Digital Customer Lifecycle Risk Management 101

The findings outlined in the Wolfsberg Group’s report are likely to carry significant weight. After all, the report was issued by a group of some of the most influential global banks. This means there is a high probability that financial regulators around the world will consider integrating the report’s recommendations into their future guidelines and strategies. 

The New Rules of Digital Customer Lifecycle Risk Management 

For some banks and financial institutions (FIs), learning about the realities of digital customer lifecycle risk management (or client lifecycle management (CLM) in some cases) might make them feel like The Wizard of Oz’s Dorothy Gale as she stepped out of her black and white home and into a bright world of color. Like the film’s heroine, the financial services industry is not in Kansas anymore (unless of course, your bank happens to be located in Kansas!)

As Wolfsberg Group’s report notes, this brave new world of digital banking means the entire customer lifecycle can be entirely digital. Customers will onboard with a bank remotely, authenticate remotely, manage their accounts remotely, and transact remotely in many cases without ever setting up an appointment at a bank branch. Typically most of this interaction will be through one core channel – their mobile device. Many customers are likely to keep transacting from their mobile devices rather than a laptop or in-person at a bank branch. In the US, for example, a recent survey found 76% of American consumers prefer to use their bank’s mobile app for everyday transactions. 

Given this scenario, banks would be wise to update their approach to risk management to accommodate this new reality. Fortunately, the effort to embrace efficient digital customer lifecycle risk management is within reach. 

3 Steps for Efficient Digital Customer Lifecycle Risk Management

Here are three steps banks can take right now to embrace strong digital customer lifecycle risk management, including compliance which are referenced in the report: 

1. Switch to Events-Based Risk Assessment 

The rise of digital banking technology makes it possible for customers to interact with their bank on a 24/7 basis. Given this reality, it makes little sense for banks to follow a calendar-driven schedule of compliance. Let’s say a bank follows a calendar for risk assessment that re-evaluates a customers’ risk rating every 90 days. If the customer’s profile changed significantly after their last assessment, the bank will not be aware of this change until at least 89 days later. The bank won’t realize how drastically the customer’s behavior has altered until the scheduled re-assessment. In the old world of slower transactions, more manual handling of events, and interactions maybe this approach could survive. But it’s clear in a fast-moving purely digital environment this kind of delay between assessments is becoming increasingly ineffective.

Considering how quickly customers’ risk profiles can change – and how much customer and client data is available to monitor their changes –  it makes much more sense for banks to embrace an events-based approach to risk assessment. Events like making transfers to unfamiliar locations, high-risk countries, or a series of transfers between bitcoins can all trigger a new risk assessment – instead of waiting weeks or months see what’s changed.

2. Escape Internal Data Silos

Not only are digital transactions increasingly becoming the norm, they are also moving faster and generating significantly more data than ever before. This avalanche of data creates both significant challenges for banks to process and find insights in real time. 

At the same time, it also creates opportunities for banks to break down data silos that often exist between their internal teams. For example, fraud prevention and detection teams can review data and share potentially useful information with the sanctions screening team, customer due diligence (CDD), or transaction monitoring (TM) operations. Each team can run their reports on a daily basis and share its findings with different divisions. This enables banks to stop more fraud, flag riskier transactions early, and prevent their organization from becoming a haven for financial criminals.

Furthermore, when the two teams can work from a shared infrastructure with common capabilities, interoperability of the system creates significant economies for management, reporting, and even ensuring there is the right number of headcount available on any shift.

3. Develop a Holistic View of Bank Customers

With customers’ digital identities often spread across multiple devices, social network accounts, or even different banks, it’s more important than ever for banks to be able to trust their customers are who they claim to be at all times. This means banks must be able to seamlessly authenticate their customers from their mobile devices and trust they are who they say they are.

Banks can use behavioral biometrics technology to authenticate a customer’s identity from their preferred mobile device. Behavioral biometric solutions go beyond authentication methods like PINs, email addresses, or passwords. They rely on unique personal identifiers like fingerprint scans or facial recognition and even how customers hold their mobile devices and touch their screens. All this information can be collected and used to build a digital profile of the customer that continuously evolves. Establishing and monitoring these profiles enables banks to build up their digital trust over time.

How Banks Can Deliver Strong Digital Customer Lifecycle Risk Management

In an age where the entire customer lifecycle is likely to be based in the digital ecosystem, banks need to be able to trust their customers at every interaction – and this requires a more dynamic approach to managing risk. As regulators take stock of these new realities, banks must carefully consider their digital transformation roadmap and how they will approach risk for digital customers.

The good news is that banks already have many of the tools necessary at their disposal. But having the right tools at your disposal is only the first step. Banks also need to make strategic use of large volumes of data while ensuring their internal teams work together cohesively. Combining the right tools, making effective usage of data, and enabling collaboration gives banks a risk operations (RiskOps) framework to manage risk more effectively. With a RiskOps framework in place, banks can easily shift to events-based approaches to customer risk, break down internal data silos, and deliver more seamless digital customer experiences built on digital trust. 

At the end of the day, it’s not enough for banks to solve these problems. Instead, they must solve the problems strategically to ensure no opportunity goes unnoticed and that their data is used as effectively as possible. RiskOps enables banks to embrace a more strategic and modern approach to risk management that will better prepare them to address future challenges.

What do you need to build an effective AML compliance program? Download our Ultimate AML Compliance Checklist for FIs to make sure your organization checks all the boxes.