Globally, regulators have an increasing appetite for electronic verification methods to verify a customer’s identity as we move into a new era of harnessing the power of digitisation. The retail banking sector in particular is moving quickly to adopt electronic onboarding methods to satisfy anti-money laundering (AML) regulations, keeping in mind the ever-changing consumer expectations.
New Zealand banks have been cautious to adopt electronic verification methods when onboarding new customers, despite the legislation being introduced three years ago.
According to KPMG’s recent paper, Electronic Onboarding – A Guide for Reporting Entities [PDF 252.4 KB], banks are yet to embrace fully electronic methods of verifying a new customer’s identity.
Under the AML rules, the Identity Verification Code of Practice allows financial institutions to verify an individuals’ identity through electronic data sources (known as “electronic onboarding”).
Gareth Pindred, a Forensic Director with KPMG, says while the customer-facing banking experience is becoming increasingly digital, most banks still need manual interventions through back-office functions.
“Some digital only business models - such as crowd funders or peer-to-peer lenders – are using electronic onboarding by necessity. But the majority of financial service providers still require their customers to come into the branch, or visit an approved certifier like a lawyer or JP.”
Pindred says there are several reasons why banks are cautious about adopting full-scale electronic onboarding.
“Banks need to be careful about getting it right to begin with. If they were to build a non-compliant solution, they could face a regulatory sanction and with it significant customer impacts, compliance and remediation costs. There is also a more significant risk of identity fraud than arguably non-bank financial institutions. It takes time and resources to build a robust solution – and banks do need to approach it judiciously.”
However, banks shouldn’t wait too long. Pindred says the growing customer demand for a seamless banking experience will make electronic onboarding a ‘must-have’ in future.
Secondly, overseas regulators are showing more appetite for innovation in customer onboarding space; as they recognise that traditional document and resource-heavy processes are unsustainable in the digitised future.
From the bank’s perspective, the benefits of reducing manual processing are significant.
“If you get the electronic onboarding solution right, there is potentially no or very limited staff time involved in the identity verification process; as it’s done by computer applications,” says Pindred.
“It can also reduce the risks of human error. For instance, biometric comparison is arguably a more reliable method of verifying photographic identity than the human eye.”
A number of New Zealand banks are in the process of getting their solutions up and running; and at a global level, Pindred says New Zealand banks are in some ways at the forefront of electronic onboarding.
“Compared to comparative countries, who have been equally slow in electronic onboarding, New Zealand is starting to show greater progress,” he says.
“Generally, our banks have an innovative mindset and willingness to adopt technology. They need to be; as studies have shown Kiwi consumers are eager adopters of FinTech technologies, and they don’t want to be defeated by difficulties in accessing them.”
Pindred predicts electronic onboarding will provide greater convenience for our rural communities.
“If you’re out on a farm in a rural area, two hours away from your nearest bank branch, you could go online and sign up to new financial products from the bank. That’s the true value here in New Zealand – the breadth of our rural communities means it will have a real impact.”