Commercial banking is a cornerstone of the world's economy and is thriving more than it has been in many years. In fact, by 2020, the worldwide wholesale banking industry is expected to achieve a total revenue of approximately 256 billion US dollars.
This surge in revenue will be a direct result of many things, one of which is the inevitable increase in the amount of big and small businesses that are seeking to open an account and various other banking services. More accounts means more onboarding, which is something that is unanimously not up to ideal standards across all branches of banks.
The current onboarding process involves using KYC. By using this system, financial institutions are able to fight off the rising threats of financial terrorism, corruption, and money laundering, among other things.
Unfortunately, there are many existing problems with the KYC model. From taking far too long to complete the onboarding process to producing inconsistent results, KYC is anything but perfect. Luckily, there is a much better solution, which is to use a legal entity identifier (LEI) code.
How LEI Helps Improve Know Your Customer
At first glance, LEI code clearly helps to reduce the amount of time that it takes for the onboarding process to be completed. Current onboarding models require an average of about six weeks to complete, which can be even more if over four different identifiers are used. This is one of the biggest threats of new client onboarding, with almost 40 percent of senior salespeople reporting that the sheer length and complexity of the KYC process is one of the biggest risks for losing business. Luckily, LEI code helps to significantly cut down on this onboarding time, which it does in a variety of ways.
Since LEI codes are recognized worldwide, it means that only one identifier is needed for a legal entity. Being able to use only one identifier drastically speeds up the information collection process. Since other identifiers tend to change based on what country they are issued in, this means a lot of cross-checking and struggling to locate and keep track of all the various identifiers that are used for a single entity.
With all of these various identifiers being used, it also brings into question the accuracy of the findings. In fact, over three-quarters of the information that companies hold on client organizations is estimated to be less than 75% accurate. Inaccuracies mean incomplete threat analyses, which is only putting these financial institutions at risk. Thankfully, LEI uses an in-depth data profile in order to provide the answers of who owns whom for any legal entity that has a registered LEI code.
Even worse than having inaccurate data is not being able to gather enough information about a legal entity in the first place. A failure to collect enough data means being unable to confirm the client's identity, which is responsible for an estimated 14% of lost business. However, using an LEI code solves this thanks to its previously mentioned publicly accessible database of extremely accurate information. The database is regularly kept up-to-date and contains all of the relevant information in one single location, simplifying the onboarding process to a never-before-seen level.
Of course, all of this unnecessary time spent with the onboarding process means wasted financial resources. By using an LEI code for KYC, institutions can help to significantly reduce the cost associated with onboarding resources. They are able to effortlessly save time and money all at once with the help of LEI.
The problem of onboarding is likely to only get worse, with 52% of financial institutions believing that the time required for new client organization onboarding will only get longer within the next 12 months. This makes it the perfect time for senior salespeople to start using LEI codes in order to streamline their new client onboarding process.