Money is a sensitive subject for almost everyone, and new customers often approach banks with scepticism. It's crucial for financial institutions to address these concerns through a smooth and effective customer onboarding process. According to McKinsey, reimagining the banking customer experience is essential, with onboarding and issue resolution playing key roles in customer retention.
The onboarding process is the bank's "moment of truth," setting the foundation for the entire relationship with the customer. A poor experience can lead to lost clients, reduced revenue, and damaged brand perception. In this article, we'll explore how to simplify the digital customer onboarding process in financial services.
The pandemic has accelerated the shift toward digital financial services, with more people engaging online than ever before. David Malpass, President of the World Bank Group, notes that the digital revolution has transformed how people manage their finances. This transformation is driven by Gen Z and millennials, who account for 75% of the Buy Now, Pay Later market and 94% of cryptocurrency users aged 18-40. These digitally native consumers expect seamless digital interactions, especially during onboarding.
Understanding Customer Onboarding in Financial Services
Customer onboarding in financial services is a critical step that involves integrating new users into the bank's system and verifying their legitimacy to prevent money laundering and fraud. This process includes regulatory compliance measures like Know Your Customer (KYC) procedures, identity verifications, and collecting personal documents such as name, address, and age.
Moreover, the digital customer onboarding process equips users with knowledge and tips to help them reach their "aha!" moment, shortening the time to value. This involves giving users product tours to help them out, handing out credit or debit cards, and setting up a self-service knowledge base for users to tackle problems on their own.
A seamless onboarding experience not only enhances customer satisfaction but also ensures compliance with necessary legal and regulatory checks. It reduces the time to value and fosters a stronger relationship between the customer and the financial service.
Challenges in Digital Customer Onboarding for Financial Services
Traditional customer onboarding in banks faces limitations such as limited accessibility, time-consuming procedures, security risks, and high operational costs. Key challenges include maintaining regulatory compliance, ensuring data quality, improving customer experience, and providing sufficient staff training. The introduction of automation and technology adds another layer of complexity. Specifically, onboarding for corporate clients is slow, repetitive, and complex, often resulting in dissatisfaction and the risk of losing clients to competitors.
Complicated User Experience
Research by Deloitte indicates that 38% of customers abandon the onboarding process midway, often due to its slow and disorganized nature. The time it takes to complete onboarding is one of the biggest challenges financial services face.
Banking is unique because it deals with sensitive financial data, which heightens the stakes. Each department—legal, operational, and credit—has its own rules and procedures, often requiring customers to navigate multiple department-specific processes. This can lead to frustration, especially when customers are asked to submit the same information repeatedly. As Deloitte's research suggests, a frustrating onboarding experience often leads to customer churn.
Data Quality and Verification Concerns
Banks must comply with strict regulations, such as KYC rules, to prevent fraud and money laundering. While essential, these regulations can complicate and lengthen the digital customer onboarding banking process, negatively impacting customer experience.
Data quality is another key concern. According to O’Reilly, only 20% of organizations have dedicated data teams, while most rely on inadequate tools and practices. This lack of proper data management increases the risk of fraud and hampers the onboarding process.
Benefits of Implementing Effective Customer Onboarding in Financial Services
A recent worldwide survey on client onboarding, carried out by Forrester, uncovered an interesting stat. Apparently, over 64% of banks have faced deal losses and revenue setbacks due to the hassles caused by their drawn-out onboarding procedures.
Compliance with KYC Regulations
Know Your Customer (KYC) checks are like the friendly bouncers at a club, making sure everyone's legit and safe to hang out with. These checks occur during customer onboarding and at key moments in the customer lifecycle. Financial services that need to adhere to regulations cover a wide range, such as banking, credit, payments, money transfer, and even the ever-growing world of cryptocurrency (although the specifics can differ depending on the location).
Compliance plays a crucial role in the business world by combating financial crime. It helps in steering clear of money laundering, lowering the risk of transactions with sanctioned entities or politically exposed persons (PEPs), and fraud prevention measures. It also mitigates risks associated with non-compliance, including financial penalties and damage to brand and reputation.
Building Trust and Reputation with Identity
In the digital market for financial services, where trust has significant brand value, considering KYC checks and identity verification as integral parts of the customer experience makes good business sense.
Striking the right balance of personal identifiers, identity documents, biometrics, behaviours, and signals at appropriate touchpoints provides an opportunity to establish reciprocal trust between the customer and the financial service provider. This instils greater consumer confidence from onboarding onwards. Well-designed KYC checks and a smooth digital customer onboarding process remove barriers and provide access to financial services while reducing opportunities for those who wish to abuse the system.
How to Align Your Onboarding Process with Risk Profiles
To enhance customer onboarding in financial services, it's crucial to match your processes with the appropriate risk levels of your customers. Below is a checklist to help you assess and refine your onboarding approach:
☐ Identify customer risk levels early: Implement tools that automatically assess risk levels based on customer data, allowing for faster onboarding of low-risk customers.
☐ Customise KYC checks: Ensure that your KYC and identity verification methods match the risk level of each customer, reducing unnecessary friction.
☐ Use multi-layered verification: Combine biometrics, government-issued IDs, and trusted data sources to create a seamless yet secure onboarding process.
☐ Adapt to international regulations: Make sure your onboarding process complies with global and regional regulations to avoid penalties and delays.
☐ Leverage automated risk management: Use automated tools to detect fraud signals and adjust security measures based on real-time risk assessments.
☐ Optimise for speed and security: Balance quick onboarding with robust security to enhance customer satisfaction without sacrificing compliance.
Risk Assessment and KYC Solutions
Using a risk-based approach to KYC is essential for meeting global compliance standards and protecting the business from problematic customers. This means having a risk framework that considers factors like location, financial status, demographics, and other key indicators to guide onboarding decisions. Effective KYC doesn't just give a simple yes or no; it assesses the level of risk to make informed decisions.
The onboarding process can be lengthy and involve many tasks. By identifying high-risk customers based on suspicious activities early on, compliance teams can prevent potential issues before they affect the business.
Digital customer onboarding uses identity verification technologies designed to spot fake ID documents and stop fraudulent applications in real-time. The best onboarding solutions include automated risk assessments because potential customers can show signs of being either low or high risk.
Top-notch KYC solutions are multi-layered. They combine risk management tools that search for fraud signals with accurate trust scoring algorithms and various methods for verifying identity data and authenticating documents. These systems guide customers through the onboarding journey, adjusting the process at key decision points. This means offering faster, smoother experiences for low-risk customers and adding extra security when needed.
Speed and Convenience Are as Important as Security
For financial services to build trust and succeed, the onboarding process must be not only secure but also fast and convenient. Consumers have little patience for poor digital experiences; they prefer services that meet their needs with minimal hassle and delay. To keep customers from going elsewhere, KYC checks during onboarding should be completed within minutes without sacrificing compliance.
Enhanced Customer Loyalty
Effective customer onboarding is crucial for boosting customer retention. With so many banks to choose from and the typically long process of opening an account, providing superior service and meeting customer needs can win you a customer for life.
Loyal customers also become excellent brand ambassadors. They'll stay with your bank and share their positive experiences with others, effectively promoting your brand without additional marketing efforts.
Improved Customer Experience
Opening a new bank account can often be frustrating—submitting the same documents multiple times, answering repetitive questions, and waiting a long time for verification before you can use the account.
Digital customer onboarding significantly improves this experience. It offers straightforward, non-repetitive questions and shorter wait times. Plus, it provides an opportunity to educate new customers on how to use complex bank features effectively. There's also a self-service knowledge base where customers can find information at their own pace without having to wait for customer service representatives.
Improvement Through Analysis and Adaptation
Achieving the optimal customer onboarding experience in financial services involves striking a balance between simplicity in sign-up procedures and the necessities of compliance and risk management. This is not a one-time task but an ongoing process that benefits from solutions providing analytics on user experience flows.
Evaluate which devices, operating systems, browsers, and screen resolutions your potential customers commonly use during the sign-up process. Identify stages where drop-off rates are high and investigate the underlying reasons. For companies operating globally, analysing data by region can offer valuable insights into the effectiveness of localized onboarding experiences.
Most importantly, assess your business's customer onboarding conversion rate. How many applicants are automatically approved, declined, or flagged for additional review? By pinpointing these performance metrics, you can establish an improvement cycle that learns from past experiences and continuously refines the digital onboarding process, ultimately boosting conversion rates.
Conclusion
A great customer onboarding in financial services is more critical than ever. With the rise of digital customer onboarding in banking, financial institutions must focus on creating seamless, secure, and efficient user experiences. By addressing challenges such as complicated user flows and data quality concerns, and by leveraging the benefits of effective onboarding processes, banks can enhance customer loyalty, improve customer experiences, and stay ahead in a competitive market.
Focusing on a well-designed digital customer onboarding process not only satisfies regulatory requirements but also meets the high expectations of today's digitally native consumers. By implementing multi-layered KYC solutions, ensuring consistency across platforms, and continually analysing and adapting, financial services can offer a customer onboarding experience that builds trust, reduces risk, and fosters long-term relationships.
If you want to speak with one of our customer onboarding experts for financial services, contact us here.