The role of RegTech in fostering trust in digital consumer banking

Over the last few years, the success of so-called digital and challenger banks has depended largely on their ability to market themselves as “different”. An increasing number of retail customers have been abandoning traditional banking in favour of new digitally minded players, in part, because they felt that a lot of the fees that were imposed on them were not fully justified. Similarly, the customer experience and service delivery offered by traditional banks often seemed inadequate to younger users, in particular during the crucial phase of customer on-boarding.

The success of the new digital offering among consumers is exemplified by the recent triumph of Starling Bank at the British Bank Awards 2019. The challenger bank was crowned “Best British Bank”, “Best Business Banking Provider” and “Best Current Account Provider” by 27,000 UK-based voters. Even more interestingly, FinTech companies are now starting to acquire traditional banks – something unimaginable until recently – like in the case of European FinTech marketplace Raisin, which recently purchased MHB Bank of Frankfurt.

However, if challenger banks have a competitive advantage in their nimble digital approach, it would be a mistake to think that consumers value comfort above all things. Security and protection of their hard-earned money are still the priority. For this reason, if they want to succeed commercially, digital banks should also focus on building long term trust within their base.

The first step to achieving such an ambitious goal is to take into consideration every single touch point of the financial brand with the consumer. In particular, clarity and transparency should be the two fundamental principles to keep in mind.

By incorporating strong methods of customer authentication and on-going monitoring – and by being very clear in explaining why such measures are in place – FinTech organisations can get off on the right foot with their customers. Also, it is important to guide consumers along every step of their journey. For instance, during the initial identity verification phase, organisations can put in place processes that reduce errors while creating a seamless customer journey. These could include built-in alerts when a photo of a passport is too blurry or a selfie is too dark, prompting the user to retake those photos immediately. Similarly, if consumers are informed that the reason why their payments are blocked at a specific time is not because of a system’s malfunction, but because of precaution and a will to protect their funds against fraud, their frustration will be drastically reduced.

Although Revolut’s CEO later clarified that no regulatory exposure occurred at any point, news of the British FinTech being caught in a cloud of AML issues is a good example of how strong compliance measures and seamless customer experiences often appear as two opposing forces for financial businesses.

As many well-established banks have recently learnt, in our new regulatory landscape anti-money laundering compliance is not something that financial organisations can afford to overlook or oversimplify. The new requirements demand that every step of the AML and KYC process – especially when carried out through digital, remote channels – be a reflection of the company’s risk policies.

From the initial AML checks (when a new client signs up for a service) to on-going screening (to flag any changes in a customer’s situation) and the monitoring of suspicious transactions, the risks of fraud or money laundering activity are multiple. To protect themselves from fraud and money laundering, financial organisations need to find the correct balance between compliance needs, commercial goals and consumer expectations of a completely smooth experience. If building long-lasting consumer trust is the objective, strong compliance procedures powered by seamless regulatory technology are the way to achieve it.

When implemented correctly, RegTech solutions are able to – among other things - guide consumers every step of the way, deliver customised messages triggered by specific actions, extract information from uploaded documents, perform on-going monitoring to avoid repeated requests for information, utilise algorithms to reduce the number of false positives over time. This allows compliance teams to focus on complex cases instead of spending precious time on manual tasks that can be easily automated. By better allocating internal resources with the help of RegTech, digital banks can accelerate the process of building consumer trust, strengthening their brand and future-proofing their commercial success.

To learn more about the role of RegTech in building consumer trust in light of increasing regulations, download our white paper.