Patrick Green, Head of Onboarding for Banking Circle took part in a panel session recently at EBAday, focusing on whether Know Your Customer (KYC) challenges can be tackled through a utility model. Chaired by Thomas Egner, Secretary General of the Euro Banking Association (EBA), the panel also included Jeremy Donaldson, DXC Technology’s Managing Director for Banking and Capital Markets (EMEA) as well as Ekkehard Preis, Head of Group Banking Services at Erste Group.
Jeremy Donaldson confirmed that he believes there is “An absolutely huge opportunity” to reduce costs and complexity by having “one organisation responsible for gathering basic data on behalf of everybody in the industry”, for institutions to tap into for up-to-date information on customers and prospects. Patrick Green agreed, but had reservations over how the approach would work in practice, across borders and risk appetites of different Banks. He pointed out that things get tricky when transacting within different jurisdictions, due to the local regulatory requirements in each geography and the different risk appetites of Banks for different activity.
Ekkehard Preis, however, took a different view on how helpful a utility could be. He explained that he would not want to hand over KYC and onboarding due diligence to a utility, as he would expect the cost of working with the utility and monitoring performance to outweigh the cost benefit. He believes a collaborative utility model for maintaining data could be the best way forward, if the institution uses the up-to-date data provided by the utility to run their own checks, rather than relying on the utility to run checks.
Focus on data
Ekkehard went on to share his priority in KYC data: “the most valuable set of data we could get to make the KYC process easier for everybody, is company structure and ownership structure.” Patrick Green agreed, adding that utilities could support with providing accurate and up to date data relating to the identity risk of the business and its ownership and control. Adding that banks have the ability to target their onboarding processes to the client base, building risk models for specific sectors. However, “what we tend to see in some financial institutions is a one-size-fits-all, regardless of sector, ‘here’s our application form’, with a shopping list requesting everything, to the extent of blood samples of the CEO.”
Instead, he suggests that a utility could help banks by targeting questions specifically for the client and their industry. This could reduce the drop-off that occurs when standard application forms go back and forth for many weeks and the process becomes frustrating resulting in the applicant giving up. A utility could help banks be smarter by providing this level of data, allowing the banks to only ask the questions that are specific to understanding the payment flow risks of businesses in different sectors.
Jeremy Donaldson suggested going a step further, reminding the panel and audience of the importance of remembering the impact on customers: “In many cases, if a customer is doing business with a bank in Australia, and then chooses to do business with the same bank in Germany or in France, they’re asked to go through the same onboarding process. And they’re asked for similar, if not the same, information that they have already given – which is the height of frustration.”
He pointed out that “another value proposition a utility service could bring to the market” would be to ask the right question once, store the data and be responsible for liaising with the treasurers and the various corporations to ensure that the data on file is up to date. Institutions could then access reliable, up-to-date information on any business, fast-tracking the onboarding process and getting the new customer relationship off to a better start.
In response to an audience question, the panel went on to discuss the potential benefits digital identity could bring to the KYC process. Patrick Green highlighted that while the digital ID model works well in a consumer retail space, it is more difficult in the corporate space, and this is where collaboration with regulators is necessary. Working across borders brings added complication, and requires a uniform approach across international governments.
Jeremy Donaldson agreed and added that a digital ID can be highly valuable far beyond KYC, and believes a pan-European digital ID programme would be both possible and beneficial if it went further than simplifying KYC and onboarding. Ekkehard Preis agreed that a European company registry that included data on the ownership structure, not just data on the company itself, it would make KYC processes much easier.
Finally, the panel looked at how the industry should collaborate. An audience poll revealed most felt a joint set of standards and market practices would be the best route, followed by a utility approach then connections between existing initiatives. In last place, with the fewest votes, was that the rules and regulations are too complex.
Patrick Green suggested that the top two were interconnected. The utility model has “slightly fallen over” in the universal adoption by banks: “Maybe three or four banks will sign up, and a large portion of corporates, and the utilities are trying to pitch to the banks that this is better, this is the model that we should have. We should have a utility. But banks are cautious to take a back step and want to wait for more adoption before committing to collaboration across space.”
He went on to suggest that it is not something the regulators will drive, so banks should build the model and take it to their regulators to demonstrate the standard they would be comfortable adopting. He believes that could drive the Pan European utility model forward.
Ekkehard Preis was less optimistic about the utility model, suggesting that it will not happen “unless there’s a political or regulatory push”, although he believes it could be quite an interesting solution.
Jeremy Donaldson agreed with the audience that “standardisation absolutely has to happen, because without standardisation, you can’t take the cost out of the business process.” He added that “there’s an opportunity for the collaboration to extend beyond just the individual financial institutions and into organisations like the EBA, for instance, as well as bringing the regulators in to establish that common set of standards that we can all agree on.”