The recent announcement by Santander to partner with nCino to support its business banking activities comes as no great surprise. Although nCino claims its platform offers benefits across the entire commercial banking model, it is the improvements in loan origination — a reduction of 40% in the time taken for loan decisions — that’s driving Santander’s initial implementation activities.
While many FinTech-based new banking entrants promise account opening in less than five minutes, anything less than five days is aspirational for incumbents. Indeed, Thomson-Reuters found it takes an average of 26 days to onboard a new client, a length of time that causes endless customer frustration and undermines other activities the bank has in hand to improve customer experience.
Image: Marc Sendra Martorell
According to Moody’s, the biggest challenge banks face in the credit process is the collection of client data. Customers are typically contacted four or five times to satisfy required Customer Due Diligence checks (CDD) and credit risk assessment.
To compound the problems, regulations are becoming more onerous. The fourth iteration of the EU's Anti-Money Laundering Regulation (MLD4) strengthened CDD requirements and increased the checks required for beneficial owners. The fifth directive, MLD5, came into force in July this year and further amends the fourth iteration.
Legacy Processes Make for an Even Greater Challenge
While the basic information required for CDD seems straightforward — personal details of directors and principal shareholders; shareholdings; company registration; trading and tax details — company structures are often layered and straddle different jurisdictions. This is making it difficult for the customer to gather what’s needed and challenging for the bank to validate what they’re given.
Moreover, if there is a beneficial owner who owns or controls over 25% of the shares or voting rights, the CDD must be extended. If it’s a company or trust, then all the directors and shareholders must be checked, and the process has to drill down until it finds the person(s) — the ultimate beneficial owner should be a natural person — who ultimately owns or controls the company that’s making the loan application. Again, the process is further complicated if there are multiple beneficiaries or jurisdictions.
Image: Mikito Tateisi
The procedure used to perform these checks is often carried out by different teams and consists of a number of steps. It includes the following: collating the information from the customer; validating it against a variety of independent – often cross-border – key results into various systems; and exchanging a number of documents with the customer. As a result, the end-to-end process is time-consuming and lacks consistency, auditability, and accuracy.
You Don’t Need a Whole new Tech Platform to Make Improvements
Moving to a new commercial banking system to fix these problems isn’t practical for most incumbents and there are in fact other, easier, options for getting some of the benefits.
Third-party suppliers are taking advantage of open banking standards to introduce products that support CDD and credit risk assessment by enabling electronic access to data held by banks or other financial service providers.
Much of the required information can be collected automatically from the director, shareholder or company bank accounts – regardless of jurisdiction – and the independent validation banks are required to perform is straightforward because many third-party data sources can be interrogated directly.
Automation doesn’t cover everything — face-to-face meetings are still a good way of understanding the customer’s business and why the loan is needed — but it reduces costs, frees up experienced staff to work on higher-value activities, speeds up the process and improves the entire customer experience. It also makes it easier to cope with peaks and troughs in application volumes and adopt changes to the regulations.
There’s another potential benefit too. For incumbents who develop a smooth loan process, there’s an opportunity to monetise their capability by offering a service to alternative lenders who don’t have the experience to ensure regulatory compliance or the capacity to cope with the volume of checks.