In the rapidly advancing world of technology for the financial services industry, what are the primary considerations for digital customer acquisition?

Posted by Nick Boudrie on 09 11 2017. Comments Off

11th September 2017 – LAB Group presents on financial services customer on-boarding to the Thai Securities and Exchange Commission (SEC) and members of the Association of Thai Securities Companies (ASCO).

LAB Group presentation: the future technology of customer onboarding in financial services

Photo: Nick Boudrie, CEO of LAB Group with Pattera Dilokrungthirapop, Chairperson of ASCO and CEO of DBS Vickers Securities (Thailand)

In September, LAB Group presented key industry insights to prominent delegates from Thai Securities and Exchange Commission (SEC) and members of the Association of Thai Securities Companies (ASCO).

It was a pleasure to share the knowledge we have gained from over seven years experience in facilitating over half a million investor applications from more than 200 countries. We covered the following critical topics on digital customer acquisition, including discussions about the challenges of compliance in the current financial services landscape.

A global process

Our experience has taught us that financial services companies from all over the world follow the same procedures and patterns to open accounts, despite location and type of service offered.  No matter where or who you are the process generally follows:

  • Engage
  • Disclose
  • Capture (data)
  • Qualify
  • Execute
  • Identify
  • Fulfill

It is essential that your digital solution does not miss these steps, or fail to cater to potential scenarios such as applications originating via an intermediary advisor group. The danger is a narrowing of digital benefits and any gaps inefficiently plugged using non-digital solutions. This type of situation could negatively impact user adoption and erode the return on investment for future digital initiatives.

To break it down even further, we see the investor engagement and account opening journey following these core pillars:

  • Channels – how your customers find and engage with your services. What is their experience with your websites, visiting your branches, speaking about you to advisors, dealer groups, intermediaries, introducers, partners and other touch points?
  • AML/CTF – how your identity checks conform to the law in your relevant jurisdiction and what you need to know about your customer (KYC). How is AML/CTF supported by workflows and data capture? For example, in Australia, it is important to know the FCA requirements vs ASIC requirements about acceptable methods of customer identification using electronic verification.
  • Products and services – it’s important to understand what type of service the customer requires to make it relevant to them. For example, it’s likely that a stockbroker would want to specify the transference of securities from another stockbroker as part of any transaction.
  • Tax and other regulatory requirements – each customer will have different regulatory and tax-related needs according to their specific industry. For example, Common Reporting Standards (CRS), appropriateness or client suitability tests, and W-8BEN information collection for investing in a US issued asset.
  • Legalities – disclosures, disclaimers, consents, terms, conditions, statements; the customer needs to make clear what items apply to their products and services. Electronic identity verification consent, product disclosure statements, data privacy statements, risk warnings and the conditions of services are all considerations.
  • Execution – how to execute the information and the reliability of this for downstream dependencies. Should you use electronic signing or signature specimens for comparison in redemption procedures, and does it adhere to any audit trails?
  • Fulfilment – the mechanism to officially open the account, accept funding and start providing services. For example, the client administration teams monitoring document uploads, pushing into core systems via APIs (application programming interfaces), giving account numbers and funding instructions and starting data flows through CRMs (customer relationship management systems).

Traditional e-commerce digital acquisition, such as a website application for a credit card or personal loan for an individual, no longer support the requirements of the above pillars. As an industry we need to move away from these traditional techniques to cater for a more complex process that addresses the current needs of digital customer onboarding.

UX and UI

The overall user experience (UX) and the user interface (UI) need to combine and provide a solution that covers all aspects of the customer journey as outlined in the pillars.

The best-designed UI in the world is not good enough if the result is an Adobe PDF form to be printed out and signed; a better UX is a UI that will allow the customer to use a digital signature. Better still, the technology would automatically create an account and accept funding using an API.

Electronic Identity technology

An essential factor discussed during the presentation was the different forms of electronic identity verification currently available. The goal with any of these techniques is to strengthen the certainty that the applicants are who they claim to be.

The current technology mix covers:

Electronic Identity Verification (EV, EIDV) – matching details such as name, address and date of birth against independent data sources (this could be an electoral roll or utilities database). EIDV is also generally used to summarise a combination of the other technologies listed below.

Government-issued document verification – an Australian example of this is the Document Verification Service (DVS) used to compare a customer’s identifying information with a government record (e.g. passport, driving license).

Identity (ID) document scanning – scanning or photographing identity documents and uploading them to undergo various fraud checks before OCR, EIDV and government record checks.

Optical character recognition (OCR) – the process of scanning printed or photographed documents to convert the characters (words, numbers, symbols etc.) to an electronic format to assist in data collection. The information is then used for EIDV. For example, a scanned driving license number can be checked against government records or from the DVS in Australia.

Biometrics – comparing a biometric signature (for example, a photo of a face) to an identification document such as a passport. In the future, biometric signatures could be stored as official government records, negating the need for the customer to provide the comparison point (i.e. the passport or drivers licence).

This technology is evolving quickly in image quality and accuracy; for new payment technologies in China, applicants are asked to blink or smile as part of the biometric verification, and we can now unlock phones using facial recognition – an upgrade to the thumbprint. These technologies are becoming increasingly ubiquitous and therefore more acceptable in financial services transactions.

Face to face – a traditional face to face method of opening a digital account is important for eliminating costly paper-based methods. The ID document can be signed in person while the account advisor is present, providing further verification for the online account opening process. FSC (Financial Services Council) identity forms can also be leveraged more easily from a face to face scenario.

PEP/Sanction list screening – checking a person’s details against politically exposed person (PEP) lists, or other watch lists (such as RBA financial sanctions, OFAC, DFAT). Although often confused with electronic identity verification, it is a different process.

Data challenge – account set-up and access can come in the form of one-time passwords (OTP), multi-factor authentication (MFA) and/or asking the customer to input details such as date of birth to access their digital records.

There are issues with a digital access process based on PII (personally identifiable information) involving electronic ID verification. The process could break down when a customer is re-engaging with a process; without the assurance that it’s still the same person, the record could become compromised.

The challenge with all these different providers, technologies and methodologies is how to unite them under a consolidated workflow, providing a customer experience that is not alienating when the process gets complex. There are also change, operational and risk management considerations to take into account. The solution to these challenges is a continuous investment into on-boarding technologies and processes.

Market drivers for digitisation

In the presentation, we also discussed some of the leading drivers in the market for digital customer engagement. Some of these initiatives include:

  • Changes to the AML rules that recognise and enable digital approaches, making interpretation much more simple
  • Tax-related data capture for CRS/FATCA is becoming more integral to the online account opening requirements
  • Impending AML scope changes to increase participants
  • Recognition of a growing appetite for digitisation, particularly for higher value accounts and more complex entities
  • Crowdfunding regulatory changes to assist retail investors
  • Emerging EIDV technologies (e.g. from biometric sources)
  • Asia Region Funds Passport will allow for more cross-border market penetration, increasing the need for virtual/digital customer engagement
  • The opening of regulatory sandboxes in global jurisdictions will make way for new digital participants
  • Challenger/Neo banks in the UK and Europe leveraging open data and open banking which will have a strong customer engagement technology focus
  • The need for emerging market online penetration into rural areas
  • Fintech’s constant need to drive online engagement
  • The globally growing middle-class and smartphone user base – for example, India had 200 million users in 2015, projected to be nearly 500 million by 2022.

Conclusions

The presentation was summed up with the following points:

Standardisation is key

Achieving market consensus on regulatory and compliance requirements is vital for the customer acquisition industry. Standardisation will lead to consistency and implementation efficiency, resulting in a higher rate of acquisition. LABform’s CRS implementation to multiple organisations is a practical example of this.

Digitising financial services engagement is a challenge

Less than 30% of the global industry is digitised, and as the demand for digital solutions increases, the industry needs to catch up. Traditionally, online engagement has been a simple mass retail scenario which is no longer applicable to the growing need for more adaptable processes. Implementation of new technologies is a challenge for lower customer acquisition volume asset class businesses, who find it difficult to justify their own technology builds in a business case.

Additionally, we need to address the complexity of engagement (e.g. adviser drafting for online applications and intermediary engagement channels).

Phasing in engagement, EIDV and digital signing

Drawing up a roadmap of the various fast-moving digitisation technologies available and how we can engage with them, will help the industry keep up with legal, compliance and change management considerations.

The customer experience must be manageable and the technology adaptable

Investors need to feel comfortable with the rapid change in technology. The rate of advancement can sometimes be alienating, and as an industry, we need to assist them with their acceptance of new technology. For example, as a society were we comfortable with the idea of a thumbprint to access internet banking before Apple made it ubiquitous?

Any on-boarding platform must follow a roadmap of continuous improvement. We are involved in an exciting, specialised and constantly shifting field where new technologies, changes in consumer behaviour and compliance regulations are all considerations for new products and services. We need to be proactively at the forefront of this technology, rather than reacting to the changes it brings.

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