Best in Class Onboarding

By: Sarah Kocianski, Principal Research Analyst, 11:FS

Published: June 12, 2018

Onboarding comprises of the processes by which a consumer or business becomes a customer. The term applies to the end-to-end journey, from a customer seeking insight into which product is right for them, through the application process, and onto the issuing of that product and the customer starting to use it.

In financial services these processes are highly manual, with financial institutions (FIs) requiring would-be customers to visit branches, fill in paper forms, provide original identity documents and get hold of paper copies of bills that are mostly delivered electronically these days. These requirements result in many points of friction and can lead to significant levels of dropout mid journey. They are also costly and time inefficient for staff to carry out.

At the same time, startups in the financial services industry are using technology to reimagine how onboarding can be carried out. Taking their cues from the likes of Google and Facebook, they are using smartphone cameras and APIs alongside software such as optical character recognition (OCR) and electronic signatures to make onboarding a faster, cheaper, lower-friction experience.

These factors are putting pressure on FIs to take another look at how their onboarding journeys work. They have also resulted in a significant number of companies, in many cases startups, creating products and services specifically designed to help FIs with this issue. It’s not easy, however, and there are a number of hurdles that must be overcome by FIs in order to avoid replicating pain points that exist in manual onboarding journeys in digitalised versions. For example, 11:FS found that of customers who had signed up to use a digital financial service or app, 22% found the amount of information they had to provide the most painful part of the experience. That’s likely the result of FIs simply turning analogue processes digital, without thinking about how technology could help them improve those processes.

I took a look at the current state of onboarding in financial services, examined the drivers outlined above in greater detail, explored the most common pitfalls made by FIs moving their onboarding processes online and spoke to a range of companies in this space. The result is a set of principles and features, illustrated with case studies, that FIs looking to create best in class onboarding journeys would be wise to follow if they want to unleash the promised benefits of digitalised onboarding.

Basic customer digital onboarding process

Basic customer digital onboarding process

Why should big FIs with millions of customers bother?

Overhauling any process needs serious consideration in a financial organisation, given the highly regulated nature of the business and the number of customers that could be negatively affected if something goes wrong. So why should FIs bother?

Customers expect it

Everyone knows that thanks to Google, Amazon, Facebook and Apple – collectively known as GAFA – expectations around what constitutes a good user experience have shifted radically. These companies have trained us to expect slick, digital user journeys that can be completed with as few steps as possible, wherever and whenever we want. And if we don’t get that, we lose interest and wander off; or worse, we complain. Loudly. On social media.

It’s accessible by a huge range of potential customers

The ubiquity of smartphones means FIs large and small can reasonably assume those applying for a new product digitally will be able to take a photo of their ID and then upload it. Additionally, many other documents used in the identity verification process, such as household bills, are now delivered electronically, while fewer and fewer people have access to printers. This means that uploading such documents digitally is actually easier for many than obtaining a printed copy.

New market entrants are doing it

Challengers to incumbents are springing up in every area of financial services. These firms have many advantages over their more-established peers, including a desire to use innovative technologies and strategies. They also have newer IT systems, which are much easier to incorporate third party products and services into. Starting from this base enables challengers to create onboarding journeys which are more appealing to most would-be customers than those offered by incumbents. Partly as a result of this, customers are signing up for startup services at a rate large banks and insurers can only currently dream of. Whether they go on to use those services regularly is a subject for another time.

Manual processes can’t keep up with changing regulation

Increasing regulatory requirements around Know-Your-Customer (KYC) and Customer Due Diligence (CDD) mean onboarding is now taking longer using manual processes. That not only makes customers unhappy, it’s increasingly expensive for FIs – firms with annual turnover of $10 billion+ spent on average $150 million on KYC/CDD in 2017, up from $142 million in 2016. To further add to FIs’ woes, it seems likely that these manual processes will simply not be able to keep up with compliance requirements in future, no matter how much they spend. But that doesn’t have to be the case – the same technologies used by new market entrants can also be used by incumbent FIs, especially if they are willing to access them via a third party supplier. These technologies enable compliant, remote onboarding at scale, which can massively reduce existing FIs’ compliance burdens and similarly reduce costs.

It saves money

Running an FI is an expensive business, especially as the costs of compliance, branch network maintenance and IT system upgrades continue to rise. These factors, combined with a low interest rate environment that prevents them earning decent returns on capital, mean FIs are constantly looking for ways to cut costs. Meanwhile, startups with fewer resources to begin with are equally keen to ensure cost efficiency wherever possible. Digitalised onboarding implemented effectively can significantly reduce costs associated with frontline staff, who would no longer have to manually fill in and file forms; instead document management could be automated and centralised. That would result in more easily achieved – or in some areas, outsourced – compliance as data formats are standardised.

Onboarding should be thought of as an opportunity to kick-start new ways of thinking across the business

Rather than viewing the modernisation of onboarding as a defensive move, FIs of all sizes should view it as an opportunity to kick start their digitalisation process, if they haven’t already done so. For a more detailed look at digitalisation, and how it differs from digitisation, check out our blog post here.

Areas where onboarding can have an impact on the broader business, and therefore help enable a truly digital business include:

  • Provoking FIs to rethink expected dropout rates

    By making onboarding as frictionless as possible, FIs can capture customers that would otherwise have dropped out during the process. Currently, firms plan for a drop out rate as high as 85% for those who start an application for a digital product. If this can be reduced, then it’s a win-win situation for the firm, which will not only have new customers, but will be able to more accurately predict uptake of future digital products.

  • Future proof against increasing rules and regulations

    KYC and anti-money laundering (AML) rules are multiplying, making laborious manual processes become even more time-consuming, and further increasing the pain felt by customers during onboarding. The creation of new and updated KYC and AML rules is unlikely to slow down anytime soon, but FIs can help future-proof themselves against having to inflict any further pain on customers by implementing new processes and technologies now. They can also look at how new business processes, such as taking an ongoing approach to KYC, can help. It requires asking for the minimum legally required for customer verification during initial onboarding, and then asking for more supporting information as and when the customer’s behaviour calls for it.

  • Find new demographics to serve

    FIs miss out on a potentially huge chunk of business by making it hard, or in some cases impossible, for those with non-typical backgrounds to be onboarded easily. These people who may have government ID from an unusual location and unrecognised credit histories are not necessarily high risk, but they are being turned away or put off applying before banks get the chance to ascertain whether that’s the case. Implementing new technology and compliance processes can enable FIs to reverse this, and therefore digitalising onboarding should be part of any strategy to acquire customers from previously unserved demographics.

  • Reimagine document management

    By revinenting the processes involved in customer onboarding, FIs also have an opportunity to reconsider how, where, and if, they store customer data and documents. Most will already have this issue on their mind, thanks to recent regulation such as GDPR, and if it is combined with a thoughtful approach to introducing new technologies such as optical character recognition (OCR) and central digital storage, they can kill two birds with one stone.

Potential hurdles to creating a truly digital onboarding process

What hurdles need to be considered?

It should be pointed out that digitalising onboarding is not simple. Simply digitising existing processes does not work and results in customer pain points throughout the customer journey. These pain points are typically caused by FIs failing to address one of a number of common hurdles.

  • Struggling to integrate new technologies to existing systems

    The technologies involved in creating onboarding journeys are myriad. They include smartphone cameras and webcams, OCR, biometric software and hardware, Machine Learning (ML), and electronic signatures – not to mention APIs to connect it all together. Ensuring all these technologies connect to existing systems in order to pull or push relevant data is no easy task, especially if a firm wants to integrate each one individually.

  • Failing to rethink compliance

    The most time-consuming and annoying parts of onboarding for customers are the processes designed to ensure that FIs are compliant with global AML and KYC rules. Visiting a branch and providing original copies of documents are both ways that the FI in question can verify that the customer is who they say they are, which is integral to the firm being able to check its services are not being used for money laundering or the financing of terrorism. FIs that choose to digitalise these processes will need to be certain that in so doing they remain compliant with the relevant rules while finding ways to ensure the speed and friction-free experience customers expect.

  • Not understanding how to handle multiple suppliers

    Many FIs choose to outsource both the technology and the compliance aspects of digital onboarding to third parties. However, there are many such providers around, and the number is growing, making it harder to choose the best partners. In most cases FIs will also need a number of suppliers if they wish to update their onboarding process end-to-end, and how well these third-party’s solutions complement each other is an important consideration if the FI wants to avoid introducing new pain points.

Truly digital onboarding journeys

The benefits of rethinking customer onboarding in financial services are clear, but how do firms go about it?

We went under the hood of some of the best onboarding journeys out there to find out what goes on behind the scenes to make the experience as seamless as possible for customers, and as easy to implement as possible for FIs.

Monzo

…overcame an unusual challenge as it developed one onboarding flow for its prepaid product, with the intention of updating that journey when its current account product was launched. The October 2017 launch of that product was preceded by new European AML laws, which were introduced in July 2017. The combination of these two factors meant that not only did Monzo have to design a transition journey for existing customers as they moved to the current account, but also to redesign an onboarding journey that would allow for additional AML checks for customers who had signed up before July 2017. This combination of factors could have caused friction and customer attrition, so Monzo went out of its way to make its new onboarding journey as good as it could possibly be.

Key principles

Despite being known for havinbeta.11fsg taken the more complex route of building its own core banking systems – rather than relying on a third party supplier – when it came to its onboarding processes, Monzo is collaborating with other organisations. Today, they use a number of third party suppliers, including RDC, Jumio, AU10TIX and Onfido.

Monzo also has an ongoing approach to KYC, so it can make getting started as quick as possible, and then if required at a later date, ask for more information.

 

Read the rest of the article here.

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