What does branchless banking mean for KYC and AML?
High street banks are closing branches at a faster rate than ever.
222 closed in 2013, followed by 500 in 2014, and we can expect to see around 650 closures in 2015, according to the Campaign for Community Banking Services (CCBS). The campaign’s 2015 Branch Network Reduction report shows that we have lost over 50% of branches since 1990, leaving 1,500 communities without a bricks and mortar representation of their chosen banking brand. The importance of a physical branch is decreasing as banks react to an increasing demand for online and mobile services. The rate of closure is aided by the fact that, once established, digital services are cheaper to run.
Depending on your age, you might react to this news differently. The elderly are likely to be the most vocal about slowing the tide of disappearance: the banking they know consists of a physical presence and face to face communication. 18–34 year olds will be more accepting — they already visit branches far less than their elders anyway and, having been the driving generation behind the spread of mobile, are used to seeing traditional services shifted to a new, app-based format. For under 18s the response is likely to be something like ‘Well, yeah, duh!’ — they, more than any other age group, would agree that while online is a step in the right direction, mobile should be the destination.
The bank that best connects with its customers through mobile will become the bank of choice.
Financial technology is advancing at an incredible rate, as the status quo is probed at by a tech savvy generation of bright thinkers who are, currently, running rings around slow moving legacy systems. MarketInvoice offers more flexibility in invoice financing, TransferWise offers a more cost-effective way to transfer funds abroad… it was only a matter of time before someone challenged retail current account products. Or several someones: Holvi, Atom, Monese, Fidor, Number26, and Mondo are just some of the new kids on the block offering fully digital banking (i.e. no physical branches).
Consumer preference for the digital over the physical will not happen overnight and it won’t be a simple process. Physical branches have clear advantages, like allowing human contact and emotional empathy for better customer connection, and (less glamorous but equally important) they aid with regulatory compliance:
UK banks are required by law to comply with Know Your Customer (KYC) requirements and anti-money laundering (AML) laws to prevent criminals and terrorists from using financial products or services to store and move around their money. They do things like verifying a customer’s identity on the basis of documents obtained from a reliable and independent source — this generally means having people come into the branch with proof of identity, like a passport. How will the disruptive newcomers cope with this demand for compliance without compromising a seamless digital customer experience?
Holvi asks that customers upload a photo of themselves holding their ID document, and upload a scan of a bill that shows their name and address. Fidor asks customers to fill in details in an online form, and verifies addresses by sending out a letter with a code, which is then used to log in online. Number26 claims that you can open your bank account via video-identification in just 8 minutes. Monese is probably the closest to a smooth digital experience, asking the customer to enter their address online, and then doing checks behind the scenes in three minutes. If still not satisfied, a Skype interview is then required.
For Holvi, Number26 and Fidor, although these solutions work, they seem at odds with the digital, mobile experience these companies are trying to embody. For Monese, filling in forms on mobile has never been a great user experience, and video calling services, like Skype, are costly to run at a large scale. A mobile, digital service should mean just that — where all required elements are carried out in platform. In other words, customers of these banks should be able to confirm their identities online, and on mobile. Ideally, they would be able to do so within the bank app, at the touch of a button. You can find out more about Yoti’s work in this area here.
Until that seamless solution is found, the newcomers must work hard to make sure they stay ahead of the traditional incumbents who are making up ground in the digital space every day — with varying degrees of success. Atom Bank, for one, is confident that the time of the traditional bank is over and, based on industry movement over the last few years, it is difficult to refute that.