At the same time, however, there are requirements for speed and cost-efficiency that cannot be ignored. Firms that fail to meet the demand for fast and efficient onboarding fail to grow – it’s as simple as that.
With some challenger fintech firms completing the process in 5 minutes or less, competition is stiff and expectations are rising. But how do you balance the regulatory requirements and risks against this commercial imperative?
The choices we make, the risks we take
There are those that argue that it’s acceptable to perform less initial checks on merchants or individuals considered to be lower risk, given that any problems tend to originate from a small percentage of the market participants. The trick, of course, is how to assess that risk? That requires its own set of verifications, that also need to be performed quickly, in order to send those merchants down the ‘lighter touch’ path.
A second question, then, is how much risk you are prepared to take on, given the potential penalties for getting this wrong. Most regulated entities are looking to tightly control their risks, so the balancing act continues. Given these factors, it is perhaps better to look at a different question. Does meticulous have to be painful?
Data and decisions
The problem here is not lack of data. Data is available in multiple locations, in multiple forms and the 5MLD implementation means that there will be still more, in the form of publicly accessible UBO (Ultimate Beneficial Owner) lists to browse. There are two key challenges to meet: firstly, getting hold of that data in a usable form, within the timescales required, which needs to be seamless, from the client’s perspective.
The second challenge is how to perform frictionless decision-making, based on analysis of the data and your risk assessment criteria. This may mean multiple decision points, where firms take the approach of fast-tracking relatively low risk clients, but taking a deeper look at higher risk entities, or those whose volumes have significantly increased or whose profiles have changed.
Automation is, of course, the key to streamlining these processes to meet these challenges. Here’s where quality counts, in making sense of quantity. The best software will require as little interaction with the customer as possible, but behind the scenes will draw data from multiple sources to verify business and individual identities in seconds.
Checks performed by NorthRow’s software, including OFAC, PEP and UBO, can utilise data drawn in from over 200 data sources across more than 100 countries. Differently, formatted data is no longer a problem, as it can be taken in using OCR, NLP and analysis of specific fields within the available sources. As the available data increases, so do the connections, but without adding complexity to the customer’s experience as these are handled downstream and delivered in real-time.
Risk and rules
- Build digital applications that enable correct completion on the first application. Making it fast and easy to complete an application without error
- Take a risk-based approach to client onboarding. Determining high, medium, and low-risk products and high, medium, and low-risk regions
- Build the business rules engine. Automating the compliance process, by working with your risk rules and building a scorecard using those rules
- Integrate cross-border or regional specialisation. Intelligently applying appropriate rules to ensure compliance in every case
- Implement traditional and machine-learning techniques. Applying these to the creation of in-house definitions applied to analytical models
- Create and action a risk score. Automatically approve, refer or decline accounts based on information collected in the application and by the rules-based engine.
The Article Originally Appeared in Bobsgulde: From business principals to business principle Streamlining merchant onboarding without compromising compliance (25 June 2019).