Onboarding and KYC trends: Digital transformation is no longer an option

Client engagement should allow for internal collaboration across a financial institution’s departments while enabling seamless interaction with clients says Valérie Bauloye, Head of Channels & Partner Management, Appway

How did COVID-19 impact the innovation agenda of the financial services industry?

Innovation dominated strategic priorities before COVID-19, though with shifting emphasis. Although more hybrid interaction models were emerging, the physical interplay was “Plan A”, while digital engagement, “Plan B”.

  • In 2020 financial businesses had to revise and revamp digital strategies, along with the tools and technology to adapt to the shift in circumstances.
  • Digitally empowered human interaction is now “Plan A”.
  • The focus goes beyond ‘innovation’ and is now fixed on ‘transformation’. Digital transformation is no longer an option; it is an imperative.

What have been the most significant impacts of COVID-19 on financial institutions’ approach to the digitization of onboarding and KYC matters?

We saw three things, calling them The ABC. The first, to remain agile and adaptive to the compliance process. Due to increased digital use, more fraud occurred, and they had to manage that risk. Then back to front and the connection to disconnect were more needed to optimize the digital impact on the front end, up to the back end of the bank. Finally, client engagement. Banks must find the right balance between digital and physical services for the client.

The A-B-C

Agile and adaptive compliance processes:

  • New risks emerged as criminal activities proliferated, crossing from the physical to the online world, with schemes and patterns that fraud detection tools were not prepared or equipped to red-flag.
  • Difficulty keeping up with unprecedented amounts of amendments to legislation and rules made due to the global emergency, and consequent obstacles in granting compliance.
  • Initially, a lack of seamless remote access the systems that compliance officers need to screen customers for AML and EDD, ongoing activities like transaction monitoring, SAR, etc. or to perform recurring regulatory reviews like KYC & KYB suitability, FATCA, CRS, and more. This sudden shift caused backlogs and workload peaks, exposing firms to security issues. A huge burden on compliance and risk management functions.
  • Companies must turn risk management into adaptive due diligence to support customers and employees more flexibly, rather than to interact in a pre-defined way.
  • Adaptive and outcome-based regulatory compliance is going to be a theme for quite a while.

Back-to-front operational resilience

  • From initial interactions with a client, to all the next actions and decisions that happen internally in the financial business. Digitally enabled CLM connects clients, financial institutions employees, data and systems beyond the firm’s boundaries, making crucial workflows resilient to business disruptions.
  • Connect the disconnected.
  • Technology should swing seamlessly between automation and collaboration and offer the possibility to dynamically adapt to the right working pattern, depending on the specific client and workflow.

Client engagement

  • The ‘new normal’ must include remote channels and digital products to engage with investors, allowing for business continuity and resilience, while addressing all the varied client needs from the simple to the complex.
  • Need to allow for both internal collaboration across a firm’s departments and seamless interaction with clients from within the tool itself, enabling advisors to identify critical moments in the customers’ lives and automatically trigger the necessary supporting workflows.
  • The extensive use of digital and real-time collaboration tools like video conferencing, digital document management, digital signature, video identification and biometrics and cloud services, should apply intelligent automation to lessen the operational burden while enabling the agility to apply changes, manage risks, ensure compliance and protect against fraud.
  • Need to digitalize client engagement and make physical service available in a virtual, remote way. Clients can then choose the channel best suited to them.

What are the top five trends you have observed in Onboarding and KYC?

Firstly, financial services are looking to find more composable tools, and configurability allowing them to deploy rapidly, but remain adaptive to changes. The digital and human approach still remains so they want to find the right balance with these hybrid models. They also need to keep the personal touch which means taking care about what the customer needs at the right time and place. Agile, compliance, regulation and risk management. Financial services providers must manage that and have their back-office accessing all the systems they need digitally and remotely, which was not the case before. And innovation must stay. Even if transformation is a must, innovation remains there to bring novelties. Cloud technology is one big topic, of course, everything is going digital, and transformation is paramount.

Composability and configurability:

  • Financial institutions are looking for pre-packaged, yet highly configurable, fit-for-purpose, cloud-first solutions for faster time to value.
  • Financial services sector leaders lean towards preassembled, outcome-based solution bundles to deliver a specific customer experience; by mixing and matching them, they can create orchestrated journeys suiting clients’ defined purposes.
  • By choosing a fit-for-purpose approach, businesses can meet client expectations and solve business challenges all while achieving:
    • Faster time to value and respond to change.
    • Lower budget requirements.
    • Greater control and governance.
    • Reduced complexity and maintenance.

Digital and human approach: The hybrid experience is the standard, not the exception.

  • Before COVID-19, hybrid models of interaction were emerging, but the industry largely had yet to upgrade the digital experience, now it is fully digital mode ON.
  • Today, securing clients’ in long-lasting, profitable advisory relationships relies on adapting to our new ‘virtual reality’.
  • Being innovative by leveraging digital does not equate to ‘no human contact’
  • Ultimately, it is all about convenience. Indeed, digitally native generations taught us this lesson before COVID-19. For them, all channels exist simultaneously, and moving from one to another is driven simply by what is most convenient in each moment. This view is now held by clients of all ages who do not like being rigidly forced into one channel or interaction mode.

Personal, at scale:

  • Many financial businesses are playing catch-up in meeting clients’ expectations for personalization coming from other industries (think Amazon, Netflix, etc.) compounded by the fact that the COVID outbreak made it so that advisors had to compensate for the lacking in-person service with a more personalized digital experience.
  • In the context of onboarding practices, data-driven intelligent orchestration allows advisors both to identify critical moments in clients’ lives and to act upon them, triggering the necessary workflows to consistently provide relevant and satisfying experiences at every touchpoint, across all channels and interaction modes. The concept of predictive, actionable, bespoke personalization extends beyond account opening; it can and should cover the entire client journey.

Agile compliance

  • We believe adaptive and outcome-based regulatory compliance is going to be a theme for years to come, with flexibility, speed, and simplification in compliance processes being vital in helping organizations survive and thrive in today’s world.
  • Compliance and risk staff must collaboratively handle exceptions, cross-jurisdictional matters, and outliers requiring substantial flexibility and ad hoc steps, but many financial businesses face paper-based, manual, siloed and rigid activities.
  • Risk management activities are characterized by complexity, particularly concerning the nature of final clients, services, products, and processes, as well as the regulatory requirements involved. Daily, compliance officers log in and out from up to 16 different systems, often disconnected and not seamlessly accessible. Compliance practices must be simplified to be future-proof.

Businesses need to streamline regulatory compliance activities. In the context of onboarding practices, this looks like digital orchestration of activities, automated checks, instant KYC, and cross-jurisdictional rules embedded in workflows. This allows for the dynamic assessment of which action to take straight-through processing, triggering the right action to mitigate risk, or escalating dossiers for more immediate, intelligent decision-making. It eliminates unnecessary back-and-forth, dramatically reducing NIGO (Not In Good Order) rates, allow time for experts to focus on detecting new fraud patterns and clearing true positives.

Tech innovation

  • Pre-covid we saw initiatives flourish in that sense. The firms which already initiated programs around AI, ML, RPA etc. were well positioned. Now the situation has flipped. Everything is digital. Now the question is ‘how to connect what’s disconnected’?
  • Cloud services are becoming more relevant for financial services and proved essential during the pandemic, not only for their increased data security and access potential, but also ensuring business continuity, cost reduction and scalability.