Based on our ongoing dialogue with existing and potential CoorpID customers, we have identified five KYC challenges that financial institutions (FIs) are facing today. In this series of articles, we aim to break them down one by one. First up, the perils of a negative customer onboarding experience.
One of the main difficulties around Know Your Customer (KYC) strategies is the difficult balancing act that FIs have to manage. They are being tasked with ever more stringent KYC rules – but, at the same time, are facing heightened competition in the financial sector. They must meet regulator AND customer demands. And these two demands often clash around the issue of customer onboarding.
Research indicates that 89% of corporate treasurers have faced a poor KYC experience, with 13% ultimately deciding to change banks because of it. This statistic is keeping finance leaders awake at night – or it should be, given that negative KYC experiences can lead to customer turnover, reputational damage and frustration for corporates and FIs alike. Most importantly, this statistic indicates that if KYC is creating a poor customer onboarding experience at a bank, it is also causing financial damage.
Why customer onboarding is often so poor
The need for rigorous KYC standards is clear. A European Parliament study found that fraud was costing the EU up to €990 billion a year in GDP losses. As such, the EU has continually looked to ramp up its KYC standards, launching its most recent update, its 6th Anti Money Laundering Directive (6AMLD) in June 2021. This came swiftly after 5AMLD was issued in 2018.
The various stipulations that KYC regulators have placed upon banks mean that onboarding can take longer than customers might expect, resulting in a less-than-optimal experience. In fact, the average onboarding process for a new corporate customer can take up to 100 days, varying depending on the jurisdiction and the specific banking product involved.
As many as 68% of customers have abandoned the onboarding process for financial services, citing several common hurdles like the length of time taken by the application process, the amount of information required, and the lack of digital-only options.
With many banks continuing to pursue inefficient KYC processes, they may have to contact clients multiple times to acquire the information they need in order to achieve compliance – sometimes issuing repetitive requests. For instance, a Forrester study found that customers were contacted on average 10 times during the onboarding process and asked to provide as many as 100 documents.
The manual request for information not only creates inefficiencies that lead to a negative customer onboarding experience; it creates anxiety too. Customers have indicated that another factor in a poor onboarding experience is a worry about how the information they supply for KYC purposes is used and stored. In a survey by Cisco, for example, 43% of consumers said that they did not believe banks could be trusted to adequately protect their data.
How banks can improve customer onboarding
The scale of the KYC burden being placed on banks may be significant – but it can be mitigated. It is possible to deliver a positive onboarding experience, creating a strong, long-lasting relationship between customer and FI.
One of the most effective ways to improve the customer experience is to utilise the right regtech tool. Today, bespoke digital solutions can streamline the KYC process, making the process of customer onboarding more efficient and secure. This starts by validating digital identities in a way that guarantees compliance without adding friction to the customer journey.
“As far as making use of digital identities in the KYC process is concerned, the technology is available,” Loes Bomans, Head of Product Development at CoorpID, explains. “Banks are already applying this technology by facilitating digital onboarding of retail customers and verifying a person’s identity by means of advanced biometrics such as live facial identification.”
When banks rely on manual processes, they can inadvertently end up subjecting themselves to an overly lengthy customer onboarding process, resulting in higher costs and a longer time-to-revenue. Conversely, FIs that use digital tools to optimise their customers’ end-to-end onboarding experience will be able to increase the portion of new customers receiving approval, enhance their customer satisfaction scores, and reduce onboarding operating costs.
There are various ways that banks can use digital solutions like CoorpID to improve the customer onboarding experience, standardise information requests to avoid repeat requests, bolster security, and increase efficiency.
Banks must transform their customer onboarding from a pain point into a revenue driver, an opportunity to ensure customers enjoy a stress-free experience. An experience that will convince customers there’s no need to sign up with one of your competitors.