In banking, digital onboarding is an automated process that gives customers access to financial products and services. This may include opening a bank account, taking out a loan, or simply creating an account with a digital bank.
In recent technology environment, the banking industry across the globe are looking for digital transformation rather than the age-old physical approaches towards customer onboarding for various banking and financial services.
Now a days, majority of the banking transactions are moving to digital mode and thereby increasing the digital relationship with the customers. With the continued improvement in digital transformation, there is a high expectation from customers to deliver the seamless services especially on-boarding experience which banks are now able to deliver instant on-boarding rather than traditional approach of 2-12 days [Ref 1] .
Digital onboarding is a mechanism that is providing an easy and frictionless customer experience without the need to travel to the nearest branch. Also, customer can start their amazing contactless experience through a mobile banking app to have “banking at their fingertips.”
Since 2015 there has been a steady increase in the number of digital banks across the globe. This trend has not been exclusive to developed markets such as the US and Europe, but has rather been a global phenomenon with digital banks emerging across Asia, Africa, the Middle East and Latin America.
The digital banking market penetration is especially high in emerging markets – for example, the proportion of consumers banking with a neobank is 93% in China, 50% in India and 32% in Brazil according to data from Kantar Finance.
Neobanks cover many target client segments, products and services, and geographical markets. They predominantly focus on retail consumers and/or small business clients with services including card payments, foreign currency exchange, trading and savings, and lending [Ref 4].
Digital KYC:
Further, digital KYC (or e-KYC) is making it easy to onboard new customers particularly from remote areas and thereby reducing the operational costs drastically. However, there are couple of challenges still exists in digital on-boarding for which banks are providing various range of advanced technical solutions [Ref 1].
In banking system, authenticating the customer is a big challenge and due to lack of stringent authentication mechanism, will lead to baking scams and frauds which further leads to reputational and financial loss to the banks [Ref 2].
Banks are still facing challenges in digital on-boarding process as the process still requires collection of some physical documentation. Also, banks are 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. A lengthy application process is one of the leading reasons for poor customer on-boarding experience [Ref 1].
According to Bain & Company, anti-money laundering breaches cost banks over $200 billion between 2009 and 2016 [Ref 1]. 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 client experience, also need to adapt on-boarding 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 the existing process or operation [Ref 1].
Its banks’ primary responsibility to identify and verify the customer by using digital tools with zero vulnerabilities. Digital tools should be provided with the necessary layers of protection for safeguarding the customer’s identity.
Passwords have become age old security mechanisms because fraudsters have developed creative ways to steal the password encryption and decryption controls. However, utilizing biological patterns or biometrics emerges as a fundamental solution to onboarding. Biometrics is a safer, faster and easier-to-use solution, according to various surveys [Ref 3] .
Biometrics to give customers a more secure and convenient way to access their accounts. Biological biometrics uses the physical or morphological characteristics of an individual as a unique element of identification, such as fingerprint, hand shape, vein pattern or iris. Behavioural biometrics, on the other hand, tracks geolocation, consumption patterns and recurring transactions and raises the alarm when these patterns are changed abruptly [Ref 3].
Biometric authentication can reduce the risk of identity theft and fraud as biometric data is unique to each individual.
A well-defined onboarding workflow will definitely provide the seamless customer experience. Banks to understand the customer requirements by conducting a survey or understanding the existing challenges which are currently being faced by the customers across the banking industry and accordingly design the on-boarding work flows.
Instead of developing / designing the digital transformation in a single service channel, develop the solution across all banking service channels such as Mobile App, Branch banking, Internet Banking and Phone Banking etc.
Banks can offer digital on-boarding process instead of customer’s approaching Branch banking channels for manual account opening. The below are the key features can be offered.
It is the bank’s responsibility to monitor the process end-to end and ensure the compliance rules are followed as designed/specified as per the rule of land. All exceptions to be monitored and to touch base with the customer for manually processing such scenarios. Implementing higher level scrutiny process at various stages of on-boarding process, will ensure banks to comply with the regulator/government agencies rules and regulations and thereby avoiding penalties.
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Bibliography
[1] https://www.golivefaster.com/insights/the-digital-onboarding-challenge-for-banks-today
[2] https://seon.io/resources/digital-onboarding-in-banking/
[4] https://www.bpcbt.com/blog/the-evolution-of-digital-banking