Third-Party Risk

How to avoid flunking your customers’ onboarding experience

Daniel Flowe

Daniel Flowe

Director, Product Management, Identity Verification, LSEG

Onboarding is crucial for companies, yet all too often they flunk it. Digital onboarding is the solution, writes Daniel Flowe.

  1. Financial services firms often fall short on delivering the fast, seamless onboarding experiences today’s digital-savvy consumers expect.
  2. Digital onboarding tools offer opportunities to meet consumers’ needs while fulfilling AML and KYC obligations.
  3. This blog outlines best practices organisations might consider when choosing a digital onboarding solution.

Onboarding is not something most people enjoy: 68% of consumers have abandoned an application for a financial service in the past year – 21% say it takes too long while the same number say they are asked for too much personal information.

Even if the customers make it through an application process, 52% of them are less likely to use a company’s service in the future if their onboarding experience is negative[1]. Unsurprisingly, companies’ sales and marketing want to speed up and simplify onboarding.

Commentary: 68% of consumers have abandoned an application for a financial service in the past year.

But compliance and the back office need to fulfil regulatory obligations, collect data to set up the account correctly, and – most importantly – prevent fraud, which is a major problem. A quarter of US consumers have experienced identity theft, while 17% have suffered application fraud; applications for checking accounts, credit or store cards and cellphone accounts are the most common[2].

It’s no coincidence that products with more streamlined onboarding tend to have higher levels of fraud. FinTechs in particular are often under intense pressure to grow net-new users. In their quest to do so, the tension between business growth goals and the need to meet regulatory requirements rears its head. Attempts to speed up onboarding make customers vulnerable. So how can companies satisfy all their internal and external stakeholders – and create a good onboarding experience for customers?

Commentary: Abandonment rates tend to be highest amongst digital natives.

KYC and digital onboarding: Managing payment fraud and identity theft risk.

How can digital onboarding help?

To tackle fraud, companies need to first understand the sources of fraud in their industry (and the specific product the consumer is applying for), identify weak points and mitigate risks with tailored controls and checks.

Automated digital onboarding can do all this – and more. It typically has four components:

  1. The front-end
    The user interface is how customers interact with the company on their onboarding journey. Today’s consumers expect seamless digital experiences, so delivering an onboarding experience that looks and feels modern, is important. The front end should be integrated into a company’s website, with a customised look and feel that is consistent whether a smartphone, tablet or desktop is used. A different combination of services should be available depending on jurisdiction (with location automatically detected using the customer’s IP address) and business line, in the customer’s language, and referencing local terms, conditions or regulatory requirements.Crucially, the user interface needs to be dynamic – using embedded business logic – so that a customer’s response to a question informs subsequent questions. Customers should never have to enter the same information twice (or key in information from any document they have uploaded)
  2. Workflow optimisation
    Turning to flexibility, companies need solutions that are configurable to their specific requirements and customisable for their customers’ journeys. For example, real-time verification checks should be relevant to the consumer and the product being applied for. A database check – identity verification (IDV) – works for some applications while a passport/driving license check – identity provider (IDP) – is pertinent for others. Optical character recognition can be used to convert an image of a document into machine readable text to check whether it is valid and unmodified. Onboarding solutions should have a global library of document types to minimise the chance of a customer’s application being delayed by IDP verification. Biometric checks can compare a ‘selfie’ with a provided document.Where relevant, additional checks can be added. For instance, if a company will be taking deposits from, or issuing cash to, a customer, they need to confirm that linked accounts are in the same name as the person opening the account. If not, a red flag should be raised to avoid paying money to a fraudulent account. Ideally, bank account verification should be integrated into onboarding where appropriate to the product application.
  3. Orchestration
    Data from the front end is sent to a central location, usually via API, for relevant KYC/AML/fraud prevention checks in real-time. Orchestration should be a systematic process following a pre-defined plan specifying which services are called, in what order, and under what circumstances (to facilitate the dynamic user interface described above). Ideally, all the required services should be pre-integrated, to reduce overhead on internal engineering resources and reduce time to launch.
  4. Customer relationship management
    This component allows the company’s KYC and compliance teams to view the results of the above processes. An onboarding tool should provide full access to verification processes, biometrics, documents and other information gathered during the onboarding process (which may also include social media intelligence or sanctions screening, for instance). The back office compares this information to multiple trusted third-party data services, including government agencies: the greater the number of sources, the higher the level of accuracy.

A win-win for companies and consumers

While companies only get one chance to make a good first impression, the onboarding experience is often lacklustre for consumers. Digital onboarding offers a chance to enhance customer experience, more effectively prevent fraud, and improve efficiency, setting the stage for a long-term fruitful relationship between companies and their customers.

[1] Signicat, The Battle to Onboard 2022: The growing power of consumer demand

[2] Aite Novarica, US Identity Theft: Adapting and Evolving, June 2022

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