According to Deloitte, 38 percent of new banking customers will abandon the account creation process if they find that the onboarding process is taking too long, or requires more information than they are prepared to disclose. Given this startling statistic, it should be no surprise that at least 26 percent of customers feel that “easy enrollment and login” are the most important criteria on which they decide who to bank with.
These findings only serve to reemphasize the need for banks and financial institutions to optimize the onboarding experience for their customers. Traditionally, FIs have been slow to modernize their onboarding process, while direct banks that were native to the internet turned this to their competitive advantage, utilizing technology to offer onboarding experiences that were substantially quicker and lower-touch.
Even as legacy banks became digital, building their own online banking solutions to enable customers to open accounts digitally, their onboarding process was dogged with delays — for instance, IDs and other important documents are still required to be presented in person before a new account can be opened.
Indeed, one of the most significant factors behind the lengthy duration of customer onboarding was the customer due diligence process, which entities that are regulated under Know Your Customer (KYC) and Anti-money Laundering (AML), such as banks, credit unions and financial services, are required to complete.
In fact, onboarding a business or a corporate customer takes even more time; in Europe, regulated entities have to go through reams of paperwork in order to determine the beneficial owners of a business that they are trying to onboard — a requirement under the Fifth Anti-Money Laundering Directive (5AMLD). Indeed, ownership structures tend to be complicated and, in order to break them down, banks need to gather an array of documents, which can turn into a very time-consuming process.
Even as financial institutions have tried to devise in-house solutions to accelerate the customer due diligence process, their processes are still too rooted in the past, and are slow to change.
However, recent regulatory changes aimed at disrupting the banking oligopoly have forced banks to respond with more urgency to growing customer expectations.
Under Europe’s revised Payment Services Directive (PSD2), banks are required to allow payment services and Account Information Service Providers (AISPs) — AISPs are aggregator tools, like mobile wallets, which offer its users a consolidated view of their accounts with different banks — access to customer account data. This will have huge implications; for banks, customer account data is a massive competitive advantage — it’s how they are able to price their products and do risk-scoring.
Neither of these two third-party providers (TPPs) will be permitted to use this data to enhance their business models, however. Even so, Deloitte predicts that PSD2 could help TPPs disintermediate banks’ interactions with their customers.
In the UK, the Competition and Markets Authority (CMA) intends to use open banking to level the playing ground in the retail banking sector. Open banking requires major banks in the UK to make customer account data available to third parties using Open APIs.
With open banking, in particular, price comparison sites stand to benefit. Conversely, banks may be at risk of losing existing customers as customers acquire an added visibility into which banks offer them better bang for their buck.
These changes and more reiterate the need for banks to seek ways to offer more value to customers; one of the most effective ways of attracting more customers is ensuring a quick, frictionless, yet compliant, onboarding process, which can both incentivize more customers to bank with them, and also meet KYC and AML obligations more effectively.
Find out how Koho uses Trulioo to provide its customers with a seamless onboarding experience while meeting its compliance obligations at the same time.