June 22, 2019

In a recent study, published in Finews Asia, banks responded that digital onboarding is still a challenge. You can find the full article here

This conclusion is hardly a surprise but from a pragmatic point of view the question is: “Is onboarding really the key issue?”
From our experience, onboarding is sometimes indeed time-consuming and cumbersome, but looking at the entire cost of compliance in an average financial institution, onboarding is only a tiny component. Many more resources go into the handling of transaction monitoring alerts, sanctions screening and most importantly periodic reviews. Even more specifically; the recurring CDD reviews of commercial clients and handling of false positives are for many banks the most resource consuming and painful compliance processes.

We can’t repeat it often enough: the cost of compliance does not sit in the 2nd line of defense. It’s not uncommon to have only a handful of FCC staff on a first line organisation of thousands of employees across branches, relationship managers, customer service staff and operational back-office departments. There rules and regulations need to be adhered to and there the actual costs of complying sit. And these departments only spend a little part of their efforts on onboarding new clients.

We’re not claiming that onboarding is not important: it is and it needs to run smoothly and fast. Clients deserve a fast and smooth onboarding process, they have an inherent motivation to supply documents required for account opening, KYC and credit approval, and systems and processes need to support a customer friendly experience.

Having said all that; what is in the way of digital onboarding? Let’s list the most important points:

  • existing processes are embedded, approved and audited in the organisation and are often hard to change;
  • existing IT systems are often even harder and more expensive to change;
  • as a whole FIs are usually large and risk averse organisations with an inherent resistance to change;
  • unclear regulations and policies and a compliance department unable or unwilling to give clear guidance on what is acceptable and what is not. To give an example: for verification of a person’s identity, many compliance officers still require hardcopy documents of original certified true copies, certified preferably by a bank officer or notary public. That is time-consuming, logistically difficult and not necessary. The 2nd line of defense needs to be pro-active in making digital onboarding possible;
  • despite an increased capability of search engines and an increase in the availability of data in the public domain, there will still be a need for client sourced documentation. That part of the onboarding process is usually the most time-consuming step, with the biggest impact on the customer service relation;
  • data privacy and the absence of comprehensive systems for clients to share information other than via physical copies of KYC documents make it difficult for customers to ‘own’ the onboarding process. Blockchain has great potential here but sofar no initiatives are in the making that will disrupt the entire landscape; certainly not if we look at a global scale.

We have to bear in mind as well that when we talk about onboarding, people usually mean the onboarding of private individuals. However, from an operational perspective most work and highest compliance costs are related to the due diligence on commercial clients, in particular family-owned enterprises.
CDD in general can and has to be improved but if FIs focus on the cost of compliance other areas might deserve more attention.