The Hidden Costs of Manual Intervention in Compliance Onboarding: A Five-Part Series

By: Appo Agbamu, CFA, CEO of Ahrvo Labs

As the CEO of Ahrvo Labs - a network with 400+ payment and banking partners and 20+ in-house developed compliance solutions, I've witnessed firsthand the challenges regulated businesses face in their compliance onboarding and client lifecycle management processes. Regulatory compliance has become more complex. Industries such as banking, insurance, real estate, and payments are grappling with the challenges of onboarding clients while adhering to stringent compliance requirements. 

This five-part series delves into the often-overlooked cost of manual intervention (MI) in compliance onboarding. We'll explore the nuances of compliance onboarding, the pitfalls of fragmented systems, and how rethinking your approach can lead to significant cost savings and operational efficiencies

Part 1: The Four Phases of Compliance Onboarding

Compliance onboarding is a multifaceted process that can be broken into four key phases.

1. Identity Management: Verifying the identity of individuals or businesses is the first step in compliance onboarding. 

2. Document Managment: Secondly, exchanging, signing, and/or validating necessary documents required for compliance.

3. Transaction Management: Monitoring, screening, and reporting transactions. It involves detecting and reporting suspicious activities and ensuring compliance with anti-money laundering (AML) regulations.

4. Ongoing Compliance: The final phase, which continues throughout the client relationship, involves continuous risk assessment and compliance checks to ensure ongoing adherence to regulatory requirements.

This workflow is consistent across all regulated businesses. However, despite the standardization, many fail to integrate these steps seamlessly. An integrated compliance system optimizes the onboarding and client lifecycle management workflow for internal and external users. Such a system is especially beneficial for businesses onboarding at scale, where the opportunity cost of inefficiency can be substantial.

Part 2: The Pitfalls of Using Multiple Vendors

Most regulated businesses employ various KYC (Know Your Customer), KYB (Know Your Business), and AML (Anti-Money Laundering) vendors to handle different aspects of onboarding. While this approach might seem logical at first glance – choosing "best of breed" solutions for each aspect of compliance –  it introduces several challenges:

1. System Reconciliation: With data spread across multiple platforms, businesses must invest significant time and resources into reconciling these systems. This is not a matter of convenience; it's a crucial step for maintaining “real-time” audit trails and gaining comprehensive insights into risk to ensure regulatory compliance. Manual reconciliation and data transfer between systems introduce opportunities for error.

2. Fragmented Risk Insights: Perhaps most critically, siloed data across identity, document, and transaction management systems prevents businesses from gaining insights into risk exposure that would otherwise be preventable if the data across the onboarding and client lifecycle process (identity, document, and transaction management) -i.e., IP, device, was aggregated and utilized by intelligent systems to detect suspicious activity.

3. Data Privacy Challenges: When working with multiple vendors, each handling sensitive PII (Personally Identifiable Information), businesses must have robust processes to monitor and audit how each vendor treats this data. This adds another layer of complexity, cost, and potential risk due to the acceleration of data breaches among organizations dealing with sensitive data.

4. User Experience: Clients face a disjointed onboarding process, negatively impacting their experience and satisfaction.

As an illustration, a user onboarding in the U.S.-based IP signs a document in China minutes later and initiates a transaction from Brazil shortly after. In a fragmented compliance system:

1. The identity verification system captures the initial verification but is unaware of subsequent actions.

2. The document management system records the signing and exchange of documents but doesn't link it to the identity verification.

3. The transaction monitoring system flags the transaction from Brazil but lacks context from the previous steps.

This lack of integration severely hampers risk management. Compliance teams cannot see the complete picture in real-time, increasing the likelihood of overlooking suspicious activities. These costs often far outweigh any perceived savings from choosing individual "best of breed" solutions for different aspects of the compliance process or going with the lowest-cost vendors.

Part 3: Misconceptions About Compliance Costs

Many businesses focus narrowly on the explicit costs of compliance, such as the fees per KYC/B check or transaction screening. While controlling these costs is important, this approach overlooks a more significant expense: the cost of manual intervention.

The True Cost of Manual Intervention

Many businesses focus narrowly on the explicit costs of compliance, such as the fees per KYC/B check or transaction screening. While controlling these costs is important, this approach overlooks a more significant expense: the cost of manual intervention.

1. Delayed Revenue Recognition: Even if sales teams close deals promptly, compliance approvals lag due to manual processes, delaying when revenue can be recognized.

2. Operational Costs: Additional staff time is required to handle manual processes, increasing payroll expenses.

3. Opportunity Costs: Resources spent on manual intervention could be allocated to higher-value tasks that drive business growth.

By employing multiple providers to save money or because of their (perceived) superiority on the market, businesses overlook the delayed revenue from deals crawling instead of sprinting through compliance, and the substantial losses incurred from operational inefficiencies—a classic case of picking up pennies in front of a train.

Part 4: Quantifying the Cost of Manual Intervention

To illustrate the financial impact, I created an equation to quantify the cost of manual intervention:

Cost of MI = (% of onboarded requiring MI) × (Number of businesses onboarded monthly) × ((Avg onboarding time post-MI in weeks / 52 weeks) × (Avg annual revenue per customer)

Breaking Down the Equation 

1. Percentage Requiring MI: The proportion of clients needing manual intervention during onboarding.

2. Number of Businesses Onboarded Monthly: The scale at which the company is onboarding new clients.

3. Average Onboarding Time Post-MI: The additional time required to complete onboarding after the manual intervention is initiated.

4. Average Annual Revenue per Customer: The typical revenue generated by a client in one year.

Example Calculation with Fragmented Systems

Let's use dummy data to illustrate:

• Percentage of Clients Requiring MI: 70% (0.7)

• Number of Businesses Onboarded Monthly: 1,000

• Average Onboarding Time Post-MI: 5 weeks

• Average Annual Revenue per Client: $100,000

Step-by-Step Calculation

1. Calculate the Number of Clients Requiring MI Monthly:

   • 0.7 (70%) × 1,000 = 700 clients

2. Calculate the Revenue Delay per Client:

   • (5 weeks / 52 weeks) × $100,000 = $9,615.38

3. Calculate the Total Cost of MI:

   • 700 clients × $9,615.38 = $6,730,769

Calculation with Ahrvo Comply 

Let's assume Ahrvo Comply reduces:

• % of Clients Requiring MI: Reduced from 70% to 14% (80% reduction)

• Average Onboarding Time Post-MI: Reduced from 5 weeks to 1 week (80% reduction)

Recalculating Total Cost of MI:

1. Number of Clients Requiring MI Monthly:

   • 0.14 × 1,000 = 140 clients

2. Revenue Delay per Client:

   • (1 week / 52 weeks) × $100,000 = $1,923.08

3. Total Cost of MI with Ahrvo Comply:

   • 140 clients × $1,923.08 = $269,231

Percentage Reduction in Cost of MI:

• ($6,730,769 - $269,231) / $6,730,769 × 100% ≈ 96% Reduction

Interpretation

The company experiences a delayed revenue of approximately $6.73 million annually due to manual intervention. The key takeaway is clear: businesses need to shift their focus from the explicit costs of individual compliance checks to the implicit costs of inefficient processes. Companies can dramatically accelerate revenue recognition and improve overall business performance by reducing manual intervention and utilizing integrated compliance solutions like Ahrvo Comply.

Part 5: Rethinking Onboarding—An Integrated Approach

To truly optimize the compliance onboarding process, regulated businesses need to adopt a new mindset. Instead of viewing onboarding and client lifecycle management as a series of checks and verifications, they should approach it like a car manufacturer views its assembly line and inspection process.

The goal should be to create a seamless, integrated system that:

1. Streamlines production (onboarding): By integrating all aspects of the compliance process, from identity verification to transaction monitoring, businesses can create a smooth, efficient onboarding workflow.

2. Increases production throughput (onboarding rates per month): With fewer manual touchpoints and better data integration, businesses can onboard clients faster and at higher volumes.

3. Facilitates quick approval by inspectors (compliance and underwriting teams): By providing comprehensive, real-time data across all aspects of compliance, businesses empower their teams to make faster, more informed decisions.

Conclusion

The cost of manual intervention in compliance onboarding is a hidden expense that can significantly impact a business's bottom line. By focusing solely on the explicit costs of KYC/B and AML checks, companies overlook the substantial implicit costs associated with fragmented systems and delayed processes.

It was with this comprehensive, assembly-line approach in mind that we developed Ahrvo Comply. Our patent-pending integrated system combines over 20 compliance solutions across identity, document, and transaction management, addressing the full spectrum of compliance needs, for all regulated businesses, in one cohesive platform.

Businesses using Ahrvo Comply have consistently reported:

- Up to 90% reduction in manual intervention

- Significant acceleration in revenue recognition

- Improved customer experience during onboarding

- Enhanced ability to identify and mitigate compliance risks

- Streamlined audit processes and improved regulatory reporting

Key features of Ahrvo Comply include:

1. Comprehensive Integration: By bringing together solutions for identity management, document management, and transaction management, Ahrvo Comply eliminates the need for multiple vendors and the associated reconciliation challenges.

2. Intelligent Automation: Our system leverages advanced algorithms and machine learning to automate many aspects of the compliance process, dramatically reducing the need for manual intervention.

3. Real-time Risk Insights: With all compliance data in one system, Ahrvo Comply provides real-time, holistic insights into potential risks, allowing businesses to respond quickly and thwart emerging threats.

4. Scalable Architecture: Designed to handle high volumes of onboarding requests, Ahrvo Comply grows with your business, maintaining efficiency even as you scale.

5. Customizable Workflows: Recognizing that every business has unique needs, Ahrvo Comply allows for customizable workflows that align with your specific compliance requirements and risk tolerance.

Looking Ahead

In our next post, we'll dive deeper further into the hidden costs of fragmented compliance systems, exploring how using multiple vendors for KYC/B and AML processes can lead to unexpected inefficiencies and risks. We'll examine real-world scenarios that illustrate these challenges, and explore how solutions like AI agents and portable identity help resolve manual intervention.

____________________________________________________________________________

About the Author

Appo Agbamu, CFA is the Founder and CEO @ Ahrvo Labs Inc. Ahrvo develops, markets, and sells compliance, payment, and banking solutions. Appo earned a B.Acc. in Accounting and a BBA in Economics, w/a minor in Financial Markets from the University of Minnesota. In addition, Agbamu is a Chartered Financial Analyst (CFA) charterholder.

About Ahrvo Labs

Ahrvo Labs offers businesses cutting-edge payment and compliance solutions that optimize payment and banking processes and ensure regulatory compliance. Our state-of-the-art payment gateway features a single onboarding process that provides access to over 400 leading financial institutions worldwide. With secure global transactions and a commitment to regulatory compliance, our cutting-edge payment and banking gateway is designed to simplify workflows and streamline operations for businesses. Learn more @ https://ahrvo.com.