02 Mar
Change is coming.
In a survey regarding client onboarding in banks 40% of consumers stated to have abandoned bank applications and 39% of those abandonments were due to the lengthy process. Additionally, more than a half declared that they would be more likely to apply for a financial product if the process was fully online. These results give a glimpse into the shift in clients expectations regarding financial services and products in recent years.
This transformation in customer expectations is a result of many different factors. One of them is digitalisation and the overwhelming impact of big companies like Google, Facebook or Amazon on everyday life activities. They deliver their services in a way that is very convenient for the customers; it is simple, easy and highly personalised. Another reason is the rising competition of FinTech companies; they are innovative, agile and focused on providing great customer experience from the very beginning. Thanks to that they can deliver their services in a similarly convenient and pleasant way. Development of an open banking market and neo banks create a compelling alternative to traditional financial institutions.
The above changes affect the way in which clients consume services and cause a shift in the approach to client onboarding; it can be seen as a competitive differentiator.
Customer and company perception of customer centricity:
Source: Capgemini, “The Disconnected Customer.” 2017
First impressions matter.
A traditional approach where client onboarding and KYC procedures are only routine processes is bound to fail. It is often too complex, inefficient and as such, discourages new clients, as it may even take days or weeks to complete.
The customer-centric approach is about viewing customer onboarding as a first interaction with the firm and a moment in which the relationship building process starts. Today’s clients see this process as an indicator of how using services of a particular financial institution will be in the future. Good first impression contributes to building loyalty, trust and will contribute to retaining the customer in the future. Ignoring the importance of onboarding may have grave consequences – as DBR’s study stated – most financial institutions lose $400 in revenue from each customer as a result of 25-40% rate of attrition.
If the client perceives onboarding to be frustrating or too long it is easy to lose them and with that, the acquisition efforts are wasted. When financial institution offers only in-branch onboarding or an online process ends by redirecting to a local branch, client’s decision about switching to other provider that can onboard online is easy. Yet in DBR’s report of all the surveyed banks and credit unions as many as 75% of them require their customers to complete identity verification in a branch.
Application time and user experience:
Can banks catch up with the competition regarding new client onboarding?
In 2015, even though 70% of the customers preferred to open their accounts online, almost 60% of them, still had to visit a branch as a part of the process. Today, those numbers change in favour of the digital account opening, but it is still far from mainstream when it comes to traditional financial institutions.
There are many reasons why the change in favour of customer-centric approach and automation of the onboarding process is unavoidable for the financial institutions to stay competitive. More “traditional” approach to client onboarding has a negative impact not only on the customers but also on the organisations themselves.
For the customers, because long and complicated account opening can be frustrating. Research shows that an average onboarding process can consist of more than 200 steps when customers usually prefer fewer than five. Some clients would not even consider opening an account or quickly abandon opening it, if a financial institution doesn’t offer fully online and multichannel onboarding. Not only that, according to research 80% of respondents are willing to pay more for better customer experience.
Consumers willing to spend more for a better experience – by sector:
Source: Capgemini, “The Disconnected Customer.” 2017
Acquiring a new customer is a costly endeavor that can go to waste due to disregard for the importance of onboarding as a relationship building experience. For the organisation, lack of operational efficiencies and productivity results in a loss of potential revenue, and the unnecessary costs of maintaining processes and procedures that are not optimised and transparent.
Change from inefficient legacy systems to ones that use new technologies can be a costly and complicated undertaking. However, digitalisation is unavoidable as the financial sector evolves further and the way in which products are consumed change. Additionally, regulations like FATCA or MiFID-II encourage banks to assess their customer acquisition processes.
Possible gains from improved customer journey.
Although improving the onboarding processes is not easy, it can be a great investment. As described above, process automation translates to operational efficiency, better quality and compliance. However, there are also additional benefits for the company, that come from taking a more customer-centric approach. According to the report from J.D. Power and Associates “improving customer satisfaction by as little as 50 points can equate to a $24 million increase in revenue per 500,000 customers. Put differently, a 50 point increase in satisfaction per customer can equate to a 6% increase in revenue.”.
FinTech – rivalry or partnership?
A rise of FinTech companies does not have to be perceived by banks as a threat, it can be an opportunity and the collaboration may be advantageous for both. FinTechs can partner with traditional institutions and help the latter in providing a fuller, better service. At the same time, FinTechs would gain access to a wider customer base. There are already many examples of such partnerships, like LendingClub partnering with banks to enable them to both purchase loans directly through LendingClub platform or to offer new products to their customers. Other examples of such collaboration are the ones between Symphony and Goldman Sachs or Burling Bank and Akouba. According to World FinTech Report: 75,5% of FinTechs’ primary business objective is to collaborate with traditional firms.
Primary business objectives of FinTechs:
There is also a fast expansion of RegTechs on the market; companies which can fulfill the role of enablers. As service providers, they can help financial institutions comply with different local regulators, while optimising costs and boosting productivity and efficiency. RegTechs are often using cloud computing technology, platforms or APIs which allow for accessible adoption of scalable, flexible solutions based on innovative technologies. For example, Fully Verified offers integration in a form of SaaS or Full Service, that outsources the identity verification process.
Such collaboration with RegTechs allows traditional financial institutions to adopt a more customer-centric approach to new client onboarding. This way they can offer their customers a multichannel, streamlined onboarding that includes identity verification and complies with KYC requirements. completed in a matter of minutes. Customers can enjoy simple, functional interface and a frictionless journey that leaves them with a positive impression of the whole company. Organisations gain added revenue, lower attrition rates and cost optimisation of processes. Digital onboarding also translates to better compliance since the whole process can be recorded and stored for future reference (especially when the identification is based on a video stream). To sum up, it allows to create onboarding process that offers high security at low risk.
To ensure that they stay competitive, it is essential for banks to revise their onboarding processes as even though 75% of companies believe that they are customer-centric, only 30% of their customers can agree with that!
Title image: Spiral by Khairul Nizam https://bit.ly/2WnG8Iy
Sources:
[1] Signicat, ”On-boarding report”, 2016.
[2] Cognizant, 20-20 Insights, “Efficient Clinet Onboarding”, 2013.
[3] Digital Banking Report, “Account Opening and Onboarding Benchmarking Study”, 2017.
[4] Capgemini, World FinTech Report, 2018.
[5] “Marketers Either Get Onboarding Right or Pay a Heavy Price” by Jim Marous, June 5, 2018.
[6] Accenture Strategy, “Black Hole to White Glove” 2017.
[8] Javelin Research, “Digital Account Opening Reaches the Tipping Point” 2015.
[9] https://www.lendingclub.com/investing/institutional/banks
[10] “To beat Bloomberg, Symphony is letting banks’ bots talk with each other” by Oliver Staley, October 19, 2018.
[11] “Promise and Peril: Managing the Uncertainty of Rapid Innovation and a Changing Economy” by Lamont K. Black , Makaylah Brookshire , Louie Christopoulos , Alexandra Dumitriu, Andrew Edwards , Courtney Markovich , Kristin Rhodes , Brian Wolfe, 2017.
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Fully-Verified was created as answer to its founders collectively losing over $150 000 to various types of fraud in their eCommerce businesses.
