Digital vs. traditional onboarding: return on investment for financial institutions

Digital vs. traditional onboarding: return on investment for financial institutions
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October 18, 2021

Due to the impact of the pandemic, financial institutions are looking to optimize their finances as much as possible and 83% of banks worldwide are refocusing their efforts on cost optimization, according to the report entitled New cost imperatives in banking.

Customer onboarding is one of the verticals in which financial institutions are focusing their efforts not only to optimize the process but also to generate savings in an increasingly competitive scenario due to the adoption of digital solutions.

This has resulted in a boom of regtechs, which are firms specializing in technological solutions to support financial companies to comply with strict business regulations.

According to the Thomson Reuters Regulatory Intelligence (TRRI) Cost of Compliance 2021: Shaping the Future survey, 42% of financial services firms surveyed predict a slight increase in their compliance budgets this year.

With a growing fintech industry nipping at the heels of traditional banking, preserving, and especially attracting new customers has become challenging since building long-term relationships is difficult with such a diversity of offerings.

In the case of institutional customers, it is estimated that financial institutions require an average of 34 weeks to complete their onboarding with manual processes and six weeks for those that adopted customer lifecycle management solutions, which also gain 20% in operational efficiency and productivity with the options available in the market.

In terms of costs, it is estimated that onboarding a new institutional customer can cost up to US$25,000, to which sometimes the administrative cost of identity verification must be added.

On the other hand, figures from the consultancy firm Oliver Wyman indicate that while a traditional bank needs to invest US$150 to onboard a new individual customer, a fintech requires only US$30 thanks to a much more efficient processes with digital onboarding.

Seeking efficiency with digital onboarding

The lack of digitization of these processes causes an increase of these costs in many organizations, which is why specialized firms such as the US-based Preventor aim to generate savings with the implementation of identity verification solutions in digital onboarding.

Compared to the high costs that organizations pay today with traditional methods, biometric solutions generate efficiencies in time and money by reducing the steps to complete customer onboarding through remote and 100% digital solutions.

For example, individual customers opening a savings account can take at best 15 minutes on average, which thanks to the adoption of digital tools and identity verification for secure customer onboarding, in addition to the account opening process, can be reduced to an average of 60 seconds with Preventor tools.

For institutional clients, Preventor's business onboarding processes can take minutes or hours instead of days and weeks. These dynamic workflow processes can include identity verification of UBOs (ultimate beneficial ownerships), KYC and KYB forms, as well as the upload of legal and financial documents with digital signatures.

The report "Reducing Time to Yes: Onboarding in 2021", by Experian, states that "the impact of an inefficient application process affects both operating costs and revenues, but more importantly, the return on investment versus significant marketing expenditure. The stakes are high. Consumers will stop looking when they find the right product, price, and experience”.

In a world evolving at the speeds offered by the immediacy of digitization, ten minutes can make the difference between onboarding a new customer or increasing drop-out rates in an organization.

Indeed, research from Signicat revealed that 63% of European customers abandoned a financial application last year as more users migrate to digital channels and their demands increase for a fast, secure and seamless process.

This rate is much higher compared to 2016, when it reached 40% of withdrawals, in 2018 it was 53% and in 2019 it was 38%, showing that as the adoption of techno-financial solutions progresses so do the users' expectations.

Complete, no-hassle solutions

Preventor's experience shows that customers are demanding end-to-end solutions that can guarantee the protection of their data in near real-time, with artificial intelligence-based voice or facial recognition tools, while at the same time reducing the process to just a few steps.

Experian data reveals that competition is becoming increasingly fierce, and customers pay more and more attention to the value of their time. In this regard, it estimates that of all consumers who start an application for a financial product, 63% do not complete it.

Therefore, identity verification "is a big part of the onboarding process" and "can have a big impact on abandonment and on decision time", so "a balance must be struck between customer convenience and checks that create an assurance of security", as they state.

These solutions must become bridges that facilitate processes rather than additional barriers to completion, so it is essential that in addition to these tools, follow-up is done using analytics to generate efficiencies based on user experience and behavior while gaining user trust.

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