How to create effective customer due diligence for banks and increase profitability

Onboarding is a crucial stage in every customer journey, and customer due diligence for banks is a vital component of the onboarding process. If due diligence is badly handled and too onerous, leaving potential customers frustrated by delays and complex requests, they may abandon onboarding, which means the bank loses a new revenue stream. And if it’s incomplete or inaccurate, the bank may onboard a customer who is a commercial and reputational liability, with the risk of heavy fines from regulators.  

Due diligence refers to all the essential checks that a bank must perform to confirm the identity and background of a potential or existing customer, and is a regulatory requirement to mitigate risks such as money laundering and financing terrorism. It typically involves collecting and verifying data about financial and business activities, and requires ongoing monitoring to identify changes in a customer’s risk profile.  

Effective due diligence for banks will promote customer lifetime value: it distinguishes good customers from bad ones, ensures compliance and operational efficiency, and creates a strong foundation for profitable and lasting relationships.  

Let’s explore the requirements for effective customer due diligence for banks and the challenges they face today, then show how the right technology can save time and provide the insights banks need to boost customer experience and make the right connections.  

Customer due diligence in practice

Customer due diligence is closely related to know your customer (KYC), as the aim is to create transparency and precision for every business relationship that a bank enters into. It should involve continuous monitoring over the lifetime of a customer so that banks can identify changes or red flags that might signal increased risk or illegal activity. The three main strands are:

• Standard customer due diligence
• ‍Enhanced due diligence
• Ongoing due diligence

Among other things, customer due diligence checks will involve thorough reviews of:

• Identification documents
• Information on business and financial history
• Beneficial ownership structures  
• Relevant public records  

At its core, customer due diligence for banks is necessary to ensure compliance with anti-money laundering regulations, which in turn help to combat the financing of terrorism. So, the twin regulatory objectives are AML and CFT.  

Challenges with customer due diligence for banks

Banks must onboard the right kind of customer and comply with ever-evolving regulations, but the customer due diligence process is often long and drawn out, off-putting for customers, and flawed. Surveys and statistics bear this out. For example, according to Oliver Wyman, it takes between 90 and 120 days to onboard a customer, while Thomson Reuters reported that 80% of corporates found it a poor experience.  

One of the main drawbacks when it comes to customer due diligence for banks, is the reliance on manual processing and outdated practices. Data is often unconnected and residing in silos, or it is fragmentary or no longer current. Lack of integration and poor data make it difficult to achieve a holistic and up-to-date view of customers. And if there are information gaps, then errors and oversights are inevitable. This is particularly the case when banks need to perform ongoing due diligence.  

As data sets grow, banks must process more information at speed. Delays and repetitive processes create a negative impression with customers, and customer due diligence for banks is usually the most data-intensive and time-consuming part of onboarding. When prospective customers find it too demanding, they may take their business to a competitor who can provide accelerated onboarding. Today, the speed of due diligence is a key measure of overall customer experience. However, because of the risk of fraud, banks must also ensure that speed is combined with precision and security.

So, what must banks do to meet these challenges and optimise speed, security, and overall customer experience? The answer is to digitise and automate the due diligence process.      

Boosting profitability with streamlined customer due diligence

The first step is to create a comprehensive digital strategy for onboarding and regulatory reporting and compliance. Piecemeal changes will not solve weaknesses in security or operational deficiencies, especially with the growing risk of financial crime, and any bank that is still using spreadsheets will always be compromised.  

According to Mckinsey, the onboarding experience is often overlooked in corporate banking. This is a mistake because it can have significant financial implications. Apart from the risk of losing a potential customer, a lengthy due diligence process will dent time-to-revenue. Banks must therefore improve their digital infrastructures to capitalise on the growing demand from corporates.  

As Mckinsey says: ‘Participating in this growth opportunity will depend on banks optimising their end-to-end onboarding experience for transaction banking customers.’ McKinsey adds that its own research reveals that half of all banks lack a technology solution for many onboarding processes.  

How FullCircl enhances customer due diligence for banks

FullCircl provides the focus and technology to turn customer due diligence for banks into a revenue generator. Thanks to automated KYC, AML and credit checks, you can strengthen security and onboard customers in a fraction of the time it normally takes. Costly and error-prone manual processing is eliminated, and you maintain a 360-degree view of customers to ensure ongoing compliance.  

See our guide for better customer onboarding and a book a demo to discover all FullCirl’s capabilities for banks.