In early 2018, the US House of Representatives passed the Making Online Banking Initiation Legal and Easy (MOBILE) Act. Under the provisions of the act, any financial institution operating in the United States can use an electronic copy of ID documents such as a driver’s license, to verify the identity of a customer.
The MOBILE Act would go a long way in making it easier for customers to bank online – specifically when it comes to opening a bank account over the internet, a process which has been dogged with regulatory uncertainty. Until very recently, this practice was discouraged in certain states where laws prohibited the copying of driver’s licenses and other ID documents. But the MOBILE Act, by virtue of being a federal legislation, supersedes state laws.
At its outset, the MOBILE Act was motivated by some key factors:
- Making it easier for those with no physical access to banks to open accounts and avail of banking services and products over the internet.
- Enabling financial institutions to remain competitive at a time when emergent fintech solutions with better onboarding experiences are seen as a threat.
Factor #2, in particular, seems particularly resonant at a time when challenger and direct banks, fintech solutions, pander directly to the needs and aspirations of younger and digitally native customers.
The pressing need to ease the onboarding process
According to Deloitte, 38 percent of new banking customers will abandon the account creation process if they find that the onboarding process is taking too long, or requires more information than they are prepared to disclose; further, 26 percent of customers feel that “easy enrollment and login” are the most important criteria on which they decide who to bank with.
Indeed, as digital natives gradually become the largest customer group, banks would have to retool their onboarding processes to meet their demands, or risk a big chunk of their business. Setting up an account, as Deloitte makes the case in a research paper on digital onboarding, is a formality, and should be completed in a matter of minutes – something akin to creating a Facebook or Spotify account.
Fulfilling Compliance Requirements, Frustrating Customers
In 2017, Deutsche Bank was fined $41 million, allegedly for lacking adequate controls against money laundering. Last year, the International Netherlands Group (ING), the largest bank in the Netherlands, was fined €775 million (approx. $900 million) for lapses in its due diligence processes. In the eight-year span between 2009 and 2017, banking institutions have been penalized to the tune of $342 billion by US and European regulators, according to Reuters.
As the facts show, since the 2008 Recession rocked the global economy, regulators have become even more rigorous when inspecting banks. At the receiving end of such fines, banks expect their compliance officers to leave no margin for error, forcing compliance departments to become overcautious and overzealous in their due diligence process. Across the banking and finance sector, compliance spending has been higher than at any other time in history: In 2016, banks spent close to $100 billion on compliance.
In effect, the customer onboarding process experiences inordinate delays – often customers are required to physically visit the bank even though the registration process is “digital” and “low-touch”.
Compliance’s overreach, as it were, can also express itself in asking for the wrong information at the wrong time. For example, asking a user for their passport and social security number when he’s only just taking a peek at the bank’s mobile application out of sheer curiosity, is bound to discourage him from further engaging with the app.
It is at this stage where challengers banks upstage traditional financial institutions, in the eyes of the customers.
Striking a balance
Gaming companies, regulated under Know Your Customer (KYC) and Anti-Money Laundering (AML) laws, are often given to using an incremental approach when it comes to customer onboarding. Incremental onboarding is about striking a balance: It emphasizes the collection and verification of a user’s personally identifiable information (PII), but without interrupting the customer journey. Instead of asking users for their identity attributes all at once, incremental onboarding lets users follow their curiosities and explore the product, asking them for identity attributes, piecemeal, or at different thresholds of product engagement.
No doubt, the MOBILE Act would incentivize more banks in the US to adopt identity verification technologies for document verification and facial recognition so that their digital onboarding process remains an entirely digital experience. However, as the Deloitte whitepaper suggests, the solution does not lie in blanket utilization of technology; the real challenge lies in finding technology that can meet cross-border compliance requirements, given the differences in regulations across different parts of the world. For example, the documents that are required to be uploaded in order to open a bank account in France are different from those required in Belgium.
Find out how Koho uses Trulioo to provide its customers with a seamless onboarding experience while meeting its compliance obligations at the same time.
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