Customer onboarding and account opening is vitally important for banks to get right, as the processes kick off customers’ relationships with a given financial institution (FI). The ongoing COVID-19 pandemic has forced many of these onboarding processes and interactions online as customers limit their physical branch visits to avoid contagion. Recent research found that mobile account openings increased by 200 percent in April, driven almost entirely by the pandemic.
This shift to digital services is likely to continue even after COVID-19 is contained, with 60 percent of customers who have shifted to digital banking saying they will continue to use these services even after stay-at-home orders and social distancing guidelines have been lifted. Banks do not seem to have been well-prepared to face this surge in online onboarding activity, as only 56 percent of FIs currently offer the ability to open accounts digitally.
Even banks that do offer digital account opening find their customers face several challenges in their onboarding, including tedious application processes and excessive costs. The following Deep Dive explores how these obstacles result in customer attrition as well as how banks are deploying new technologies like biometrics to ease these frictions.
Customer onboarding processes can be rife with obstacles and frustration, and many users give up on the process entirely before they even open an account. A study in 2018 found that in the U.K., 50 percent of potential customers had abandoned an onboarding process with an FI, and 34 percent said they abandoned the process because it was too time-consuming.
This obstacle is well-documented and is at least partially caused by the regulatory checks that all banks must perform on their customers to ensure they are not using their bank accounts for fraudulent purposes or money laundering. These know your customer (KYC) checks involve the gathering of customers’ identities, financial statuses and addresses as well as more esoteric information like credit checks, information requests and other data that often involves physical bank visits and reams of paperwork. These checks take days to accomplish, a far cry from the smooth, instant signup processes that customers experience in many other facets of their digital lives. The onboarding time for corporate customers is even more onerous, with a 2019 study finding that the average time to open a business account is a staggering 32 days.
These lengthy KYC checks also come at great costs for banks. Large FIs report spending more than $500 million annually on customer due diligence, and many are understandably looking for ways to accelerate these processes and save money while doing so. Cutting any corners would come at a cost as well, however, as improperly performing these checks could result in fines of up to €3.5 million ($3.9 million USD) a year. The value of lost customers should not be discounted either, as they are predicted to cost banks more than €150 million ($168.9 million USD) in the next five years.
Adopting new technologies could simplify the onboarding process, though, reducing customer headaches and protecting banks from lost business. Biometrics and document identity scans have shown the most promise so far and are popular among bank customers as an alternative to traditional KYC processes.
An FI Onboarding Upgrade
FIs have the opportunity to streamline onboarding with biometrics such as facial recognition technology to verify that applicants are who they say they are. Customers typically either visit bank branches for facial scans or simply upload a selfie to their mobile banking app, which the system can then compare against government-issued identity documents.
Biometric verification methods are already quite popular among bank customers according to one study, meaning they would likely be readily accepted for onboarding processes. Two-thirds of respondents said they preferred biometric authentication to traditional passwords for bank interactions, so much so that 53 percent said they would switch banks if their current FI did not offer biometric options. Approximately 42 percent were appreciative of the fact that biometrics enabled them to no longer have to remember passwords, while 34 percent thought biometrics offered improved security over passwords.
Another technology to speed up FI onboarding processes is document identity scanning, where customers take pictures of their government-issued identification, Social Security card or other ID document and submit them to an artificial intelligence (AI)-powered analysis system for scanning. The system cross-references these IDs with national databases to ensure their authenticity, providing a much faster alternative to visiting bank branches for manual inspection. These verification systems are particularly handy during the COVID-19 pandemic, as visiting bank branches is a nonstarter for those wishing to avoid infection.
Whichever method banks choose to accelerate their onboarding programs will likely be a welcome improvement over tedious legacy systems. Their replacement may not retain the entire 50 percent of customers who abandon onboarding processes, but any reduction in attrition will go a long way toward improving the financial industry’s future.