Onboarding: Is It Really a Choice Between Speed or Risk?

Farnoush Mirmoeini, the Co-Founder of KYC Hub, discusses how onboarding isn’t a simple process and what firms can do differently

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The balancing act between risk and speed during onboarding is an age-old problem that doesn’t seem to ever go away.

Onboarding isn’t a simple process; it’s made up of many, many tasks, with lots of data and documentation requirements and too many people and departments to mention in an introductory paragraph.

Onboarding is also one of the biggest reasons customer lifetime values can come crashing down. So, what can be done differently to get the balance right?

The complexities of onboarding

Well, first and foremost, corporate clients are desperate for onboarding to be done differently; for most, it’s a pretty torturous experience.

Even the regulators are getting in on the act and are encouraging regtechs to find innovative solutions. It’s a known problem, it’s a big problem, and it’s getting in the way of business.

Onboarding is also getting even more complex; it used to be made up of four key parts: KYC, AML, transaction monitoring, and Know Your Business. Then workflow made it five, pulling this long, frustrating and highly fragmented process together – well, somewhat. Then payments and customer screening became more critical in their own right, making six, and now we also have AI services. So seven then… for now.

What are the financial repercussions?

Calculating how much it costs to onboard a corporate client with a backdrop of disparate and legacy systems, workarounds and lots of people isn’t easy but we hear numbers such as an average of £25k GBP. It could be more or indeed less but suffice to say it isn’t typically a small number if it is done in the traditional manner.

As we mentioned earlier, onboarding is all too often an unpleasant, frustrating and slow experience for the corporate client. This is also adding in risk and loss of business into the foray.

If a financial institution, for example, expects to trade £1m each day with a new client, and it takes six weeks to onboard them, then that’s a lot of business lost. Similarly, if it takes six weeks – and that is by no means unusual – there is a high chance that the client will simply say enough is enough, stop the whole process and just go to a competitor.

Risk versus speed

It’s a big problem and takes us back to the risk versus speed balancing debate. If you opt for the fast route – which many challenger banks do – you’re foregoing more due diligence for quicker onboarding of clients.

Fast onboarding means you don’t run the risk of alienating the customer because you’re too slow, but you do run the risk of poor customer checks. According to a recent FCA report, challenger banks are carrying out quick onboarding or loan applications as a way to outcompete incumbents but by lowering the barrier, they raise the risk.

Perhaps we shouldn’t be polarising the choice between risk and speed. Instead, we need to be changing the approach. One of the issues we typically see is that firms are not that sophisticated enough in how they segment their clients.

By categorising clients across a scale from low risk to high risk, such as taking a risk-based approach, we can quickly change the onboarding experience. At the low end of the scale, low-risk clients will sail through the onboarding process versus clients who sit at the higher end of the spectrum who will be subject to enhanced due diligence. Higher-risk clients will expect enhanced due diligence, and there is a logic to the onboarding requests, whereas asking low-risk clients for enhanced due diligence requests doesn’t sit well.

By adopting a risk-based approach from the outset, firms can get a full view of the customer while onboarding and perform basic and enhanced checks on everything from identity, ID, facial biometrics, AML screening, age, address and lots of other checks, all in one place.

By having an integrated single platform, you can also continuously monitor customers and get alerted to any changes to their status and build insights on the go. The goal is to make remediations more intelligent without a backlog of false positives. This customer lifecycle monitoring approach is also a move away from the traditional ‘point of time’ approach, ensuring firms are notified in real time about the changes in a client’s status and are alerted to any re-KYC requirements to ensure compliance. Essentially it is that always-on 360-degree approach.

Now is the time to bite the bullet and pivot

The traditional approach to onboarding is hurting businesses’ bottom line, and the light approach of challenger banks likewise has significant issues.

Firms are finding it hard to strike a balance between onboarding too fast with the risk of poor customer checks or losing customers to cumbersome due diligence processes.

Bad onboarding means losing customers, and with margins, the slimmest they’ve ever been onboarding needs all the help it can get. The regulators are asking for firms to do it differently. So it is time to bite the bullet and pivot. No more patches or point-in-time fixes as new regulations come into play. Firms also can’t just keep throwing people at it; it doesn’t work – the fines and scandals show us that time and time again.

Given how complex and disparate the whole onboarding process is, it’s always been hard to get this to the top of budget discussions and get the right momentum behind it across teams.

As well as some of the numbers we’ve already mentioned, let’s walk about a real example of using a risk-based, real-time integrated approach. The firm is a US-based investment management organisation with many manual processes, a need to adhere to the most stringent FinCEN regulations, and a commitment to clients to a faster onboarding process while serving multiple business models with unique risk profiles. The results included a reduction in false positives by 98%, alert volume accuracy by up to 90%, operational costs reduced by 40% and the analysis of two million adverse media articles daily.

It can be done; the innovative options are available right now, so let’s get the balance between risk and speed reset.

About the Author: Farnoush Mirmoeini is the Co-Founder of KYC Hub.