Recent US bank failures triggered an unprecedented level of deposit migration, with commercial depositors leading the charge as they sought a safe haven with the largest institutions and looked to expand deposit insurance coverage through diversification. Federal Reserve data indicates that deposits at the 25 largest US banks swelled by no less than USD120 billion days after the those failures1.
While these massive deposit inflows have been a boon for those banks, the attendant surge in client onboarding activity exposed the disjointed commercial onboarding capabilities at many banks. The crush of new depositors saw banks redirecting staff from other areas to cover the influx and instituting off hours coverage. However, simply throwing people at the problem is not sustainable and moreover does not address endemic shortcomings arising from legacy processes and practices that continue to degrade the client onboarding experience.
The commercial, corporate banking industry has been in a state of flux for some time, and banks now face a stark choice: digitize or lose market share to new, more agile competitors. Banks need to move decisively to improve their onboarding and servicing experiences – while they have focused on streamlining those experience for their retail customers, where onboarding can typically be completed in minutes, for commercial clients it remains a painful process for bank and client alike. A key challenge is the customer due diligence (CDD) process, a critical but complex requirement that banks and credit unions struggle to perform without adding friction to the client experience.
A poll conducted at a recent American Banker webinar revealed that, while 97% of bankers consider frictionless client onboarding a competitive advantage, over 40% of them view operational efficiencies to be the biggest impediment to a smooth onboarding experience.2
When it comes to onboarding a client, one size does not fit all. It is a critical stage in the customer journey that serves as the foundation for a long-term relationship. As the saying goes, you never get a second chance to make a first impression, but inadequate legacy systems and operating models mean banks currently run the risk of attrition as clients seek more streamlined interactions.
At the same time, macroeconomic pressures mean improving business efficiency and doing more with less are key imperatives for commercial banks in 2023. As they re-examine budgets and tighten resources, how can commercial banks optimize their client onboarding processes?
First and foremost, their focus should shift to smart, agile, flexible and customer-centric processes. The onboarding process should be viewed not as a single point event, but rather an ongoing process that needs to be sustained and supported through proactive communications. Banks must also reduce friction in their CDD/Know Your Customer processes without compromising compliance and controls.
To overcome these challenges, banks should adopt the following:
A logical onboarding data framework – An integrated repository or framework of customer data serving as the ‘golden source’ for all interactions with the customer is key. Applications used by staff across the onboarding process must be able to access and leverage this data to avoid unnecessary requests to clients or prospects for information and documentation that has already been shared or is not required.
Effective onboarding workflow – A well-defined and orchestrated onboarding workflow is the bedrock of a seamless customer experience. It also compresses cycle times for new account and service implementation requests while freeing bank staff from tedious activities. To define optimal workflows, banks need to clearly understand their commercial client personas and have a shared view of the target state experience they are seeking to provide. Workflows should be personalized depending on the type and size of the commercial customer.
Integrating the onboarding workflow with a business rules engine will facilitate uninterrupted processing. The business rules engine must be equipped to control user access and ensure compliance with data privacy and data secrecy requirements, as well as all data and role-related entitlements. The workflow should also be able to minimize the need for manual reconciliation and data break checks through automated exception management, and ensure straight-through processing to downstream applications of all client-related data.
A robust document management system – A centralized document management system will go a long way towards managing KYC documents and anti-money laundering (AML) rules under the Bank Secrecy Act (BSA) and related laws. A study by Fenergo and Forrester consulting shows that a commercial client or prospect is contacted an average of ten times throughout the onboarding process3. A robust document management system will maintain all documents in a central repository that is integrated with the onboarding workflow, ensuring documents are always readily available. It means customers do not need to resubmit the same set of documents to the bank when purchasing additional products and services.
Strong end-to-end governance – A fundamental requirement for effective commercial onboarding is leadership and management oversight that spans the entire client value chain. Compliance cannot be a process that begins and ends at onboarding – knowing your client and controlling risk must be managed throughout the lifecycle of a relationship. Also, financial institutions must understand the synergies between regulatory compliance and customer experience and strike the right balance to create a customer journey that doesn’t compromise on either.
In summary, improving the commercial onboarding process will increase client satisfaction during an interaction often marked by frustration and disappointment, and reduce operational costs. The business case is remarkably simple.
Capco’s Commercial Banking practice brings deep expertise across the value chain – strategy, origination, and servicing. We work with regional, national and global banking clients to drive transformation efforts involving process, digital, data, risk, compliance and technology delivery. If you would like to discuss our perspectives and insights on onboarding and other topics, we would be very pleased to hear from you.
1 Federal Reserve Board: https://www.federalreserve.gov/releases/lbr/current/default.htm; https://www.federalreserve.gov/econres/notes/feds-notes/understanding-bank-deposit-growth-during-the-covid-19-pandemic-20220603.html; https://www.wsj.com/livecoverage/stock-market-news-today-03-24-2023/card/biggest-banks-added-120-billion-in-deposits-after-svb-failed-i4ZeGdKEpjR0ah7kgTiP
2 American Banker Webinar: https://www.americanbanker.com/news/banks-develop-digital-brands-gen-z-doesnt-want-to-go-into-the-branch
3 https://resources.fenergo.com/newsroom/research-study-on-time-cost-and-challenges-of-client-onboarding