By Jonathan Jensen, Director of Identity Verification at GBG

Having to comply with regulation can be frustrating for fintechs who want to ‘move fast and break things’, especially when it comes to creating great customer experiences. However, UX and compliance don’t have to be at odds.

Keeping customers and regulators satisfied is challenging, and both are crucial to fintechs’ success and sustainability, but compliance doesn’t feel very disruptive.

What’s more, incumbents are starting to adapt. Traditional financial services (FS) firms are already comfortable with regulation, and now they’re starting to innovate to maintain their dominance. If fintechs can’t balance great UX with regulation, they could lose their edge.

The challenge for fintechs is to find affordable solutions to regulatory challenges that don’t get in the way of great, FS-beating UX. But when budgets are limited, the challenge seems even greater

The good news is that compliance and UX are both in the best interests of users, so there’s plenty of room for the both of them – especially when you have the right tools.

Great expectations

Salesforce research found 76% of consumers will take their business elsewhere if your customer experience doesn’t meet their expectations. This won’t come as a surprise to fintechs, since the sector is uniquely focussed on CX.

Fintechs will also be acutely aware that they need to take care not to scare customers away with their attempts to meet regulatory requirements, starting at onboarding.

And there are big gains to be had for fintechs that get it right.

Research by McKinsey found that every one-point increase in onboarding satisfaction (on the ten-point Net Promoter Score scale) creates a 3% uplift in customer revenue.

For a business onboarding £100 million worth of new customers, this small increase in customer satisfaction could be worth £3 million – and a poor experience could have the opposite effect.

Financial rewards aside, the risk of abandonment is reason enough to want to get it right.

Javelin Strategy & Research found 38% of millennials have abandoned mobile banking because of long or badly designed processes. Meanwhile, Sale Cycle reported 76% of all online registrations are abandoned.

There’s a reputational cost to getting it wrong, which is especially important to fledgling startups looking to make a name for themselves.

The customer experience challenge is obvious, but the regulatory challenge is harder to get to grips with – at least without the right tools and support.

Clear today, wrong tomorrow

Today’s great UX can be tomorrow’s regulatory breach – it’s the nature of the regulatory landscape.

Fintechs need to keep up to date with the latest changes in regulation if they want to keep delivering the best customer experiences, and there are three big regulatory changes that fintechs need to be aware of right now.

The fifth iteration of the Anti-Money Laundering Directive (5AMLD) takes effect from January 2020. It builds on 4AMLD to go further in tackling the financing of terrorism and make financial transactions more transparent.

5AMLD will hit fintechs in three main ways: stricter Customer Due Diligence (CDD) checks, beneficial ownership registers and new rules around Politically Exposed Persons (PEPs).

It’ll mean sectors that never used to be affected by AMLD now will be.

Prepaid cards, mobile wallets, payment service providers with customers who make remote payments over €50, states outside the EU, firms handling cryptocurrencies, estate agents, free ports and art dealers will all will face new or stricter CDD checks.

Also, companies will have to perform frequent, strict CDD and Know Your Customer (KYC) checks on beneficial owners of corporate and other legal entities.

Finally, EU member states will have to compile lists of PEPs. The lists won’t name individuals, but enhanced CDD checks will be triggered when there’s a match against a job function in the registers.

Our Head of fintech, Darnell Walker, said: “AML regulations can introduce friction, but high quality data and agile analytics are key to balancing customer experience with AML obligations”.

The Revised Payment Services Directive (PSD2) will change financial services in September by facilitating Open Banking, which is a huge opportunity for fintechs.

Permitting third parties to make peer-to-peer transactions using open APIs introduces new regulatory requirements in the form of Strong Customer Authentication (SCA).

This has the potential to add friction to finechs’ UX, which means they should think carefully about what they implement SCA and how.

GDPR, which fintechs will be more than familiar with already, means firms need to get consent for the data they collect and how they use it. Everyone’s been forced to consider how best to comply in a way that doesn’t interfere with customer experience.

Five ways fintechs can balance UX with compliance

These five key principles will help you create great, compliant user experiences:

1. Look out for new technologies that’ll help you meet your regulatory requirements. Remember to think about your customer’s attitude to new technology to minimise abandonment – for instance, would your customers be comfortable with you using GPS to capture their address?
2. Be sure to account for international variations if you operate across borders. Consider differences in documents from country to country and the differing regulatory requirements in each territory.
3. Use technology to keep your UI as simple as possible. Users won’t tolerate spending ages verifying their identity just to use your service.
4. Motivate customers with visual and contextual feedback to guide them through the onboarding process. Use progress bars, validate their responses and help them to complete the checks as much as you can.
5. Test your products to make sure they’re as easy and enjoyable to use as you’ve designed them to be. Do as much usability testing as you can to prove your UX works.