With COVID-19 forcing all non-essential businesses to close, governments across the world have been trying to support small businesses by offering relief packages. In the US, over $3 trillion has been approved in pandemic relief to cover small businesses, and in the UK, banks have already lent £2.8bn ($3.4bn) to SMEs under the government’s Coronavirus Business Interruption Loan Scheme (CBILS). But amidst social distancing, remaining in quarantine, and most bankers working from home, financial institutions are struggling to get access to the resources they need.
Banks have been known for falling behind when it comes to digital transformation, but the pandemic has forced them to accelerate their journeys and explore new ways to service clients remotely. For example, private banks and asset management firms are traditionally more manual in nature, largely because their business takes a more hands-on approach to client management. If they start to up their game around risk assessment and digital client onboarding, they could put themselves in a position to start competing for market share. Financial institutions of any size, and within any sector, need to recognise that introducing technology-enabled client onboarding solutions will give them the best possible chance of meeting the continuing regulatory challenges head on.
Currently, many banks are struggling with the demand for loan requests – entire processes are coming apart, and older technologies in place are buckling under the pressure. Traditional Know Your Customer (KYC) and Anti-Money Laundering (AML) compliance requirements are complex and onerous; they are typically done manually, are paper-heavy and are stored across several systems. This can lead to a backlog of applications waiting to be processed. In fact, in a recently released report, global penalties for KYC and AML compliance breaches have reached a total of $36 billion since 2008, and have increased by 160% since 2018 – most often, these penalties are due to poor customer data management and disorganised compliance processes.
In today’s environment, many commercial and business banks are not equipped to manage quick, remote, and compliant account opening and are unable to onboard new clients or process their applications for loans. In the next 18 months, we expect to see an expedited version of what the future of the sector looks like, with a significant acceleration of digital transformation for banks.
Using cloud-based technologies to address client requests remotely
According to a recent report into the health of digital transformation in commercial and business banking, banks have a huge opportunity to remove a great deal of legacy technology from their IT systems. This could include everything from adopting regtech to help them improve and streamline their compliance processes, right through to adopting technologies such as the cloud. A cloud-first approach enables financial institutions to move to a more manageable operational expenditure model. Cloud-based technology makes data management and regulatory processes much more streamlined.
In developing a digital transformation strategy, financial institutions need to identify the building blocks that will help their organisation, and then look at how those components will work within the cloud. Cloud-based activities have the power to drive efficiency and help break down siloed departmental models. This is important because when they break down data silos, banks can achieve a single client view allowing other parts of the organisation to quickly access the customer information they need in a secure manner via the cloud. This reduces the number of requests to the customer for information when opening an account, or while processing a loan. In a previous survey of C-suite executives at global commercial, business, investment and corporate banks, 81% believed that poor data management lengthens onboarding and negatively affects customer experience. Furthermore, 74% believed that data management is overlooked strategically, despite it being a top business concern.
To put this into context, one APAC bank we work with was receiving 80 new offshore account requests per month, prior to the crisis; they now have a backlog of 20,000 requests. What this example demonstrates is that simply relying on manual resources is not scalable – and not fit for the turbulent times we are navigating.
Under normal conditions, a business customer might have to visit a bank multiple times to provide information, or their signature, but by using Identity & Verification technologies, banks can now instantaneously verify new customers. In addition, automated Straight Through Processing (STP) can be used for AML/KYC compliance for the majority of low-risk applications, while managing higher risk applications by exception. Manual processes, such as scanning documents, can be automated and stored in the cloud, while machine learning, optical character recognition (OCR) and natural language processing (NLP) can extract required information and text from scanned documents.
This technology is readily available, and the pandemic is proof that banks need to accelerate their digital transformation or risk being outpaced by digital-first competitors.
A post-pandemic world
Following the 2008 financial crisis, we saw 50,000 regulations introduced between 2009 and 2015 alone. We can expect that following the current crisis, regulators will introduce additional regulations around this new norm of digital banking and onboarding remotely. In order to stay on top of these regulations, financial institutions need to take a risk-based approach and turn to cloud-based technologies, and plug and play solutions, that can easily be updated as regulations roll out.
As banks and other financial institutions continue to respond to COVID-19 challenges, and plan for future success, they need to choose solutions that can be rapidly deployed and that replace manual CLM (client lifecycle management) processes, providing a central repository of client data. It has never been more crucial to adopt a digital-first CLM strategy that provides a single client view across a bank’s departments, business lines and jurisdictions. A seamless digital end-to-end customer experience will increase customer loyalty, accelerate time to revenue and set up selling and cross selling opportunities.
More and more banks are embracing the cloud for CLM – in order to achieve agility, drive scalability, lower costs, ease of operations and resilience. Cloud solutions give banks a competitive advantage towards the race to digital transformation, as they can enable them to open new accounts, process and approve loan applications remotely and quickly, while satisfying KYC and AML regulatory obligations. Banks that embrace innovation and pick up the pace of their digital transformation journeys, will be the ones that succeed in a post-COVID-19 world.
Niall Twomey
Chief Technology Officer, Fenergo
