The onboarding tightrope

Financial services firms need to find a balance between a smooth onboarding experience for clients while complying with a growing list of rules
by Len Williams


After spending time and money marketing to customers, no business wants to lose new leads because of a clunky sign-up process. But this happens more often than you might think. According to a 2017 global study by Deloitte, cited in its quarterly magazine Inside38% of new retail banking customers drop out of the account creation process if it feels like it is taking too long.

A similar trend is seen in corporate banking. In 2019, tech company Fenergo surveyed senior decision-makers about operational efficiency at commercial and business banks across EMEA, North America and APAC, finding that18% of banks still rely on manual processes for know your customer (KYC) compliance – including telephone, email, letter or in-person meetings” and 14% also say that “20 or more people are involved in the onboarding process for just one complex client”. Financial institutions know this is an issue but, while they want to onboard customers as quickly as possible, they also need to comply with an ever-expanding array of regulations. What’s more, the rules change from one country to the next.

So, how are banks and other financial institutions balancing a smooth onboarding experience for customers with the demands of compliance regulations?

Onboard at home and abroad

Tracey Allen, chief operation officer, client lifecycle management at the London offices of Delta Capita, a global technology consultancy, lists some of the questions financial institutions need to ask when signing up a new corporate client, including establishing that a customer’s business is an actual going concern: “First, what's the entity, and does it exist? When was it incorporated? Where was it incorporated? What's its registered address? Is it listed on a stock exchange?” This is in line with national governments’ guidance on AML and KYC (see the UK government’s rules here, for example).

Firms need to find out who owns the entity, who controls it and who its directors are, says Tracey. Gathering this information is not necessarily a challenge for most banks, but it is time-consuming. And, when working with clients from other countries, getting translated documents can also be a point of friction.

It takes on average 3.8 months to open a corporate bank account today

When working with customers from foreign countries, banks will need to perform additional identity checks to find out where they got their money from and who they are. In the UK, for instance, foreign companies that wish to open a bank account need to provide certified copies of company documents, a certificate of good standing from a lawyer, and official evidence of a registered address (among other requirements). Meanwhile, private citizens might need their documents certified by a recognised bank in their home country, their local British embassy, or other valid parties.

Integration between departments and processesMartin Smith, global head of market analysis at East & Partners, a banking research business based in Sydney, Australia, explains that departments within banks often don’t talk to each other, which is an issue when customers need multiple services. “The FX markets team may not necessarily communicate or integrate cleanly with the trade finance team, or transaction banking,” he says. This leaves clients frustrated because they often feel they’re having to talk to lots of different people at a single bank about the same issues. According to a 2019 global study of 737 corporations by East & Partners, it takes on average 3.8 months to open a corporate bank account today.

Source: East & Partners The future of client onboarding in financial services

The survey finds that Asian banks are onboarding leaders, with firms perceiving Bank of China, Agricultural Bank of China and China Construction Bank as providing the best onboarding experience.

Despite this, opening accounts in a second country can also be a challenge. If a company does its banking with a global bank in its home market, the company might reasonably assume it could quite quickly open another account with the global bank in another country. But, says Martin, this is rarely the case, and the company would normally have to go through the full onboarding process again. “That's probably the biggest frustration … because in quite a lot of instances customers­­­­­­ feel like the service provider should already know them and have all their information.”

On the retail banking side, Garient Evans, senior vice president, identity solutions, at Canadian identity technology company Trulioo, explains that “identification verification procedures lack uniformity across the globe – a single method to deploy identity checks simply doesn’t exist”. As a result, banks can’t use the same onboarding processes worldwide, but instead must modify their onboarding tasks on a country-by-country basis.

Challenger banks have shown what an improved onboarding process could look like “Data sources and identity tools differ and are scattered across different channels and providers”, says Garient. In some places it’s more straightforward: “Individuals living within the EU will likely rely on the same identity documents – for example, a driver’s licence – and they will likely be verified with more conventional data sources like credit bureau information. However, a person living in Brazil might not have a driver’s licence and need to be verified through alternative data sources, like mobile network operator data.” These differences can add more legwork for banks trying to offer services internationally.

Regulatory variations

Perhaps the biggest challenge for banks of all sizes are the global differences in regulations that affect client onboarding. Over the past few decades, we've seen an ever-growing list of KYC and AML rules that affect how banks onboard new clients. And these rules change quite significantly from one territory to the next.

For example, says Benjamin Haas, senior sales director EMEA at Munich tech firm IDnow: “Germany expressly has it written in its KYC and AML laws (Geldwäschegesetz, known as GwG) that Germans must be identified according to the GwG law rather than another country’s – even if the bank has a licence in that country and is passporting into Germany.” This means that a bank from Spain, for example, would need to make sure that it’s familiar with and follows GwG laws if it wants to onboard a new client there.

Not only do financial institutions need to comply with each country’s AML/KYC laws, they also need to keep up to date with other regulations. In Europe, the Sixth Anti Money Laundering Directive (6AMLD) came into effect in December 2020 and touches specifically on cryptocurrency. It followed on fairly quickly from 2018’s 5AMLD. Banks also need to keep up to date with the European Banking Authority’s customer due diligence procedures for remote onboarding, which are expected to come into effect this year.

In the UK, meanwhile, the Economic Crime (Transparency and Enforcement) Act 2022 has recently become law. US banks need to conform to the Corporate Transparency Act of 2019. Financial services providers operating in Canada need to be familiar with AML regulations which were recently expanded to cover payment service providers and crowdfunding platforms. Similar rules are regularly introduced or updated around the world, from Singapore to South Africa.

While all these new rules may at first appear onerous, they do have benefits. According to Alex Richter, head of London tech business PassFort, customers do value a well-designed onboarding process. “From a client’s perspective, knowing that the institution you are entrusting your information and finances with is taking proper precautions is a real selling point,” he says. A 2021 PassFort survey of 500 UK respondents finds 77% of customers would recommend a bank with good compliance onboarding, and 60% would be more likely to buy additional products from them.

Modern onboarding

With such complex demands on financial institutions when it comes to onboarding, adaptation can be a struggle. Many of the experts spoken to for this article say that established banks are hamstrung by ‘legacy’ technology that makes it harder to onboard people easily.

Still, there are plenty of things that banks can do to improve the process. Some of this is simply about taking a fresh look at how onboarding is done. Martin Smith says that a growing trend at some large banks is to create dedicated onboarding managers who can streamline a lot of the processes involved in signing up clients. He says this is different from a relationship manager role because it’s about having dedicated teams who specifically support the onboarding process itself, speaking to different departments and making sure the client gets set up fast.

Another strategy is to use new technology. As Alex Richter puts it: “Every financial services organisation needs to get with the programme and digitise onboarding processes. There is really no other way to scale and cope with changing demands in compliance”.

In recent years the emergence of challenger banks, which mainly focus on the retail banking sector, has really shaken up the banking sector and shown what an improved onboarding process could look like. Many big established banks are now playing catch-up and redesigning their processes. That said, Alex believes that “in some ways, the more established financial services institutions are better equipped to deal with changes in consumer behaviour as they have resources and budget”.

Biometrics to verify identity haven't quite caught on yet Digital technology can improve onboarding in several ways. In the past, employees would spend hours looking up information about new leads to verify their identities. Nowadays, IT systems can find all this information and compile reports in a matter of minutes. Tracey Allen says that new software uses artificial intelligence to verify the likeness of an individual using nothing more than a scan of their passport photo page and a video of themselves, filmed with a smartphone.

Biometrics – unique physical identifiers such as fingerprints, iris scans or faces scans – can also be used to verify identity. However, according to a 2022 study from Chicago-based credit-reporting company TransUnion, this approach hasn’t quite caught on yet. Consumers in 14 nations were asked about whether they preferred using biometrics to verify their identity when opening an online account, and only those in Brazil (and Hong Kong, to a degree) were convinced it was worth doing.

Technology companies are also providing ways to adapt to the huge range of regulations in different countries. Garient Evans explains that by “layering various identity proofing techniques and combining both conventional and alternative data sets from around the world, organisations can more easily expand to other jurisdictions and onboard”. Using platforms like Trulioo, banks can add ‘layers’ of identity verification as they expand to new markets, adding on the extra services they need.

There is also an expectation that open banking will help improve the onboarding process. As open banking becomes more widely adopted, it will be much easier for financial institutions to request access to prospective customers’ bank statements and very quickly validate their identity.

Another interesting trend is what Alex calls “perpetual KYC”. This is about doing continual checks on activity for suspicious transactions. “It’s not just about compliance checks at the point of onboarding but also continual checks on activity for any suspicious transactions, or potentially illegal activity,” he says. “As criminals become increasingly sophisticated, so too must the defences in financial services”.

Opportunity for firms to stand outThere’s no doubt that onboarding has become more complex in recent years, with ever-changing regulations, heightened customer expectations and disruptive technology all impacting how financial institutions sign new clients up. But this means that there are also significant opportunities for businesses to really differentiate themselves with safer, more secure onboarding processes. This gives customers greater peace of mind – and a better first impression of their new bank or financial institution.

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Published: 18 Jul 2022
  • Corporate finance
  • Fintech
  • International regulation
  • Operations
  • onboarding
  • KYC
  • Corporate finance
  • AML

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