In Person is a Single Point of Failure for Financial Services

The COVID-19 pandemic, and resulting shelter-in-place efforts critical to minimizing the human and economic cost to our global society, have had a catastrophic impact on our restaurant, travel, retail, and broader small business employers and workers. However, many segments of the financial services industry have similarly seen parts of their business come to a sudden halt.

Stories from the front lines range from companies relying on traditional broker/ agent distribution, still accustomed to closing business across the kitchen tables, seeing sales cut in half without the tools or skills to transition effectively to virtual consultations, to financial services firms that continue to require wet signatures asking customer to sign and courier documents to mail centers that have no staffing on site to receive, route or process them once they arrive.

The current crisis is proving that in-person legacy processes remain a single point of failure for many financial transactions. Over the past 10 years financial services have made tremendous progress delivering new solutions that eliminate the need for in-person or manual processing for many critical financial transactions. Mobile check deposit, e-signatures for a variety of financial transactions, online bill pay and P2P money transfer don’t just deliver a better customer experience, they are proving to be an important source of resilience for our economic infrastructure.

But anything that still requires an in-person process to complete a transaction, whether a face-to-face identity verification, paper applications, a notarized or wet signature, a physical inspection or a health screening is now a systemic failure point. Real estate and mortgage transactions, life insurance policy issuance, and SBA loans all cannot proceed at companies where those legacy processes have not been digitized. Business continuity plans failed to contemplate a world where everyone was work-from-home.

While we all hope physical distancing will prove effective over the next several months and we can return to some kind of new normal, financial services firms of all kinds must now recognize that in-person processes, previously seen as inconvenient but reliable, can no longer be assumed as an achievable step in any process. And the time firms have to resolve these issues is short, driven by two critical deadlines:

• First, for our economy to recover quickly and make full use of the stimulus provided by the unprecedented CARES Act, financial services firms need to deliver capabilities to support rapid implementation of its provisions, including mortgage forgiveness and SBA issuance, without the inefficiency and added timeline of in-person and manual processes.
• Second, while we can all hope for the best, we have to assume COVID-19 returns in the fall with a similar need for shelter-in-place periods. To ensure business continuity, financial services companies of all kinds need to find, root out, and mitigate any legacy processes that cannot continue to function under that paradigm. For those old enough to remember, this is Y2K, but with only six months lead time to perform the required mitigation.

Fortunately, technology available to financial services firms has come light years from what existed in the late 1990s. While it will not be easy to move as quickly as needed, a new ecosystem of cloud-enabled services and next generation platforms allow new services to be deployed faster than ever before while remaining compliant with regulatory requirements. I recommend a three-step playbook for financial services firms as they look to take on these challenges:

Step 1: Find the Failure Points

The first step is to identify and map all current products and processes that require any in-person steps. The current crisis has surfaced vulnerabilities many companies did not even realize they had. There is no better time to catalog and understand those failure points.

Next, scenario-plan any additional failure points that would arise if such conditions extended for three-to-six months. The goal is to ensure business continuity under the most adverse scenario. Key points in the transaction process to assess for any requirements for in person, paper or manual processing include:

• Identity validation and verification
• In person application processing
• Any transaction step using notary services or requiring a wet signature
• Any physical inspection or appraisal process
• Health screenings, including blood draws and labs for life insurance
• Any process requiring staff to be on premises or in-network for computer or data access to complete transaction steps

Once identified, each case needs to be assessed for alternative approaches, including:

• What is the legacy rationale for this requirement and can it be addressed when moving to a digital process?
• Are there technology-enabled alternatives available in the market that can replace the existing process?
• Can any incremental risk from eliminating or using an alternative for this requirement be quantified and loaded into the pricing to allow transactions to be completed under adverse conditions?

Step 2: Build with Legos

Broader software development has changed dramatically over the last 10 years with much greater utilization of open source libraries and API-enabled services. This has increased the speed and quality of development by leveraging cut-and-paste to quickly assemble pre-existing code and tailor it to a specific need rather than laboriously writing everything from scratch.

Similarly, rapid development of complex financial services applications is now possible thanks to the abundance of API-enabled cloud services for many of the individual enabling processes required for an end-to-end process. Think building with Legos to assemble the components of the needed infrastructure, linking everything together through APIs.

There are also next generation end-to-end digital platforms for certain transaction types - Blend for mortgage originations, Avant has spun out its digital lending platform for use by other financial institutions under as Amount, Ladder* has built its own end-to-end platform to perform full life insurance underwriting to substitute alternative data sources and predictive modeling for in-person physicals or blood/lab work.

For organizations that want control to blend best-in-class cloud enablers with customized product design, proprietary algorithms or existing infrastructure, we recommend mapping existing product and p rocess workflows, highlighting the earlier identified points of failure. These can then be mapped against an end-state that optimizes customer experience while leveraging key technologies and services to eliminate legacy processes that fail in the absence of in-person availability. There are four key layers to designing this end state:

Orchestration Layer

Perhaps the most important decision is to define a strategy to implement the central control layer to orchestrate execution between the key user flows and the ecosystem of services that will make up the overall solution. A new class of no-code and low-code platforms make implementing this layer faster and more scalable than before. Unqork* has emerged as the key leader in this category, targeted to financial services applications and the public sector. Generalized low-code and no-code platforms include Microsoft’s Power Apps as well as solutions from Appian and Outsystems.

These systems allow drag-and-drop assembly of data capture screens, workflows, decision rules, exception processing as well as generating APIs to integrate with external cloud services and internal legacy systems to develop new applications in days or weeks compared to months or longer with custom coding. This orchestration layer provides the foundation onto which all the other “Legos” can be assembled to complete the solution.

Cloud-based, API-enabled services

A plethora of cloud-enabled services can now be accessed through APIs to leverage best-in-class solutions that digitize key processes that historically required in-person validation. In many cases these solutions enhance the fidelity of the data and reduce fraud and other risk.

Focusing on the key in-person failure points listed earlier, key solutions available to financial services firms include:

Identity verification: There are a variety of solutions available to assist identity validation verification. Startups including Onfido, Trulioo, Jumio and Socure use computer vision to authenticate government issued identity documents from many state and national sources. Combining facial recognition and other biometric validation, these solutions confirm a valid identity document and also verify the person engaging in the transaction matches the documentation presented. Companies like Alloy give financial services firms the ability to integrate a custom set of data sources and decision rules to automate onboarding and define paths for additional or manual validation steps. These solutions allow financial services firms to operate in a fully remote, digital environment and can improve customer onboarding and conversion while meeting KYC obligations and controlling fraud.

E-signature and Notarization: E-signatures have become widespread across industries and sectors and carry the full legal weight of wet signatures. Market leaders including Docusign and HelloSign provide highly robust, enterprise-ready platforms. However, many financial services firms still require wet signatures or notarized signatures as part of key processes, particularly in real estate transactions. In many cases this is legacy overhang and it is critical to move to digital alternatives. In those cases where notarization is required, companies including Notarize provide capabilities to support fully compliant transactions through remote processing.

Paper application digitization: When all else fails, some documents, to speed readiness, may still need to be printed, filled out and signed manually, scanned and uploaded to allow transactions to move forward. Companies such as HyperScience and Ocrolus provide enhanced capabilities to ingest those documents, extract and structure the needed data to support downstream automated processing.

Transaction and cashflow data: For both consumer and business customers, cashflow and transactional data from verified existing financial services accounts is key to new account opening, underwriting, risk selection and fraud mitigation. In the U.S., Plaid is well known for providing cross-institution account and transactional data aggregation. MX provides similar data aggregation, along with capabilities for normalizing and combining data across internal legacy systems to provide a consistent view of customer data. In Europe, TrueLayer, Yapily, and Tink are developing similar capabilities to support financial services companies there.

Background validation and screening: For deeper customer validation a new generation of cloud-based alternatives automate tasks that historically required manual processing. Truework* enables employment and income validation, leveraging data from legacy providers, in-network proprietary data and automated workflows and integration for employers to accelerate what was historically a manual process. This is particularly timely as financial institutions rush to support the mortgage forbearance and SMB lending programs initiated by the CARES Act. Going farther, Checkr provides API access for deeper background checks, including criminal records checks. Nav provides enhanced SMB credit scoring and data by combining and normalizing data across multiple credit bureaus and other data sources.

Physical inspections: Real estate, in particular, is vulnerable to a stoppage of in-person activities. Physical inspections are a critical component of valuations at the core of these transactions. In auto insurance, companies such as Snapsheet and Tractable have demonstrated the ability to virtualize adjustor activities without losing the integrity of valuations. Real estate needs the same capabilities. Companies such as HouseCanary and Cherre have built platforms to aggregate a variety of data sources to support valuation activities. Computer vision solutions using aerial imagery from companies including CapeAnalytics, Zesty.ai, and Arturo provide validation of both property characteristics (building square footage, roof type and condition, additional structures on property, vegetation setbacks) and condition. And solutions from companies such as PLNAR offer the promise for property owners to supply validated imagery of property interiors to support many of the activities performed as part of on-site inspections.

Legacy overlays In some cases, core functions within legacy systems are vital and cannot be replaced in a timely or compliant manner. In these cases it is important to identify anything that requires on site staffing to process and complete certain transaction steps. If so, RPA solutions from companies including Automation Anywhere* and UIPath provide the ability to automate processing steps that span multiple legacy systems. As financial services firms look to define a business continuity strategy, these solutions are a key alternative to new system development to build in automation and resilience.

Fraud, fraud, fraud

Incorporating new data sources and robust digital checks have great potential to reduce fraud, but it also must be acknowledged that removing in-person and manual validation opens avenues for clever fraudsters to exploit.

For account opening, many of the identity validation companies mentioned earlier for KYC also provide AML capabilities. In addition, companies like Quantexa provide rich AML solutions. SentiLink provides a solution specifically designed to identify synthetic fraud using fake identities. And companies including Feedzai, Forter, BioCatch provide solutions to catch transactional and broader financial fraud patterns. With the plethora of fraud solutions now on the market, financial services companies should make finding the combination that best protects their specific use cases.

Step 3: Define a Plan, Find Friends

As we stated at the onset, time is of the essence for all financial services companies. Unfortunately, we must assume that by October or November, Northern Hemisphere countries will see a return of COVID-19 and the potential for a new round of shelter-in-place requirements. We need to be prepared as we attempt to minimize the broader economic impact.

Every company should develop their own action plan, identifying and prioritizing the points of greatest vulnerability, and assume timelines for readiness are six months or shorter. This will require moving fast and this is a time when we are all in this together.

It is not a time to be concerned about competitive advantage between firms. CIOs, broader technical teams, and business leaders across the financial services community should collaborate openly to share both key challenges and the solutions they find to resolve common weaknesses. In addition, many of the Systems Integrators have made significant investments training their staff on both the new no-code platforms and Robotic Process Automation (RPA) solutions, and should be viewed as a resource to accelerate ramp-up time for moving forward. With a focused, shared effort, we can position the industry to rebound quickly, and be better prepared for a potential resurgence in the fall. The economy can’t afford to remain subject to failure points by requiring in-person processes to keep key transactions moving. The time to act is now, when the lessons and issues are most obvious and the lessons we are learning are top of mind for all of us.

* = WiL portfolio company

Images by Unqork, Truework, & Automation Anywhere