When the U.S. rolled out the Paycheck Protection Program (PPP), it lifted the veil on one of the biggest friction points in business banking today. In the mad dash for small firms to secure capital, many sought their PPP loans from banks other than their usual financial service providers, creating a logistical nightmare for financial institutions (FIs) that still rely on manual and outdated customer onboarding workflows.
"The world of consumer credit and data isn't perfect, but it's gotten a lot better, and a lot of those improvements come from the requirements of the Fair Credit Reporting Act," Mack said in a recent conversation with Karen Webster. "It's really governed a lot of the quality controls around consumer data. But when you look at business data, there's no FCRA."
The result is a slew of unstructured data coming in from a variety of sources; financial service providers must try to make sense of it in order to maintain regulatory compliance and mitigate the risk of fraud. Middesk aims to help these firms streamline and digitize this process. On Tuesday (Sept. 8), the company announced that it has joined Visa's Fintech Fast Track Program to help emerging FinTechs optimize their own business identity strategies.
As Mack explained, tackling this issue for all types of FinServ providers must revolve around combating fraud risks and promoting compliance — but it also needs to prioritize the customer journey, as businesses increasingly demand the seamless onboarding experience that consumers already have.
Broadening Customer Understanding
Know your customer (KYC), anti-money laundering (AML) and other regulatory requirements are of the utmost importance for any financial service provider when servicing a new client—yet for smaller FinTechs, collecting data to understand the identity of a new business customer traditionally relies on paper and tedious manual tasks.
Operations teams will either conduct these checks in an entirely manual way or they will rely on a data aggregator, which Mack said can usually only achieve a fraction of what's necessary for a full customer check.
By looping directly into the source of the required data — government entities — Middesk is able to do the heavy lifting for financial service providers and quickly present this information in more meaningful ways. Mack said this gives FinServ companies an even bigger opportunity to gain value from this information, particularly when it comes to fraud mitigation risks.
As he explained, just because all of the compliance boxes are checked doesn't necessarily mean an FI should be working with a business customer.
"When you start to get into some of the fraud questions, things like corporate standings start to become a little more relevant," he said. "It's surprising to me that something like corporate standing is not part of compliance."
Having access to information like business addresses and even social media profiles can broaden the scope of assessment and give FinServ providers the best idea of what a business does, and whether it's the right kind of customer for their entity.
A Better Business Customer Experience
For financial service providers, optimizing onboarding through automated and robust customer data analytics isn't only about protecting the enterprise — it's also about providing a better experience for the customers themselves.
According to Mack, the bar has remained relatively low for businesses when it comes to their expectations of a speedy account opening process. Yet scenarios like the PPP initiative ramped up demand for efficiency, as SMBs needed capital as quickly as possible — and were no longer willing to wait days for FinServ providers to complete their checks.
Mack noted that financial institutions are "trying to save money by onboarding faster, but I do think there's another trend, as B2B companies are now trying to design onboarding experiences that are as streamlined as a consumer product."
For smaller FinTechs, this is particularly valuable in an increasingly competitive market. The PPP initiative created a tailwind for Middesk, as more financial service providers woke up to the importance of a streamlined, secure and compliant customer onboarding process. This end-user demand will continue, and by collaborating with Visa's Fintech Fast Track Program, Middesk aims to propel smaller players' abilities to not only promote compliance, but to also foster more meaningful relationships with their business customers.
"For me, this is about being able to support new companies coming into this space," Mack said. "For a brand-new company, there's no question that compliance is important — but you also have other things on your plate. We should take the best practices of the companies that are years ahead of our clients, and make those available to these businesses right from inception."