Does the speed of account opening make digital banking even more attractive?

Pre-2008, the credit rating of an institution was known of but not really thought of hugely when customers and clients when opening accounts and depositing cash and assets with an institution. Whilst it was a factor, it had gone down the stack rank as yield overtook and clients looked to place cash in jurisdictions that were the new economic tigers.

Ireland and Iceland to name but a few saw an influx of hot money and currency trading as well as local currency bonds became less of a factor and the world conceptually almost saw that the economic system was bullet proof and that downsides and defaults whilst having not gone were becoming less of an issue.

Then we hit 2008…. Oh what had they done….?

They had over-estimated pretty much everything and their positions had become so complex and mixed with good and bad assets, nobody really knew what was good and what was bad. Markets tumbled, prices became hugely volatile and there was little or no stability. With this rather than a hunt for yield came a hunt for safety and led to governments and central banks to reflate the system to stop and Armageddon.

Many of us remember those times and overall, we survived them though of course there were casualties, many losing jobs and from a corporate level, the major casualty and first domino to fall was an A- rated bank going into receivership in the form of Lehman Brothers.

Now we are in an economic crisis of another kind.?

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Joe Hodgins is a highly respected?Banking and Lending specialist,?recognised for protecting corporate and client investments, growing and retaining profitable UK / International business, leading high performing units & divisions, and in developing innovative commercial strategies. Proven in the particularly sensitive areas of Private, Commercial Banking and Alternative Finance.

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But it seems like old habits can return and clients and customers can only take so long to be in stagnant and benign waters. In fact, being in those waters for too long is as big a risk as being hit by choppy waters such as the financial crisis.

This time however, when placing cash and assets with an institution, it seems as though whilst credit ratings are still important, other important areas have come to the fore:

1)????Account opening bureaucracy

2)????Services that can be obtained once the account is open

Financial institutions and fiduciaries have significantly strengthened their procedures to ensure regulatory compliance.?

Whilst new accounts need more stringent procedures, legacy accounts need to be reviewed and reinforced with new documentation and underwriting; any erroneous account would need to be closed down.

A single line of defence has become two or three lines of defence and business areas need to prioritise the remediation of accounts. This is not all about “had the account been ok during the crisis, nor even had the account performed well?”. It’s more about areas like:

·??????Had the account holder been properly sold the product(s)?

·??????Did the account holder understand the product(s)?

·??????Had the account opening covered all the AML and KYC requirements?

·??????Has the group, properly understood the Source of Wealth and where the money deposited had come from?

Remediation of this for financial institutions and fiduciaries is painful for them but also for their clients. They are fed up with paperwork, copies of bills, having to sign waivers and receiving books of documentation with post it note strips to sign.?

Account opening, instead of taking days and weeks, now takes weeks and months and on occasions months and years! Due to this, more and more clients are becoming disillusioned.

So are things changing??

Yes they are, as the field of technology and AI come in to try and rectify this.??

The digital era has gone beyond our tv signals to our bank accounts and so more and more groups are front loading their offering??with easier access to opening, not through rates or safety.

Does this mean full due diligence is taking place? Digital providers claim less human error, more defined rules, all held within a list of regulatory requirements and if needed, a manual check can occur.

Most work to a traffic light system. Green meaning everything goes through, amber meaning other checks need to occur and red speaks for itself (however, no client will see “red” on their side of the operating system.

However, with this new style of front loading through ease of account opening and ongoing due diligence requirements, are we as customers taking our eye off the ball and not looking at the balance sheet of these institutions? Are they going to keep our money safe?

On the retail side, most can take comfort from government backed deposit scheme such as the FSCS in the UK where ￡85,000 is covered in the event of a default or in Europe where €100,000 is covered. But are corporates doing the same?

Most corporates and quasi institutional clients still have the 2008 crisis in their minds and so they will look at the credit ratings, tier 1 ratios and track records of these providers. However, they may be more open to taking slightly more risk if more can be offered in return.?

This does not mean higher rates or increased yield; but a move to the one stop shop approach?

Think about it, it is a bit like doing major renovations to your own house. You can go to an electrician, a gas fitter a window fitter and a builder amongst many things separately, or you can pay a premium and get one party to organise all these areas for you.

This is the same as financial providers are doing. Take the world of fund management services, in the past they would have offered a core service with the main Manco offerings to help set up a fund, but then would pass the bank account offering to a 3rd?party provider leaving the client having to go through the rig moral of doing fresh applications which also takes added time.

Now, there are several providers offering services of their own bank alongside the plethora of other services a fund management company can offer in one house. This not only creates far less rigmarole for customers, but also economies of scale for the provider as they can piggy back any DD requirements within their own groups but also this gives the new fund more time. More time to fundraise, more time to structure and more time to be successful.

It is however important, just like when renovations to your house are being done, all parties sing from the same hymn sheet - both when times are good and also when things go wrong. How frustrating do we as customers find it, when one part goes wrong and you go to speak to a representative who says “that’s not our problem you need to speak to XYZ”.?

The same needs to happen with the one stop shop. This does not mean a person in fund accounting needs to resolve the problem with bank account opening, but they assist the customer to find the right person to resolve a problem. That’s a true “one stop shop”.

How far the one stop shop goes though is another question. As at the end of the day it is difficult to be all things to all people, but if you can offer mainstream services and for the right business case go beyond the call of duty, that is usually a great way to keep assets “sticky”.

Financial Services continues to evolve, despite regulation and bureaucracy. Those who have the will, energy and expertise will be at the leading edge, and should not forget – “the customer is always right!”

Joe Hodgins is contactable by email on?[email protected]?or by phone on +44 (0) 7811 201222