Need a bank account? Its yours

Yesterday the Times (UK) reported how there are leaked plans by the UK government to force banks to provide basic bank accounts to anybody that wants to open one. The Times article describes a basic bank account in this way:

Basic bank accounts allow individuals to pay in wages, benefits and a pension
and provide a cash card to withdraw money. The accounts are aimed at adults on a
low income or those with poor credit histories who would not otherwise be
approved for a standard bank account with credit facilities.

As I discussed in Banking the Unbanked, the UK is way ahead of even the most progressive US states when it comes to the availability and use of bank accounts to the poorest or most unfavorable (to the banks) customers. I referred to a figure from the UK Treasury indicating that 0.89 million individuals live in a household without access to a bank account, which equates to about 1.5% of the population. Since the aim of the proposed legislation is to provide access to banking to adults (not toddlers), my percentage calculation is probably significantly skewed. The Times article still states a very different number:

In 2003, the Government and the banking industry established the Financial
Inclusion Task Force to improve access to banking facilities. Around 8 million
adults have basic bank accounts and between 2003 and 2007, the number of adults
without access to an account fell from 3.57 million to 1.75 million, according
to the British Bankers Association.

Whatever the numbers really are, legislation to include access to all adults with adequate identification, independent of financial background, have not been well accepted by the banking industry. Although many banks offer basic bank accounts, some still have restrictions around who may hold one. And commentators have said:

[...]that the increased costs associated with providing bank
accounts for all could lead to an end of free banking. Michelle Slade, of
Moneyfacts.co.uk, the financial website, said: "Banks will inevitably face
higher costs if this legislation is passed, with the cost recovered through
standard banking customers. The change could be another nail in the coffin for
free banking, with banks looking to regain the additional cost potentially
through the introduction of monthly fees."

This is just resistance to change in my opinion, or a growing conservatism in the UK (although this is the Times, so the readership could never be described as left-wing). Quite frankly, the number of restrictions placed on basic bank accounts (you can put money in, only draw it through an ATM card, no check/cheque book, no overdraft, no interest), means that the costs to the banks seems to be outweighed by having a little more free money in the coffers.

If there ever was a low margin, low risk place to focus on improving business processes for maximum efficiency, the processes around these bank accounts have to be a good testing ground. As banking is gradually seen as a human right, along the lines of telephone, television and the Internet, oh and even health care (finally), the US banking system may need to start gearing up its lobbyists to prevent another terrible form of socialism seeping into US society (if you didn't hear the sarcasm in that, sorry - my inner-Brit escaped for a moment).

Or maybe the banks could spend the money they save on lobbyists and do the right thing for all banking customers, and "customers to be" -- fix the processes that cost so much per transaction that even pathetically basic bank accounts have to carry ridiculous charges.

A post from the Improving It blog

Let us help you improve your business today. Visit www.consected.com

Banking the unbanked

Image Source: Accredited Online

Schools

The banking system is not particularly popular with the common man or woman at the moment. Banking is seen as self-serving through the apparent desire to soak up rescue and recovery dollars by the billion, without doing what a majority of the population would like to see: drip feed some of that cash back to the people and small businesses that need it to survive. So when I read the WBJournal's story by Livia Gershon, about efforts to open the banking system to more low income people, I had to try hard to keep an open mind.

The western world is absolutely dependent on a healthy banking and financial services industry. The governments of the world outsourced (or maybe never really took control of) the infrastructure for handling money at the level of individuals, so the bail-outs that the banks benefited from are not surprising - without banks, we all suffer. The way that the bail-outs was sold to the taxpayers though does not fit what many are seeing in practice, with lending a flow of money as bad as ever. At the level of the unbanked (those who can not get a bank account or where it is financially impractical to do so), the problem is likely to seem irrelevant. If the banks don't appear to be handing out money, you probably don't care if you couldn't even get a bank account to put your money into.

According to the WBJournal story:

“We see people that are just still not using mainstream financial services, and they’re being taken advantage of in many ways,” he said.

In Massachusetts, 4.1 percent of households are unbanked and 11.4 percent are underbanked. Among households with incomes under $15,000, 24.8 percent are unbanked, and another 18.1 percent are underbanked. Nationally, 7.7 percent of all households are unbanked, and 17.9 percent are underbanked. The national numbers for households under $15,000 are 27.1 percent and 22.3 percent.

So, Massachusetts does better than the national average on persuading people that use of the mainstream system is better for them, but there are still huge numbers of people without access to those services. As a comparison, the United Kingdom, with a population of 61 million people shows 0.89 million individuals live in a household without access to a bank account. This equates to approximately 1.5%. This isn't about national competitiveness, just a number to help show that there is still room for improvement.

For banks to ever meet an acceptable level of social and local community responsibility in their provision of banking services to all there are several things that have to happen:

1. Banks need flexible account opening procedures, to handle the less common cases, especially where an individual does not have a history of bank usage, or has unusual identity documentation
2. In order to keep the costs to customers at close to zero, the efficiency of back office processes needs to be kept high, to keep transaction costs low
3. A change in attitude may be required, to help banks see the new potential customers as a long term investment, rather than a burden they feel resentful of welcoming to their customer ranks

Quite frankly, #1 and #2 are easy to handle - with streamlined and well managed business processes that cut much of the waste and time-lags from a process, while ensuring the flexibility to handle complex cases. If a bank or credit union needs help understanding the opportunities here to help all customers, not just the unbanked, there are many resources on this blog that refer to business process management for account opening and financial transactions. Or feel free to contact me. Keeping costs down is not about cutting jobs; its about opening your available market to a broader set of people.

#3 is harder though. Attitudes can be changed in any business when appropriate information is made available. If it can be seen that in the long term, previously unbanked customers are responsible account users, and eventually become profitable borrowers through mortgages and loans, perhaps banks will be more likely to extend a welcoming hand. This is more likely to happen if banks have a full customer profile available, and can see that on average customers falling into this segment make decent business sense. Without information on the whole profile of a client, any business is likely to make rash decisions at an individual and group level.

I hope to see these numbers again in another twelve months and see the number of unbanked much lower.

A post from the Improving It blog

Let us help you improve your business today. Visit www.consected.com

Opening a business bank account takes a week. So what!

A survey by Finextra last year reports that:

For the majority of corporates, it takes more than one week to open a new bank account, according to a survey Finextra Research conducted over the summer. For this and other reasons, 44% of corporates say they would switch banks to get better service, standardisation and automation through electronic bank account management (eBAM) processes.

OK, so a week is a long time to perform such an important transaction, but really, do the survey's sponsors believe that the time it takes to open an account really is a driver for customers to switch banks? Once your in, your in. The time it takes for every other institution to open a new account is probably a block to you actually moving on. It seems to me that the headline is trying to push the point a little hard here.

When I opened my new business account (admittedly a small business not a mega-corporation, but I bet they are a large volume of what banks are dealing with), Bank of America had the account open in about 60 minutes. It was a painful process to watch, but it worked. From my blog about the experience:

The issue for me is that the systems that agents must use to set up accounts appear not to be at all customized to the type of account or the needs of the branch agent. It appears to be true that agents and brokers in financial institutions are limited in the types of accounts they can open less by the skills they have selling an appropriate product to a customer or being licensed to sell what is available, but in fact in the amount of training they have in the account opening systems. In all, it took me an hour to open the account. The agent was friendly and helpful, but how few customers can she help in a day if the systems force her to work at that rate?

The survey from Finextra doesn't reflect my experience, even if I do believe that many organizations could do a lot better at account opening.

A post from the Improving It blog

Let us help you improve your business today. Visit www.consected.com

Anti-money laundering or discrimination?

Anti-money laundering - touted to prevent the funding of terrorist organizations, can also affect ordinary individuals if the policies and controls at the time of account opening are not carefully applied. This recent circular from the Hong Kong Monetary Authority (HKMA) to 'authorized institutions' (AIs - in this case banks licensed by the HKMA), shows that sometimes the people applying the rules can get a little overzealous:

There have been reports in the last few days that there were cases in which some persons from certain ethnic minorities had encountered difficulties in opening bank accounts with certain AIs in Hong Kong. According to the reports, this has been linked to the anti-money laundering and countering financing of terrorism (AML/CFT) requirements of the HKMA.

As the HKMA goes on to say:

"AIs should adopt a balanced and common-sense approach with regard to customers connected with jurisdictions which do not or insufficiently apply the FATF recommendations. While extra care may well be justified in such cases, it is not a requirement that AIs should refuse to do any business with such customers or automatically classify them as high risk and subject them to enhanced CDD process. Rather, AIs should weigh all the circumstances of the particular situation and assess whether there is a higher than normal risk of money laundering."

This is all very well, but how does a bank instruct its account opening agents in applying a balanced and common-sense approach? It certainly does not mean that an automatic trigger should be applied to anyone not from Hong Kong or mainland China (and Hong Kong banking is used to international clients), but how do you help an agent faced with a client from Burma (for example) decide what a balanced approach is, or when to insist on enhanced customer due diligence (CDD)?

It is hard to provide guidance based on common sense. The question becomes whether it is the responsibility of the banks to provide automated decision management software based on business rules software, as James Taylor commonly discusses. Or are there other simpler systems that they can use to make a decision on whether to follow an enhanced due diligence process?

I certainly can't claim to be an expert in the legal issues related to what demonstrates that an institution is following best practices in the AML portions of account opening, though I would suggest that any of the following may be better than offering 'common-sense' as the proposed solution:

• Checklists providing a simple CDD risk rating, with an outcome driven by a numeric result
  
• Decision tree, allowing a series of answers to questions to drive an agent down a specific path to a decision to accept or review further
• Refer to an expert - a central expert that can be called to make a judgement under certain trigger events

Any of these approaches could be quickly implemented as purely paper / manual solutions, or built into a portion of an existing (or new) automated business process to truly enforce its use. I'm guessing that Hong Kong is not alone with this type of issue where common-sense is being recommended for decisions that are hard to assess by non-experts. Significantly better solutions are not hard to imagine, and may actually save institutions money (and regulatory pressure) in the short term.

A post from the Improving It blog

To implement workflow and process automation in your business today, visit www.consected.com