Some things in life simply scream ‘paperwork’. Signing up for an account at a bank, for instance, or originating an insurance policy. How about applying for a home loan, moving to a new Medical Aid or getting a credit card?
Almost everything within the realm of financial services requires stringent checks-and-balances at the start of the customer relationship.
And for good reason: financial services firms must satisfy several regulatory requirements, carefully manage risks, and ensure that they’re not enabling any form of fraud, corruption, terrorist financing and money laundering.
They must also do everything possible to protect the identities, data and money of the customers that they’re looking to attract.
Unfortunately, all of these dynamics can culminate in frustrating customer experiences at the onboarding phase, which just doesn’t set the right tone at the beginning of the customer relationship.
Financial services companies would dearly love to make their onboarding processes smoother and quicker.
Instead of all the paperwork, questions, and painstaking manual entries into databases, imagine a scenario where all the customer must do is tap a button on his smartphone, granting access to a vault of encrypted information, all stored securely with blockchain technology.
Blockchain will be a game-changing technology in the area of customer onboarding, with clear benefits for both the customer, the financial institution and governments:
- For the customer, they always remain in total control over who has access to the different aspects of their personal information – granting and revoking access as they need – safe in the knowledge that data cannot be tampered with or altered in any way.
- For the financial services company, they’re able to dramatically cut down on the costs associated with 3rd party verification checks (such as credit bureaus or Home Affairs), reduce the amount of manual labour involved in processing new customer applications, and immediately prioritise the highest value business.
- For governments, regulators, and police, they’ll benefit from a single source of customer data, and clearer visibility across all their different relationships. Not only does this create a safer society at large, but also has other benefits: such as preventing customers from becoming dangerously indebted by taking our credit at various different lenders.
So, just how does blockchain technology work, in the context of financial services firms ‘know your customer (KYC) obligations?
Blockchain records are immutable, so once a customer creates their ‘master profile’ within the blockchain ledger, financial institutions can directly access this data with high levels of confidence. All documents are time-stamped and cryptographically secured. Of course, this information is instantly available, which speeds up the onboarding time to almost zero.
With the customer’s permission, data can be easily and securely shared across different bank branches and departments, or even to other financial institutions. This could be a massive help in those instances where two individuals may have accounts at different banks but are applying for a joint-mortgage together.
Thomson Reuters’ research paints a bleak picture of the current state of KYC, as strengthening compliance and regulatory demands cause onboarding costs to balloon and onboarding times to extend outwards.
In South Africa, just the major financial services institutions are spending around R4 billion to fulfil their KYC obligations each year. Across all verticals, as many as 86% of South African companies reported losing customers because of the friction of their onboarding compliance processes.
With blockchain, much of these costs can be stripped away, allowing financial companies to invest more in creating compelling offerings and nurturing long-term relationships, rather than fulfilling regulatory obligations.
The potential for blockchain is still unfolding before our eyes, and the application of the technology will surely extend well beyond just the initial onboarding phase.
With the blockchain at the heart of everything we do in terms of data storage, verification and transfer, we can imagine situations where vehicle insurers could draw from machine-generated data created by your car, stored in the blockchain, and enabling them to offer discounts on premiums based on the nature of your driving needs and behaviours.
Or, a medical insurer could draw from blockchain data from wearable devices, hospital records and fitness apps, to offer you tailored coverage that fits with your unique lifestyle.
In all these examples, the blockchain enables companies to move closer to their customers. The onboarding process becomes something far more than a merely compliance tick-box – to be a value-adding process that fulfils the promise truly ‘getting to know’ their customer.
By Harkrishan Singh, Director – Global RPA Practice at In2IT Technologies