% of new banking customers will abandon the account creation process if they find that the onboarding process takes too long or requires more information than they are prepared to disclose. Given this startling statistic, it should be no surprise that at least 26% of customers feel that “easy enrollment and login” are the most important criteria on which they decide who to bank with.

These findings only serve to reemphasize the need for banks and financial institutions to optimize the onboarding experience for their customers. Traditionally, financial institutions have been slow to modernize their onboarding process, while direct banks that were native to the internet turned this to their competitive advantage, utilizing technology to offer onboarding experiences that were substantially quicker and lower-touch.

However, in 2017, Deutsche Bank was fined $41 million, allegedly for lacking adequate controls against money laundering. Last year, the International Netherlands Group (ING), the largest bank in the Netherlands, was fined 775 million EUR for lapses in its due diligence processes. In the eight-year span between 2009 and 2017, banking institutions have been penalized to the tune of $342 billion by European regulators, according to Reuters and US.  As the facts show, since the 2008 Recession rocked the global economy, regulators have become even more rigorous when inspecting banks. At the receiving end of such fines, banks expect their compliance officers to leave no margin for error, forcing compliance departments to become overcautious and overzealous in their due diligence process. Across the banking and finance sector, compliance spending has been higher than at any other time in history. In 2016, banks spent close to $100 billion compliance. It is at this stage where challengers’ banks upstage traditional financial institutions, in the eyes of the customers. (https://medium.com/the-regtech-hub/how-banks-can-build-customer-centric-yet-compliant-onboarding-processes-e9f54667fb5b)

Trulioo, a business security company, signaled that even as legacy banks became digital, building their own online banking solutions to enable customers to open accounts digitally, their onboarding process was dogged with delays. In the context, that one of the most significant factors behind the lengthy duration of customer onboarding was the customer due diligence process, which entities that are regulated under Know Your Customer (KYC) and Anti-money Laundering (AML), such as banks, credit unions and financial services, are required to complete. In fact, onboarding a business or a corporate customer takes even more time; in Europe, regulated entities have to go through reams of paperwork in order to determine the beneficial owners of a business that they are trying to onboard (a requirement under the Fifth Anti-Money Laundering Directive 5AMLD). Indeed, ownership structures tend to be complicated and, in order to break them down, banks need to gather an array of documents, which can turn into a very time-consuming process.

Even as financial institutions have tried to devise in-house solutions to accelerate the customer due diligence process, their processes are still too rooted in the past, and are slow to change. However, recent regulatory changes aimed at disrupting the banking oligopoly have forced banks to respond with more urgency to growing customer expectations.

THE CHALLENGES

1. The lack of structured process

Client onboarding needs to follow different processes across its departments such as credit, legal, antifraud and anti-money laundering etc. The intrinsic practical complexity is based on the fact that all these departments have their own procedures and their own specific processes. It means that in many cases the bank’s departments have their own interpretations related to regulations. Moreover, customers are likely to get confused on why they need to provide the same information (many times duplicate) at several points of the process and to several different parties.

2. Changing regulations

In today’s world, regulations change on a monthly or even on a weekly basis. Hence, banks need to adapt their systems accordingly. They not only need time to explain to the client why new changes are happening, but also have to ensure that they are amended in the onboarding process, which then is consistent with the old practice. Due to the tsunami of regulations, banks need to revisit current operations/processes and rely on new technology initiatives like process reengineering and/or digital transformation in order to make themselves compliant.

3. Culture & Policies

Financial institutions have long declared their intention to get close to their customers. But, increasingly, underinvestment in strategic opportunities (such as customer onboarding) and the drive (culture) to understand customers changing needs and market dynamics is still missing. According to a recent McKinsey survey, within the global executives across the world, culture accounts for 33% among the most significant barriers to digital effectiveness.

4. Access

With modern technology, banks have increased pressure to do everything on a real-time basis. For example, a customer expects that everything needs to be available on mobile so that they can avoid visiting the branch, and, thus, simply access the app from anywhere at any point. But as many banks are still using legacy systems, providing customers with an end-to-end digital experience remains a challenge.

5. Time consuming processes

The multitude of documents needed, multiple “touch points” and departments involved in the process, make client onboarding very time-consuming. Also, it changes for every entity within an organization. For example, a bank has three different entities: corporate, retail, and insurance businesses; these cater for different type of business/customer. Now, let’s imagine we have a customer that accesses all three entities of this bank. The customer essentially needs to go through the entire lifecycle of client onboarding three times.

PROJECTING A PERFORMANT ONBOARDING SYSTEM

The complexity of interactions, the continuous changes of customers’ behaviors, policies regulations, and the necessity for efficiency is making onboarding solutions complex. This complexity increases when the solution should include principles of customer acquisitions. Based on personal and Axiobit Limited experiences there are some principles that may support an onboarding solution:

  1. Based on the banking principles, the cultural framework of customers, bank internal culture, and the overall context, onboarding solutions are different. They cannot be copied or borrowed between institutions. The best practices do not work; they can be studied as success stories and understood in terms of useful sequences.
  2. Before any other effort, the processes, rules and decisions should be studied and designed. The automation points should be described and the impact should be observed.
  3. The solution should be projected using innovation methodology (design thinking). A complete and high fidelity prototype should be created and tested with real users.
  4. A continuous communication system (mobile apps and pushing information) should be designed.

Axiobit is proposing a different way for projecting onboarding complex solutions. It combines a complete visual consulting approach, a BPM consulting framework and a methodology for processing innovation. Our methodology allows for Know Your Customer (KYC) and Anti-Money Laundering (AML) laws to create an incremental approach. Incremental onboarding is about striking a balance. It emphasizes the collection and verification of a user’s personally identifiable information (PII), but without interrupting the customer’s journey. Instead of asking users for their identity attributes all at once, incremental onboarding lets users follow their curiosities and explore the product, asking them for identity attributes, piecemeal, or different thresholds of product engagement.

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