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By: Niall Twomey, CTO, Fenergo.

Before embarking on a CLM (Client Lifecycle Management) digital transformation program, most financial institutions (FI) are faced with the ‘buy versus build’ conundrum; to buy something from a third-party vendor or completely build something internally. There are several factors that need to be considered in this decision making process including resources, regulatory and compliance expertise, and third-party data systems integration.

A recent survey found that since the pandemic, there has been a 15% increase in the opening of online accounts. Simply put, if an FI is unable to onboard customers digitally today or in the near future, they will run into operational inefficiencies and be outpaced by their competitors. Global research provider, Gartner, argues that technology can reduce onboarding timeframes from days to just minutes, resulting in a vastly improved customer experience. A positive digital customer experience from the get-go allows for faster onboarding and time to revenue, ultimately achieving a more profitable client lifecycle.

If faced with a dilemma of whether to build a solution in-house or select one from a specialized vendor, here are a few questions financial institutions should address before making this altering decision.

Do your internal IT teams have the depth and breadth of regulatory coverage necessary to deliver full compliance for your organization?

Until a few years ago, regulatory obligations took centre stage for financial services. Now the digital transformation agenda has come to the fore; but this doesn’t mean the conversation around regulation is no longer pertinent. Quite the opposite.

We continue to see an upward trend of regulatory fines for non-compliance with Anti-Money Laundering (AML), Know-Your-Customer (KYC) and sanctions rules worldwide. In fact, a recent report found that in the first half of 2020, AML, KYC and sanctions fines for global FIs reached an eye watering $5.6 billion. For this reason, regulators and government agencies globally are actively encouraging financial institutions to leverage technology that automates and streamlines KYC and AML compliance processes.

Regulatory compliance needs to be managed in a way that is digitalized and doesn’t negatively impact the customer experience, time to revenue for the institution or impact future cross-sell or upsell opportunities. This is no small task. So if your internal IT teams have the ability to build robust systems that deliver fully automated compliance for your organisation, then your preference may be to build. But if you didn’t have the in-house experience that could guarantee compliance, this would be the time to look elsewhere.

Are you able to integrate seamlessly with data providers and trading systems?

For most financial institutions the ultimate data goal is to yield clean, high-quality, consistent and holistic client and counterparty data, and yet many are plagued by a lack of centralized or connected data repositories. Disparate operational processes and cross-functional interaction results in repetitive and duplicate nonrevenue generating client requests for data and documents.

An effective solution needs to be able to interact via APIs with several internal systems as well as industry vendors and data providers to effectively solve regulatory and data challenges. Robust data management is key when using data to make informed decisions, and yet three-quarters (74%) of senior decision-makers believe that data management is overlooked strategically, despite its clear value to the business.

To enable key front office, client onboarding and operations staff gain a holistic client view and deliver frictionless and streamlined customer journeys, client data needs to flow from a multitude of sources. This front-to-back office connectivity includes CRM providers at the front end such as Salesforce, to entity data providers, AML data providers like World-Check and Lexis Nexis, and KYC utility data providers like IHS Markit KYC Services.

Whether you decide to build in-house or buy, data and technology integration is the key to keeping pace with regulatory demands. Plus, integration will ensure financial institutions are delivering a consistent technology infrastructure for global regulation, the associated data and the end-to-end management of all client lifecycle events.

Do you have the expertise and capabilities in-house to deliver a best practice solution?

Legacy and core banking solutions can create bottlenecks and prevent FIs from delivering the digital experience their customers need; particularly in regard to onboarding, KYC and account opening processes that are often manual and inefficient. This has only increased with new and enhanced regulations requiring even more data and documentation from clients and counterparties.

Without a single client view of all their data and documentation, institutions would exasperate their clients on a regular basis with repetitive data requests, creating a negative customer experience. This slow and painful process does not only impact the speed of achieving compliance and onboarding of clients, but also hurts the institution’s time to revenue.

The entire financial services sector has come to an inflection point. With COVID-19 now complicating what was already a powder keg of regulatory pressure and ineffective manual processes, financial institutions are looking for ways to boost efficiencies and cut costs. In a new era of financial services, the client experience must not be underestimated. The world we live in now is more globally connected than ever and the push for digitalization grows more urgent with every day.

Do you have the time, resources, and energy to build from scratch?

When choosing the right approach to implementing a CLM system, organizations should consider not only the total cost over the lifetime of the application, but also the ability to innovate and use the technology as a differentiator.

Updating a custom-build software solution can often be complicated, tedious, and time-consuming. Institutions need to determine the frequency of expected updates, the resources needed to train staff, and the ongoing support required to maintain the system. They must also consider the successful development and integration of the solution with other functions, business lines and jurisdictions, and integrations with key data providers in the industry.

While we consider the questions listed here, cost is arguably one of the biggest factors that will determine whether FIs should buy or build a CLM solution. With the ‘buy’ option, institutions know exactly what the annual cost will be for the solution (license fee, professional services cost to implement and configure the platform, et cetera).

However, the same is not true when developing and implementing in-house. The decision to build will involve a significant amount of investment, resources and time in order to ensure that the software is successfully developed and integrated with other functions, business lines and jurisdictions, along with integrations with key data providers in the industry. As a result, costs of building in-house can quickly get out of control due to lack of familiarity with developing and implementing such solutions. In-house solutions are often developed point-in-time and can become outdated very quickly.

Whether an FI decides to buy or build, they must adopt a true global approach to compliance and create consistency with how they manage regulations, deliver frictionless digital experiences for their clients, and operate as efficiently as possible. If the pandemic has taught us anything, it’s that digital strategies cannot be side-lined any longer, and CLM is no exception. Upgrading to an automated CLM process is no longer a ‘nice to have’, but rather a necessity to address inefficient data management, enhance customer service and ensure the detection and prevention of financial crime.

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