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Due Diligence Process In Banking: 3 Automation Trends To Watch

Roland Alston, Appian
July 18, 2023

Bank turmoil associated with recent bank failures has highlighted the importance of due diligence for managing financial risk, growing revenue, and retaining jittery customers.  Regulators will likely ramp up their scrutiny–even after hitting financial institutions with a jaw-dropping $2.7 billion in fines in 2021 for failing to meet compliance and due diligence standards. 

Traditional approaches to the Know Your Customer (KYC) due diligence can be slow, prone to error, and frustrating for customers. By optimizing due diligence with process automation, banks can orchestrate processes across the enterprise, to improve risk assessment, drive operational efficiency, and deliver superior customer service. A modern platform for process automation uses a range of technologies–including robotic process automation (RPA), intelligent document processing (IDP), workflow orchestration, and artificial intelligence (AI)-to achieve such optimization.

This blog explores three ways banks can use automation to elevate their due diligence game.

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1. AI-powered document review.

In the financial services industry, document processing is a complex and time-consuming task that requires staff to pour over an overwhelming number of enrollment forms, client applications, financial statements, and more.   Document review tools powered by machine learning algorithms can quickly and accurately analyze such huge volumes of documents and other unstructured data, including emails and texts. This automated, intelligent document processing (IDP) approach to due diligence can save banks time and money and redirect resources that would otherwise be used in manual document reviews.

Because IDP reduces the risk of human error and helps quickly identify risks and opportunities that could easily be missed in a manual review, some major banks are already using it. For example, AI-powered document review is helping them  swiftly identify clauses in loan agreements that may require further legal review and to streamline their KYC processes.

By processing large volumes of documents in less time and with fewer errors, IDP automation offers banks a faster way to improve efficiency and accuracy in the due diligence process and enable smarter decision making.

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2. Robotic process automation (RPA).

By now, most banks and capital market firms have deployed RPA as part of their overall business operations, using software robots to automate repetitive and time-consuming tasks. In the due diligence process, RPA can streamline operations and improve efficiency–automating work that would otherwise require manual data entry, for example. As a due diligence tool, RPA can automate data analysis and quickly flag potential risks or issues that require further review.

RPA alone, however, can’t streamline the entire process. That’s why banks need a broader strategy for process automation that includes technologies like IDP and AI.

Innovative banks and financial services firms are embracing process automation as part of their digital transformation journey, using it to improve operational efficiencies and prepare for heightened regulatory oversight. Many banks have already leaned into process automation tools for their due diligence process to streamline compliance, improve efficiency, and stay compliant with Know Your Customer (KYC) rules.

3. Blockchain technology.

Although major banks have filed many patents around digital payments technology to keep customers within the traditional banking system, plans for blockchain technology are still largely unclear. Could it improve the due diligence process?

Yes, it turns out, by providing a secure and transparent way of storing and sharing data that makes the due diligence process more efficient and reliable.

Some banks have already embraced blockchain technology for due diligence, speeding up the due diligence process by eliminating the need for manual data entry and verification. Blockchain’s secure and tamper-proof way to store and share data can also help banks reduce their risk of fraud and errors.

Overall, blockchain technology is worthy of consideration for banks looking to improve the speed, efficiency, and security of their due diligence process.

Automation challenges in the due diligence process.

While automation can help banks significantly improve the due diligence process, some challenges must be addressed. For example, skepticism about the accuracy and completeness of data used in automation can lead to poor decision making.

On the flip side, automating manual processes that are inherently inefficient, risky, and rigid is critical to building organizational resilience and complying with fast-changing regulations. Automation technologies can also help banks quickly access and analyze data across disconnected systems as part of risk management, as manually auditing all of this data can be a nightmare. Finally, automation can help financial institutions facing regulatory pressure to capture a “single view” of their customers, improve their risk profiles, and gain global visibility into customer interactions with real-time data.

McKinsey flags poor data quality as a critical factor putting pressure on financial institutions to rethink their approach to KYC processes. According to McKinsey, data quality problems account for up to 26% of operational costs.

Another challenge involves integrating automation tools with existing systems and workflows, which requires careful planning and coordination. The best process automation platforms offer preconfigured, enterprise-class templates and integrations and a data fabric to unify a bank's data wherever it lives, allowing financial services organizations to modernize due diligence and other critical processes quickly.

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Lastly,  banks must consider the human impacts—how automation could affect jobs and the workforce and cause resistance from employees who may feel threatened by technology. Banks will need to upskill their workforces and redefine roles and responsibilities to ensure employees see automation as a tool, not a threat.

What’s next in the due diligence process?

By tackling these challenges head on, banks can make process automation an integral part of their due diligence process and reap the benefits of massive improvements in efficiency, accuracy, and cost-effectiveness.

As we look ahead to the future of due diligence in banking, financial institutions face pressure to increase digitalization, manage more complex customer workflows, and adhere to more stringent regulations and business requirements. Meeting these challenges will demand due diligence frameworks with a more holistic and centralized view of customers from onboarding to offboarding. Automation will be a significant part of this transformation.

Learn how to shape a successful automation journey. Get the Process Automation Guide eBook.