Consumers perform numerous financial activities online, from paying bills to buying stocks, even applying for mortgages. Why then is the digital account opening process so problematic for so many banks, with only eight percent of account openings being completed on mobile devices?
Do consumers prefer traveling to a bank branch to open an account? Or is the user-experience online turning them away? The vast majority of millennials — 82 percent — use mobile-only banking. This highly valued demographic represents people who are at a point in their lives where they are growing their spending power and now are the biggest age segment. The generation after them, Gen Z, will probably be even more interested in exclusively banking online. Even two-thirds of Generation X customers prefer opening accounts online.
Nor is it that banks aren’t interested in offering digital account onboarding. In one Cornerstone Advisors survey of executives at U.S. community-based financial institutions, digital account opening has been at the top of the list of technology plans for the last three years. They understand consumers want processes that are seamless and reasonably quick. They are also interested in technologies that better utilize their staff’s time, cut down on errors and automate manual processes.
Challenger vs legacy banks
When challenger banks are creating their online experiences, they have a blank canvas; the limitations and preconceptions are not as hardwired in to the culture and processes as what established banks face. As these neobanks are creating brand new, or nearly new, interfaces, technology stacks, systems and procedures, they can focus on delivering an astounding user experience right out of the gate.
- They have technology systems with components that might be decades old
- Their Anti-Money Laundering and Know Your Customer (AML/KYC) procedures were often established in an era when manual processes were the norm
- They have built up reputations over decades and are naturally wary of making changes
Big banks are especially reluctant to change, as they are already successful, and changing systems that bring in a significant number of customers is a risk. One could argue that not changing is a risk, but until there’s proof that a new process will improve customer acquisition, there’s more incentive to maintain the status quo.
So, while there’s a desire for established banks to create better digital account opening process, the historical realities require careful consideration; how can these financial institutions update their procedures without undue risk, cost or complication?
Alternative models and a changing landscape
Fintech, of course, is the answer. By implementing new financial technologies, banks can manage the various requirements of compliance, security, growth and other departmental imperatives.
In some cases, it’s buying a separate challenger bank brand. Established banks have the resources to swallow up a neobank and, in effect, use it as a laboratory to learn what works in the new digital space. This approach doesn’t carry the same risk as altering the main brand, and successful techniques have a better implementation path for the institution as a whole.
Similarly, a traditional bank can create its own challenger bank. To consumers or operations, this can look like an altogether separate bank, without any of the encumbrances of a legacy institution. All the accumulated knowledge, wealth and expertise of the main bank are available to an extent, but the challenger bank can create its own path, with new tech stacks and fresh outlooks on best practices.
Buying or creating a bank is not cheap, quick or easy, though. While the results might produce powerful synergies, the time required to achieve results is a significant strategic obstacle.
It’s not just challenger banks that are changing the competitive landscape anymore. Now, internet giants are starting to enter the fray, and they have the deep pockets, customer base and digital expertise to potentially revolutionize the whole banking model. Google is getting into banking. Facebook is getting into payments. Apple has introduced a credit card. While these are initial forays and the full spectrum of their approaches are presently unclear, the market for digital accounts is increasingly competitive.
Rethinking and retooling
The fact of the matter is that digital onboarding IS different than traditional onboarding. Why then are digital account openings often put through the same procedures as in-branch sign-ups? Are those legacy forms even relevant today? When was the last time those processes were reviewed and optimized? Simply because you can collect information doesn’t mean you should.
As opposed to a branch visit, where the expectation is that the onboarding process will be completed during that visit, digital onboarding can take place over time and over multiple sessions. The biggest hurdle is the initial account creation, so speeding customers through that step helps create a positive experience; other information requests can come later on, once the customer is more comfortable.
Rethinking how onboarding works from the ground up is a strategy that will align the new customer journey with compliance procedures and other specifications. Considering that the majority of new customers do want digital onboarding and the number is bound to only increase, new digital-first processes are smart strategies to ensure that hard-fought-for prospects are more likely to become customers.
The other consideration is how best to adopt or integrate new technological capabilities. While bank executives might dream of creating a brand-new, modern tech stack from scratch, that is also a nightmare scenario; the banking infrastructure of major banks has so many different systems, elements and interdependencies that extensive changes are onerous if not impractical.
An API approach, enabling quick implementation of new services, while avoiding the risks of changing legacy code and processes, is one way forward that many banks are taking.
In terms of digital onboarding, identity verification APIs can help speed up the experience while still helping deliver the necessary KYC compliance requirements. By decreasing abandonment while simultaneously mitigating risk, identity verification APIs appeal to the whole range of stakeholders that need to buy in before banks change their fundamental processes. Change is never easy, but if the change is smart, safe and appealing then objections are quickly answerable. As effective digital account opening is a major contributor to prospects becoming long-term customers, it is one step that all banks should apply special focus to.
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