The future of client onboarding
It is rightly said that “every interaction that your customer has with you is an opportunity for you to make an impression”. This is the mantra adopted by many companies across the globe.
There are numerous examples of companies that have followed this. Amazon and Alibaba have completely changed how users do their shopping; WhatsApp and Facebook have changed how we connect with people across the globe. I think the list will be endless where companies have innovated new products or services, by the relentless focus on customer satisfaction.
Customer satisfaction/experience is a key differentiator for companies nowadays. Some have optimised touch points so flawlessly that for the customer’s support team, everything is perfect. In financial services industry, customers are at the centre of business disruption. This philosophy is at the core of the financial institutions’ ambition, and thus they continually improve their ways, to attract and retain customers and solidify their loyalty. It does come with a challenge that customers expect the same convenience (customer experience or digital experience) from a financial institution they enjoy from other companies (like Amazon and Facebook). They now hold financial insitutions to equally high standards for premium digital experiences. They require everything real-time, with an omnichannel presence, thereby resulting in pressure on banks to provide a similar experience for the full lifecycle of the client onboarding process.
Well, before we go deeper let us focus on first understanding the definition of “client onboarding”.
What is client onboarding?
Client onboarding is a entire process which users go through 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 organisation.
In other words: it is critical because key variables like client loyalty, experience, referrals, and profitability depends on the company’s customer onboarding process. Currently, the process which is followed in banks involves multiple parties/departments within the organisation like 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. For example, as per Forrester Consulting study, it takes two to 12 weeks for institutions that have implemented partial onboarding solutions with necessary workflow capabilities; and less than six weeks for more mature institutions that have implemented a complete end-to-end client lifecycle management (CLM) solution.
I was personally surprised when I came to know that whilst a financial institution says “customer is king” and yet takes up to 12 weeks to complete the client onboarding process. For example: we still do not have a single, unified client onboarding process which can cut across all the financial institutions in a country. Typically, it is also identified that onboarding system is largely disconnected from other systems. As per an international banker, many global banks have 50+ onboarding systems globally. However, somehow, client onboarding has been a neglected function in spite of as much as $228 million spend on it (as per KPMG report). According to an Aite Group survey results (done in 2013 among 500 US financial advisors), more than third of financial institutions still relied on filing paperwork by hand to open the bank accounts.
Let us look at revenue and cost implications on client onboarding for a financial institution.
Client onboarding: regulatory fine, revenue and cost implications
According to a research done by Thomson Reuters, 92% of firms estimated that current know your customer (KYC) onboarding processes cost roughly around $28.5 million. It is a huge cost. Secondly, as per KPMG report, banks globally paid more than $15 billion for regulatory violations of client onboarding gaps. Thirdly, fintech companies are putting a lot of pressure by providing seamless digital experience forcing financial institutions to re-assess their customer experience, thus forcing them to move towards global CLM technology, which not only ensures compliance, improves customer experience and makes processes operationally efficient, but also drives revenue.
Hence, one of the critical areas where a financial institution thinks it can be a differentiator is on the onboarding process. Today, many of the most significant players worldwide – banks, wealth and asset managers, insurance firms – are investing a lot of money into it. For example: as per McKinsey, for every one-point increase in customer onboarding satisfaction on a ten-point Net Promoter Score (NPS) scale, there was a 3% increase in customer revenue. The fiscal implications of this can add up quickly: if a company onboarded $500 million worth of new customers last year and improved its onboarding satisfaction score from a five to a six on the scale, that would equate to an additional $15 million per year. A five- to eight-point improvement will result in earning additional $45 million per year just from by improving the customer onboarding process which is a HUGE additional amount.
Key challenges of current client onboarding process
The Forrester Consulting survey predicts that on average clients are contacted ten times during the onboarding process and asked to submit between five and up to a hundred documents. Also, it costs up to $25,000 per client, with the average cost calculated at $6,000 per new client. The following are the challenges of the current process:
- The lack of structured process
Client onboarding needs to follow different processes across its departments such as credit, legal and operational. The tricky part is that every compliance officer (or compliance department) might have their own interpretation of regulations. Thus, they end up having their own process specific to their own department/entity within the bank. It also means if a bank has three different entities then they will have three different interpretation of regulations/processes. 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. It can be further confirmed with the Forrester Consulting survey in which it was estimated that it takes two to 34 weeks for a financial institution to complete the manual client onboarding process.
- Changing regulations
In today’s world, regulations do change on a monthly or sometimes 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 ensure they are amended in the onboarding process which then is consistent with the old process. Due to the tsunami of regulations, banks need to re-visit current operations/processes and rely on new technology initiatives like process reengineering, digital transformation etc to make themselves compliant.
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 survey by McKinsey among the global executives across the world, culture accounts for 33% among the most significant barriers to digital effectiveness.
With modern technology, banks are getting increasing 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 accessing 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. Using emerging technologies like robotic process automation (RPA) might help. But till then banks need to find a balance between the different approaches (including emerging technologies) to make it work.
- 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 with in an organisation. For example, a bank has three different entities: corporate, retail and insurance businesses that catering for different type of business/customer. Now, let’s imagine we have a customer who becomes customer for all thee entities of this bank. The customer needs to go through the entire lifecycle of client onboarding three times. What a pain!
As per PwC, the remediation exercise of the customer has shown that due diligence process varies from each and every entity, from country to country. Thus, the quality of the experience can vary to a very large extent within one financial services entity. So if a customer visits the same bank in Singapore and India, their onboarding experience will vary. I understand a lot of processes are country specific, but that is something which needs to be addressed.
Now you might be wondering what the future of client onboarding will look like. We will be discussing this next.
The future of client onboarding
As the old saying goes, “you never get a second chance to make a good first impression”. Financial institutions are now turning to the latest technologies to find efficiencies. It helps them to achieve the dual purpose – satisfies regulatory standards and seamless experience to the end customer. As we move towards an era of open banking, the future model of client onboarding will utilise one or more of the following means of identifying a customer:
- Artificial intelligence (AI) – technology by which the computer software can make decisions which are normally made by humans. For example, PayPal has cut its false fraud alerts in half, by using an AI monitoring system that can identify benign reasons for seemingly bad behavior. Others, like HSBC are, too, moving towards AI, pledging $2.3 billion to digital transformation and AI tech.
- Blockchain – KYC can use the convenience/security of distributed ledger tech (DLT) like blockchain, allowing users to manage their digital identity securely, while businesses and financial institutions can manage customer data reliably and easily. In Singapore, a consortium of OCBC Bank, HSBC, Mitsubishi UFJ Financial Group (MUFG), along with the Infocomm Media Development Authority (IMDA), has become the first in South-East Asia to develop a prototype of a blockchain-based KYC solution.
- Digital identities – a unique electronic identifier that verifies that you are who you say you are. This is underpinned by Singapore’s Electronic Identification and Trust Services for Electronic Transactions Regulations 2016 and would promote interoperability and transparency across entities within the country.
- Biometrics – an inherent characteristic to recognise an individual based on his/her physical or behavioral traits (i.e. iris scanning, fingerprint, voice recognition, face ID). This has already been introduced by some of the big banks (e.g. OCBC, Maybank and BBVA), but is yet to gain widespread acceptance. iPhone X comes with Face ID and claims only one out of one million can be duplicated. I will not be surprised if it becomes industry standard soon.
- Strong customer authentication – authentication is based on a combination of a customer’s knowledge (passwords, sign or code), possession (mobile device, rings, or even keys), and biometric (iris, fingerprint, voice).
- Data collaboration – according to Chartis RiskTech100 Research 2015, 71% of respondents agreed that there is a compelling business case for integrating some or all of their anti-fraud and anti-money laundering (AML) systems into a single technology environment. Hopefully with this financial institutions will be able to mix internal and external client data to gain greater insights about a client. Well, I am not saying it will remove an onboarding process, but I hope that with such collaborations we can make the advantage of collective knowledge to provide a good customer experience by streamlining the process.
Seems amazing, right? I will say the above technologies have so far been implemented by the early adopters, and it is all still a few years away.
Focusing on customer experience will change how financial institutions engage with their client base. They need to reinvent themselves from top to bottom across the functions, generate excitement, innovate and focus on customer service improvement. We all know it may take years to make it perfect. However, with the new upcoming technologies like blockchain or machine learning (ML), this transformation journey of years can be reduced to a large extent.
By Amit Agrawal, VP at a Singapore-based regtech company