September 6, 2021

The Digital Onboarding Challenge for Banks today

September 6, 2021

The Digital Onboarding Challenge for Banks today

In the new "normal", banks and financial services companies are looking to adopt a refreshed approach towards customer interactions that emphasize the digital rather than the physical. More transactions are moving to online channels and the value customers get from the digital relationship is growing.

But with the continued emphasis on digital transformation and technology, banking customers are expecting nothing short of a premium banking experience right from the time they are onboarded.

As Fintech investor, Arvind Sankaran puts it, “We’re witnessing the creative destruction of financial services, rearranging itself around the customer.” Simply put, banks can only acquire new (or retain existing) customers through a personalized digital experience. No longer can they rely on the “traditional” mode of onboarding new clients that takes between 2-12 weeks (according to Forrester Consulting).

In its “Banking the Next Billion” study, Citigroup estimates that an additional 700-800 million Americans will enter banking (for the first time) by the end of 2022. To accommodate new customers, how can banks leverage the power of digital onboarding? Let us look.

The Growing move towards Digital Customer Onboarding in the current scenario

Apart from nurturing the financial inclusion of the "unbanked," digital onboarding is a mechanism that is providing an easy and friction-less customer experience without the need to travel to the nearest branch. Right from the time customers start their banking experience,they have access to "banking on their fingertips" through a mobile banking app.

Further, digital KYC (or e-KYC) is making it easy for banks to onboard new customers particularly from remote areas as well as reduce their operational costs. McKinsey estimates e-KYC can reduce operational costs by 90%.

Having said that, banks also need to steer clear of various challenges in digital onboarding. Let us find out which ones.

4 Main Challenges in Digital Onboarding

Let us first understand the challenges that are stopping banks from fully embracing the digital onboarding of their customers. Here are the 4 main challenges:

1. The long and complex onboarding process

Going by the findings of the Millennial Disruption Index study, 33% of American millennials find traditional banking to be obsolete with four of the leading U.S banks ranked among the least-loved brands among millennials. The primary reason behind this seems to be poor customer experience (or CX).

Additionally,improper migration between branch-led and mobile-first channels hampers a smooth CX across multiple touchpoints.

Yet even banks with digital onboarding are unable to onboard their new customers without any need to collect some physical documentation or some delays. Similarly, banks offering multiple services (like retail banking and insurance) end up needing to go through the long and complex process of onboarding the same customer multiple times for these services.

2. Growing demand for full-access banking services

Customers have started to expect the full range of all banking services on their laptops or smartphones. In this regard, the US seems set to catch up with a trend that has already become well-established in other markets. For instance, the 2018 McKinsey survey found that between 55-80% of customers would consider banking with a completely branchless and digital-only bank.

3. High customer abandonment rate

Customer abandonment continues to be the biggest hurdle for banks when registering new customers through the digital onboarding process. As US banks start going down this road, there are some lessons to be learned from those that have already trodden this path. For instance, a Signicat study found that the percentage of European banking customers abandoning their banking app grew from 38% (in 2019) to 63% (in 2020).

A lengthy application process is one of the leading reasons behind customer abandonment. According to the "Built for Mars” study,online account opening at leading U.K-based banks takes between 70 to 120 clicks. For today’s digital-focused customers with a short attention span,this can translate into poor CX.

4. Frequent regulatory changes

According to Bain & Company, anti-money laundering breaches cost banks over $200 billion between 2009 and 2016.

In the aftermath of the 2008 global banking crisis, banks are now required to comply with constant changes in financial regulations designed to safeguard banking customers.

Even as banks focus on providing exceptional CX, they also need to adapt their onboarding process to comply with the latest changes in the regulatory framework. In this scenario, banks need to quickly adopt even minor changes in financial regulations into their existing process or operation.

How Banks Can Streamline the Onboarding Process

How do banks streamline their digital onboarding process to overcome these challenges? Here are some essential elements of an optimized customer onboarding process that can work across the entire customer journey:

Finally, a streamlined onboarding system can be "perfected" through smart testing and validating. For example, user testing methods are effective for learning from the user onboarding experience. A well-developed testing strategy can help in narrowing down what needs to be included (or left out) from the onboarding flow.

Conclusion

With Fintech companies disrupting the traditional retail banking model, the future of banking depends on how banks can transform their customer relationships through an efficient digital onboarding process. Smooth onboarding can be achieved only through smart, agile, and customer-focused processes.

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