Overcoming the Challenges of Cross-Jurisdictional Customer Onboarding

In today’s extremely interconnected world, financial services providers have incredible opportunities to tap into new markets and find customers in different parts of the globe.

Thanks to technology advancements, not being in the same place at the same time is no longer an unsurmountable hurdle to acquiring new customers, and both established firms and new fintech players are taking advantage of the new status quo.

Enhancing the onboarding experience

But it would be naive to think that these opportunities come without challenges, especially during the crucial phase of customer onboarding. Since the onboarding process represents the first interaction between a customer and their financial services provider, it can have a long-lasting commercial impact on everything that will follow, from overall brand perception to loyalty and lifetime customer value. As such, it is vital for organisations to excel in this initial phase, and deliver an experience that is nothing short of outstanding for their customers, wherever they are in the world.

As consumers, we know what this means: a seamless digital journey delivered by mobile and the ability to quickly get the help we need if we get “stuck” in the process. This is not an expectation that businesses – no matter how established – can afford to ignore, considering that organisations that lead in customer experience outperform laggards on the S&P 500 index by nearly 80%.

The real commercial risk for organisations that are not ready to take this challenge seriously won’t necessarily come from the existing set of competitors, which might use the same traditional approach. Incumbents should worry about new digitally focused players that can disrupt their industries, both in their home market and in new jurisdictions to which they are looking to expand.

Cross-border regulatory considerations

Because of the know your customer (KYC) and anti-money laundering (AML) requirements that apply to financial institutions, the client onboarding phase also involves significant regulatory challenges, which add a level of complexity to the mix. Global rules around AML/KYC originate from the implementation of FATF (Financial Action Task Force) recommendations in local laws and regulations, and as such they all follow the same general principle.

In a nutshell, financial institutions are required to identify who their customers are and then verify their details, usually on the basis of documents or government-sourced information. Financial institutions need to record specific information about their customers and keep these records updated as part of ongoing due diligence obligations. They also need to screen customers against international sanctions lists, lists of known terrorist financiers, criminal records databases, and so on.

This is the overall principle, but the specifics vary greatly between countries, which poses a challenge for organisations onboarding customers across different jurisdictions, especially when using traditional manual processes.

At the same time, a diligent on-going review of perpetually escalating regulatory requirements is key to protect businesses from the risks associated with non-compliance. Businesses in Asia looking to expand across jurisdictions need to pay particular attention to international regulations such as IFRS 9, recovery and resolution planning, and the most recent updates to the Basel III framework, in addition to EU regulations such as AMLD5, MiFID II and GDPR as they might apply in certain circumstances.

Last but not least, the customer onboarding phase presents vast operational challenges for organisations looking to grow their businesses in new jurisdictions. Considering that manual or paper-based solutions still account for 76% of the KYC process, it is easy to imagine how difficult it can be to set up and consistently follow country-specific procedures.

Since the onboarding process involves multiple departments, from front office and customer services teams to compliance and legal, the risk for human error is compounded with every manual interaction. Unless companies adopt a centralised approach, the likelihood of frustrating the customer by asking for the same document multiple times also increases.

A digital-first approach

Recently, I had the opportunity to be on stage at Singapore FinTech Festival 2018 and Hong Kong FinTech Week, and on both occasions I asked the audience about their experiences and needs as consumers in the financial space. The responses overwhelmingly confirmed that consumers’ collective expectations have changed, pushing financial institutions to deliver a fully digital journey. However, while regulators expect consistent processes and ongoing monitoring, businesses are held back by the operational challenges caused by manual and paper-based customer onboarding.

To overcome this impasse, businesses should review their existing processes and adopt a holistic and digital-first approach to customer onboarding. The benefits of this strategy are farther-reaching that one might assume. For instance, a McKinsey study revealed that every one-point increase in customer onboarding satisfaction on a ten-point Net Promoter Score (NPS) scale could represent a 3% increase in customer revenue.

But not all digital strategies and technology solutions are created equal. To ensure success, organisations should focus on implementing solutions that enable them to centralise all the elements of their onboarding process, connecting the dots between disparate teams and disconnected systems.

Automation can be powerful, but it should only be applied when and where it makes sense. For instance, the use of optical character recognition (OCR) to extract information from standardised documents or machine learning to transliterate characters from different alphabets is a great use of automation. However, delegating to an algorithm the final decision on whether to accept a new customer who has raised red flags during the onboarding process might be slightly different.

Finally, one should not underestimate the power of so-called “compliance by design”, solutions that guide stakeholders – both end customers and compliance officers – through the process step by step, flagging when vital information is missing or has not been recorded correctly. This is the best way to ensure that existing processes mirror the risk policies a company has put in place.

At the end of the day, by automating the steps of the onboarding process that can be automated, and by utilising smart digital solutions, organisations can protect their businesses from internal delays, customer dissatisfaction, hefty regulatory fines and reputational risk.

Claus Christensen is CEO at Know Your Customer Ltd.

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