Integrated customer onboarding has become a business imperative for incumbent banks in today’s technology driven, ‘digital first’ banking ecosystem. But the manual processes which are in place, are archaic in nature leading to a cloudy customer experience. Let’s suppose a customer wants to open an account for a high priority business transaction. The lengthy and complicated customer onboarding procedure obstructs his initiatives and he wants to save it for later. If the bank still dawdles, he turns to competitors. A KPMG report states that 89% of customers turn to competitors following a poor experience.
First impression is certainly the best and hence numbers is not the only bone of contention. Onboarding is also a subset of customer experience and acts as an excellent prelude if implemented properly. A satiating onboarding experience provides a steady headstart to a customer experience thereby increasing profit numbers. KPMG further states that just a 5% reduction in customer defection rate increases profits up to 95%. Hence it acts as a critical brand differentiator.
Getting down to the specifics of challenges and pain points, it can be summed up as a triangular vortex of business, regulatory and technological downsides sucking in the profit numbers by the millions.
The Regulatory Downsides
Compliances, protective lances of criminal behavior, have become kitchen knives that cut your own fingers, because of its laborious process. This has resulted in a bloodshed of customer retention.
The regulatory landscape is continually evolving with new clauses in the GDPR, PSD2, Anti Money Laundering (AML) laws and the FATCA regulations, not to mention events like Brexit. This is a largely time-consuming process that needs several proofs of identity. Though some of it can be done online, many countries mandate a physical id proof rather than a virtual one. The consenting party also needs to be physically present, aimed at reducing the digitally rampant crime and unscrupulous activities. Add to this the data protection guidelines which need careful validation.
Regulations vary greatly across geographies as well. Across the Gulf, a different set of regulations are in place which are unique and very different from the ones in the EU and APAC. This forms an intense cobweb of regulatory compliances and makes the digital onboarding process a complex one.
A Thomson Reuters survey with over eight hundred financial institutions revealed that over 70% of FIs’ regulatory engagement has increased materially over the last 12 months which drives some significant cost challenges. Besides, they are spending 40 million dollars a year on their client onboarding and kyc processes ranging upto three hundred million dollars at the top end. Besides, it is also a number that is growing annually. So regulatory compliances are financial friction points for the digital onboarding process, since they do not have a budget to increase spends on an integrated onboarding experience.
A very interesting challenge is the proportion to which customers keep their banks proactively updated on changes in their status like shareholders, beneficial owners, new directors, which is very minimal. So there is a stark disconnect in how much they should keep banks updated and how much they actually do. They are warehousing a risk that they don’t fully understand or even know that they are warehousing, till they erupt into fire drills like Panama Papers.
The situation in Panama with the Panama Papers has precipitated various responses around the world with regulatory bodies like the FCA tightening the loops of compliances which strangles on UK banks to respond within a few days. They are obliged to respond as to who they and their clients have relationships with, whether they have relationships with the structures advised or managed by the law firm. The challenge to such responses is to find that information given the way their data is stored and fragmented in such a short timeframe. So integrating all this into the digital onboarding system within such a short timeline is beyond the scope of the FIs.
The Business Downsides
The Recessive Banking Climate
These challenges come at a time when the investment banking industry itself is at a significant pressure. Volumes are down, revenues are down and the asset management space is down. So there’s a continuous profitability challenge and onboarding sits at the very intersection of these areas.
FinTechs – Landing on the head or the King’s crown?
As the incumbent banks are culturally averse to change, the birth of the millennial and the hovering FinTech revolution has propelled a rigid competition, of which FinTechs have come out as clear winners and are taking over the digital onboarding process of the dissatisfied clients of incumbents.
The FinTechs have landed right on the heads of the incumbents. The incumbents have grown wise enough to treat FinTechs as crowns instead, in a desperate attempt to remain kings of the banking ecosystem. Does Collaboration trump competition? Only time will tell. But for now, FinTechs are gorging the lion’s share of the banking pie and look to win over the dissatisfied clients of incumbents.
The Technology Downside – Lacklustre Legacy Systems
Legacy systems are like cooked food which gets spoilt with time. It should be continually cooked to suit the changing tastes of the millennial. The millennial tongue has savored all things digital and will vouch for nothing less. The incumbents’ cultures and core platforms simply cannot live up to their demands.
The banking bellwethers are fragmented with multiple, error prone legacy platforms which require manual intervention. And the manual intervention is like falling into a bottomless pit, it is humanely impossible to dig out the errors, especially in this age of big data. Their front, middle and backend systems also lack a seamless integration.
When data is housed in multiple siloed systems, there will be different versions of the same data leading to process inaccuracies and error prone onboarding processes. Their front, middle and back office functions would have a fragmented and manual onboarding process.
Although many banks have made generous investments towards digital initiatives, it is siloed and still not good enough, resulting in varying levels of digital maturity across the organization.
When the systems are not integrated properly, it’s impossible to collate customer data once and make it uniformly available across multiple systems. A well rounded omni channel offering can reduce the bandwidth of an application capture, however, it would be futile if the back office and middle systems are not integrated and involve manual intervention.
Unencumbered by legacy systems, onboarding will have a quantifiable impact on key variables like customer trust, new customers, reputation and brand equity.
As the digital disruption vortex springs at the very center of the banking landscape, banks look at an elegant transition from one phase to the other rather than getting helplessly sucked into it. Adopting a customer first, lean approach with onboarding as the keystone will positively influence both the bank’s top and bottom lines having quantifiable impacts on the key variables of organizational growth.
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