The importance of a frictionless process in the compliance industry
Force and friction are often two concepts that we relate to physics, to science. However, the truth is that few know that they are not far removed from other areas, for example, the financial industry.
Force is anything that drives a sale, a good customer relationship or a future referral. Friction, on the other hand, is that which hinders what the force seeks to achieve: a bad referral, an unhappy customer or a stormy process –which in the compliance industry means long lead times, high costs and rework–.
Adding force to a sales or customer onboarding process is usually straightforward for a company, because in the end that is what it seeks to achieve. The problem lies in adding force without generating friction: a frictionless process.
What is a frictionless process?
Friction refers to the different types of situations where a service provider, in this case let's call it financial services, generates dissatisfaction with the customer due to policies or processes, or even due to the lack of technology that would help provide a better customer experience, not only in their engagement, but also in their life cycle as a customer.
A frictionless process is a process without these obstacles, and it's something that the industry was already working on before the pandemic. We were focusing on providing a better customer experience, both in customer engagement and post-sales service. But after the pandemic the situation changed, and it became the number one priority in terms of the strategy that a financial institution can have, for example, to determine what type of technology to buy or not.
Financial institutions have technologies for different purposes. Today, something that we are seeing very strongly in the compliance world is that, in addition to generating value and covering the specific need for which they are buying a solution, financial institutions are also looking for technology that will help them generate less friction or eliminate, in as many cases as possible, the friction that occurs with customers.
Why aim for a frictionless process?
Nowadays, companies in the financial sector are very concerned about acquiring solutions, tools or technology that help them comply with the different regulatory purposes, but that also help them to reduce or eliminate customer friction as a value proposition.
Example: compliance solutions
When they have to comply with CRS or FATCA regulation, many times financial institutions need to update customer information, which starts to generate friction as this implies establishing multiple communications with customers, sending emails or even calling them.
It is important for a financial institution to be able to acquire solutions that help them comply with regulatory reporting, and also help them to have frictionless processes and procedures where they do not generate annoyance with customers due to multiple contact attempts to update information.
Example: anti-fraud solutions
When one buys online and the transaction does not go through, it is because somehow an alert was generated to the system that is reviewing and preventing fraud. In real time, the transaction is blocked until the customer can verify his identity, which clearly generates friction and generates dissatisfaction with customers.
These two examples of technology being acquired - the first for CRS and FATCA regulation, and the second to combat fraud - are solutions that, if they do not ultimately help to combat customer friction, will have a negative impact on the revenues of financial institutions and this will lead them to look for a solution that will help them meet the objective in a frictionless way.
In the end, friction equals less revenue. We should aim to implement a frictionless and efficient process. By having an optimal process, with clear procedures where the established times for each stage are met, we will generate efficiency, we will not generate friction, and we will have happy clients who will surely continue to invest in the financial institution.
What would a frictionless compliance industry look like?
Within the compliance industry there are several players that come into play. There are the tax authorities, the financial institutions and the service providers, such as Trans World Compliance.
The tax authorities are, so to speak, the police. There is a regulation, there are laws that must be complied with and the tax authorities make sure that they are being complied with: not knowing the regulation does not mean that they do not have to comply with it.
Financial institutions, for their part, and the financial sector in general, must focus on providing good customer service, which is directly related to satisfaction and income. This is where frictionless processes are, or should be, found.
These processes could be visualized in a financial institution that acquires a solution that allows them to run a simpler process. I have seen cases of clients that currently take five or six months to complete the CRS or FATCA reporting process, so it is essential to reduce these times, but how can this be done? By acquiring a complete solution, and this is where service providers like Trans World Compliance come in.
A complete solution is one that, first of all, allows you to reduce time. This will give the institution, internally, more room to work with the client. When things are done in a hurry, with a heavy workload, we end up transmitting this lack of dedication to the clients. In addition, it must be a solution that eliminates reprocessing, for example, contacting clients to update information. That is why it is important to use Trans World Compliance technology not only at the time of the reporting process, but also when linking clients, to ensure that the information being requested is correct and in the right format.
Why is frictionless reporting important?
1. Comply with regulation
If we implement an efficient process, we will have clear timelines and we will be able to comply with regulations.
This should not be done simply to comply, but because in this way we also mitigate risks, and I would like to make emphasis on reputational risk. If we comply with the regulation, we are going to maintain the reputation of the financial institution because it will not have any problems or scandals of international tax evasion.
This is very important because the financial institution that complies with an optimal, automated, and efficient reporting process is not going to have any complications with the IRS, if we are talking about FATCA.
Financial institutions are also concerned about making a propitious, timely, effective and efficient report, because one of the most important risks is precisely that the correspondent bank will cut off the account and will no longer accept international transactions. The largest banks act as correspondents in a transfer from Mexico to China, for example, through the Swift system, and not having this intermediary would be extremely detrimental to financial institutions.
2. Savings
As long as we have an automated and efficient process, we will save on different fronts.
For example, we will save on costs, because we will not need to have a staff, or an army of people, to be able to do the reporting process that takes six months in some institutions that do not have automated systems.
And, in addition, we will reduce time, because it will stop being a process of six months of exclusive attention, to be a process of the whole year, but in a calm way because, by having clear guidelines, it will be an efficient process and it will stop being a burden.
3. Happy clients
If at the time of client engagement, we validate in the Trans World Compliance system the type of information that is being requested and its format, we will not have to go back to the client to collect more information, or we will not have to contact the client with bad news, for example, that we are not able to report it because the TIN or other information is not correct. That's going to guarantee that we're going to have happy customers, and a happy customer equals increased capital for banks, and for financial institutions in general.
How can Trans World Compliance help with frictionless reporting?
Frictionless is a concept that has not yet been introduced into CRS and FATCA regulation. However, it is important and the time to start doing it is now. The pandemic has accelerated the digitization process which is going to generate more and more problems and conflicts.
This is why acquiring an automated solution is essential. It must allow institutions to do all three steps - classification, remediation and reporting - in a way that guarantees a successful and fast reporting process (i.e., one that does not take six months).
Trans World Compliance already has an automated solution that allows us to identify what information is missing -without the need to contact clients-, how we are formatting the information -if it is correct or not-, make the conversion to XML and report to the local authority or the IRS, depending on the regulation.
In this way, financial institutions (and tax authorities) can solve the issue of generating friction with customers and, in addition, by being aligned with Trans World Compliance at the time of customer engagement, we can request the correct information so that later we can do a process where we don't have to contact the customer again.
With Trans World Compliance's automated solution and the client onboarding process, we guarantee a frictionless process for CRS and FATCA.
In conclusion
The financial industry is constantly evolving and can be a burden on both the tax authority and the financial institution. In order to make compliance smoother, it is important to rethink the reporting process.
By implementing a technology, or automated solution, that can easily adapt to new regulations and requirements, as well as allow for the elimination of process friction, financial institutions can keep up with all their compliance needs, save costs, reduce reputational risk and maintain a good relationship with their customers.
