The Road to Digital – Part II

In my earlier article, we discussed how investments in digitization set up an organization to reap the benefits of being in a digital world. In this article, we will explore some of the technology trends and tools that make such digital journeys possible using an illustration from financial services. We will use a scenario of opening an account at a typical bank to trace their digital journey.

Context

The figure below shows a typical sequence of events that banks use as part of the Know Your Customer (KYC) to onboard a customer. Let us trace the digital journey of this fictitious bank in realizing this use case.
KYC Steps
These were the sequence of steps that the bank will follow to open an account.

Initiation

  • Potential customers used to fill a multiple page application form on paper and hand it over along with copies of documents like a passport/Driver's license/incorporation documents to a front office person.
  • The bank employee would then enter the same information on an internal system.
  • There could be some further communication with the customer when this information is verified. For example, if the address on the application does not match the address on the driver's license, additional documents like a utility bill may be requested

Customer Due Diligence

  • These details are then reviewed by employees from the compliance department as part of their due diligence. This is to ensure that the account complies with Anti Money Laundering (AML) laws and will not be used for other illegitimate purposes. They would scan the customer information across multiple databases to see if the individual is a Politically Exposed Person (PEP) or if the name exists in one of many sanctions lists maintained by OFAC (Office of Foreign Assets Control).
  • During this process, the bank may seek additional documents from the customer depending on the individual circumstances - for example, if they discover that s/he has ties to a nation that is classified as high risk.
  • Another bank employee then computes a risk rating for the customer using a spreadsheet. The spreadsheet contains information from the result of the scans, nature of client's business, where s/he lives, what is their nationality, which countries are they likely to operate and other data they deem relevant.

Disposition

  • For customers that are deemed to be low risk, the application is approved and sent to another department to open the account. For high-risk customers, a committee of senior officers will review the application to determine if they will approve the application or decline.
  • The documents and details of the disposition are recorded and filed for safekeeping in case of an audit or further reviews.
This entire process needs to be repeated periodically in the event that circumstances that impact customer risk changes. The frequency of reviews varies depending on the risk rating the customer received. Also, this process could be more involved in case the client is a corporation as opposed to an individual. The due diligence phase will include steps to identify who trace the ownership and identify the ultimate beneficiaries. The bank will need to gather the information from each beneficiary and conduct individual risk assessments.

Challenge

Over time, the bank found that they were losing ground to the competition and initiated a study. They identified several key opportunities for improvement.

Poor customer experience

  • Customers found the forms were not easy to fill. The same information was requested in multiple forms. They were not sure if some sections were applicable to their situation and if they need to fill it.
  • There was some frustration when additional documents were sought after a few days. Customers wondered why the bank did not ask for it earlier.
  • Customers were not sure how long the process will take and would have liked to track the progress of their application.
  • This frustration was worse for some existing customers who wanted to open additional accounts when they realized that the bank is asking for information that it already has since it was provided to them earlier when opening the previous account.

Inefficiencies within the bank

  • The bank was losing money as delays in account opening translated to delays in realizing revenue.
  • An audit discovered that many of the reviews that needed to done were missed. This generated a huge backlog. It was difficult to predict when they will catch up with the renewals and what resources were required to do so.

Solution

Management decided to invest in a digital program that improves the client onboarding process. A small cross-functional team comprising of 4 developers and a representative from the client onboarding team was formed. They were asked to develop a Minimum Viable Product with the following features.
  • Create a better user experience for the customer. Start with a simple online application that the customer can use to open an account. The forms were designed to be interactive so that responses to the initial set of questions would drive what further questions were asked.
  • Most of the customers were spared the trouble of responding to questions that were deemed more intrusive unless it was absolutely necessary. For example, an entire section was required to be completed only for individuals from nations classified as high risk.
  • The Client Onboarding team from operations worked with the technology team to model the entire workflow using a process modeling tool.
  • The process model was developed using an intuitive visual interface that looked like a flowchart detailing the individual steps and decision points. From the model, many aspects of the workflow application were generated automatically. This meant that corrections could be made quickly and a simple portal was developed in weeks.

Initial Results

The first version was quickly tested in the cloud environment and piloted in a test region. The feedback was very positive. Customers were happy as they were able to apply and track the status of their application from the comfort of their homes. The self-service capabilities freed up the bank employees to catch up on the large backlog of renewals. Executives at the bank were also able to see on a real-time dashboard the status of applications in flight and how many applications were in which state in the workflow. Knowing the choke points allowed them to redeploy staff to areas where they can make the maximum impact.

Next Steps

While the initial pilot was successful, there was obviously a lot of scope for improvement. A backlog of additional work was created. Below is a sample of some of these features.
  • Expand the pilot to other regions the bank operates in.
  • Use a Document Management System to store customer documents and tag them. When an existing customer wants to open a new account, we can use the same set of documents without troubling the customer. The KYC steps have to be repeated as the new account could be requested with a different set of attributes that may change the risk rating.
  • Use an OCR on the documents to prepopulate some of the data the customer or operations staff enters. This saves time and eases the burden on verification as the data is taken directly from the document.
  • When documents like passport/license expire, automatically trigger notifications to the customer to provide current documentation.
  • Explore opportunities to eliminate manual entry. For example, if there is a question regarding a customer's employer or are of business, can we pull this information from social media sites using a RESTful interface? Customer can still edit the information if it is not accurate. Similarly, can we use APIs from third-party data providers to pull data that is useful for the risk assessment?
  • Codify the rules for computing the risk rating and automate this process. This may not be possible in all scenarios. Special rules for arriving at the score may be applicable for specific regions. So we need the ability to automate some steps alone on a per-region basis while keeping other steps common across regions.
  • Many other areas where region-specific customization may be required were identified. For example, In one country, an employee would perform all the risk assessment activities for a customer. In another region, people specialized and were organized by groups depending on the type of screening that was being done. Also, all the employees in this country would be co-located while in the other country, many employees operated from virtual offices in their homes.
  • Integrate the workflow with staff calendars and skills database so that if someone is on leave, their work can be reassigned automatically to someone else with similar skills.
  • Use presence/availability information from mobile devices or chat status to distribute the workload.
  • Incorporate electronic signatures in the workflow where legally feasible
  • Expand the online form to other channels like mobile devices and chatbot.
As we see, there are many opportunities where digital technologies can make an impact. The product owner on the team that represents the client onboarding team is working with the various stakeholders to understand which items in the backlog can create maximum impact; analytics can also help her identify bottlenecks in the process and volumes involved. She uses this information along with data from developers on the effort involved to prioritize which capabilities will be developed when. Most of the technologies we discussed are quite mature and can be leveraged in organizations to make incremental improvements gradually. As organizations reach a point where they are continuously making small improvements, they can look consider introducing relatively more recent technologies, like AI and blockchain. AI initiatives are more successful when one starts with a significant amount of data collected over time. For example, during the Enhanced Due Diligence phase, AI may be able to make some of the decisions being made by the committee of senior officers. While the platform pushes work to employees based on attributes like skill, access, geography, and presence, AI can be used to spread the knowledge by pushing work to employees with the goal of spreading the expertise across a wider section of the staff. A junior employee may be assigned advanced tasks if the system determines that the junior employee can take help from experts in the same location and make use of available slack without impacting the end to end cycle time. In other use cases, smart contracts can be used to initiate additional workflows if certain conditions are met. One can imagine scenarios where an account is frozen or funds are automatically moved when triggered by an external event, say when the system detects a change in ultimate beneficial owners for an account.

Catalysts and Inhibitors

Many advances in technology make this story plausible. These include Cloud Computing to provision/release computing and storage resources at will; Mobile Computing and Unified communications for multi-channel access and to capture presence information; Analytics; Process Modeling tools; Document Management etc. More than any single technology, a successful digital journey exploits the combinations of these. It is the convergence of these technologies that make it impactful. Having said that, capability in technology needs to be supplemented with the appropriate processes and people with the right mindset to achieve success. A key success factor is the ability to experiment and incorporate feedback loops in this journey. Start with an aspect to improve; implement a solution; check if it gave the desired results; then expand on the original idea/pivot. Until recently, IT organizations were not equipped to support their businesses in this agile manner. It was too expensive and time-consuming. As these technologies evolved and tooling became more mature, the nature of development itself was changing. We will see how with more automation many tasks performed by IT personnel became redundant and most activities morphed into some form of development work. As a result, those who embraced this change benefitted more. Over time, there were fundamental changes to how work got done, statuses were published and results measured. The model-driven capabilities in software development are not restricted to just process orchestration and workflow, platforms like JHipster automatically generate database and code to store/manipulate data and deploy them as microservices into the cloud-based on a description of the domain elements. Other low code environments bring software development capabilities closer to the end-user. The ability to make a large number of small releases at frequent intervals is key. Keeping a release very small to just one or two features allow us to make realize the value from that quickly. It also translates to reduced risk. Less feature means that it is less like for something to go wrong. Even if something does go wrong, since the magnitude of change is small, rollbacks will be easier. The use of technology has to be in lockstep with the appropriate development processes to make an impact. Developers can no longer rely on an army of manual testers if one needs to deliver at the cadence that is required. Instead, the tests themselves need to be automated. This is the only way in which one can confidently assert that we have not regressed after making a new release, (i.e) the features that were working in an earlier release continue to work. This approach to software engineering in which software functionalities are delivered frequently through automated deployments is called Continuous Deployment. I recently came across this article by Gary Maier, where he highlights several anti-patterns we may unconsciously follow in our rush to embrace the latest technology trend. For example, just deploying an existing monolithic software on the cloud may not always yield the benefit we desire. It does lower the entry barrier; however for us to truly reap the benefits of the cloud, developers need to look at entire environments as a consumable as opposed to a durable commodity. Just like infrastructure can be provisioned/release at will; we should have the ability to stand up and tear down entire software environments whether it is for development, testing or production at a moments notice. This includes servers, code artifacts, configuration information, storage, databases, and static data.

Conclusion

We reviewed some of the catalysts for digital transformation against the backdrop of a typical fintech use case. We also saw how an agile approach to digital transformation has a better chance of being successful. In the next post, we will further explore the cultural aspects of a digital transformation, some thoughts on organization structure and how various stakeholders may need to adapt for the digital age.