Understanding The Onboarding Challenges in Fintech

Whether it’s a start-up or an established company, Financial institutions often face several challenges during customer agent or merchant onboarding. Let’s check some of these onboarding challenges.

• Complex & Time-Consuming Onboarding Process

The Millennial Disruption Index found that 33% of American millennials view traditional banks as outdated, with four top U.S. banks being some of the least popular brands among millennials. The main reason for this is poor customer onboarding experience. Furthermore, inconsistent transitions between branch-based and mobile-centered channels also disrupt a seamless customer experience across different touchpoints.

Moreover, financial institutions with manual onboarding processes need to be able to bring in new customers without requiring them to get some sort of physical paperwork or facing delays. Also, banks providing multiple services, such as insurance and retail banking, often have to onboard the same customer more than once, making the process long and complicated.

• Human-Error & Inconsistencies

Manual data collection, data entry & document verification are prone to errors. These mistakes lead to inconsistent customer records, which might cause compliance issues and undermine the institution’s credibility.

• Regulatory Compliance Risks

Manual onboarding for financial institutions poses significant Regulatory Compliance Risks. Ensuring consistent adherence to KYC, AML, and data privacy laws is challenging, leading to potential compliance gaps and increased vulnerability.

Manual onboarding involves multiple steps prone to human error, such as inconsistent data entry and missed verification. These issues can lead to non-compliance with regulations, exposing institutions to fines, legal actions, and reputational damage.

• Data Privacy Issues

Along with following Anti-Money Laundering (AML) rules to prevent money laundering and financial crime, fintech providers also need to follow data privacy laws. As governments, both nationally and internationally, increase their focus on data protection and data privacy, companies must ensure they fulfill the requirements of evolving privacy regulations like GDPR.

Moreover, manual onboarding generally collects a lot of customer data. So, it is important to find a careful balance between collecting too much information and not gathering sufficiently to stay compliant.

• High Operational Costs

Manual onboarding requires significant human resources for data collection, data entry, verification, and follow-ups. These labor-intensive processes contribute to higher operational costs, making them less efficient compared to automated onboarding solutions.

• Poor Customer Experience

Long wait times, repetitive documentation requests, and lack of transparency during the onboarding process can frustrate users. This can lead to dissatisfaction, decreased trust, and ultimately, customer attrition.

• Frequent Regulatory Modifications

Bain & Company reports that between 2009 and 2016, anti-money laundering violations cost banks more than $200 billion. After the global banking crisis of 2008, banks are now needed to follow continuous financial regulatory changes that are meant to protect banking customers.

While financial institutions work to offer a great customer experience, they must also update their onboarding processes to stay in line with the latest regulatory changes. This means financial institutions have to quickly adjust to even minor financial regulatory changes in their operations or processes. Constantly rethinking and updating the manual onboarding process can be troublesome and the operation can become less efficient.

Now that you know some of the major challenges of manual onboarding for financial institutions, let’s take a gaze at Digital Onboarding solutions, and how it solves the problems of manual onboarding by utilizing technology.

Digital Onboarding in Fintech

Digital onboarding or account registration app is a fintech solution that allows banks, non-bank financial institutions, and fintech companies to onboard various types of users (customers, agents, merchants) via web or mobile applications. It’s the first step where users get to know and begin using a financial service or platform.

The digital onboarding process usually includes signing up, submitting required details & documents, setting up accounts, and learning how to use the platform’s functionalities and features. This onboarding journey ensures a smooth transition for users to the platform of financial service providers.

We’ve got a quick introduction to what digital onboarding is now let’s shift our focus toward how Digital Onboarding solutions solve the problems of the manual onboarding process and what advantages financial institutions can get by utilizing it.

Advantages of Digital Onboarding solution for financial institutions

Improved Accuracy and Compliance

Automation reduces the risk of human error, ensuring that data is consistently accurate and that all regulatory requirements, such as KYC and AML, are met. This minimizes compliance risks and protects the institution from potential legal and financial penalties.

Enhanced Security

Digital onboarding platforms often include advanced security features such as biometric verification, liveliness verification, Integrated eKYC, digital signatures, and encryption. These measures help protect sensitive customer information, reducing the risk of fraud and enhancing overall security.

Enhanced User Experience

A good digital onboarding experience can build user trust and loyalty. According to a study, 63% of users are more likely to suggest financial institutions to other people after having a smooth digital onboarding experience. Effective onboarding adapts to each user’s goals and requirements. Providing personalized guides, tutorials, and demos makes your users feel valued.

If you offer helpful tips and clear instructions to your users, then it will reduce their frustration and improve the user experience. Also, if your digital wallet or mobile payment app provides easy registration and account setup, consumers are more likely to engage. In return, a better customer experience boosts user satisfaction, drives sales, and increases user engagement and retention.

Scalability

Digital onboarding solutions are easily scalable, allowing financial institutions to handle a larger volume of users without a proportional increase in resources. This is particularly beneficial during periods of growth or when expanding into new markets. It’s troublesome in the case of a manual onboarding process because the institutions would need to scale their human resources to properly acquire the large volume of users while also maintaining regulations.

Reduced Operational Costs

Since the digital onboarding solution automates the whole onboarding journey, the labor of manual onboarding is no longer required. So using digital onboarding financial institutions can cut down on operational costs while reducing human errors and data collection inefficiencies of the manual onboarding process.

Better Integration with Other Digital Services

Digital onboarding can be seamlessly integrated with other digital services offered by financial institutions, such as online banking, mobile apps, and customer support systems. This creates a cohesive and unified customer experience.

Tips for Successful Digital Onboarding Implementation

Emphasize Security and Compliance 

Emphasizing compliance and security during the customer onboarding process is important for banks and other financial institutions. For example, an Internet banking app earns more trust from consumers, regulatory authorities, and small businesses when it has strong security in place.

By using strong cybersecurity measures and meeting industry standards, FinTech solutions keep customer information safe and give protection against risks.

Focus on Mobile-first Strategy

A study found that while online account openings have increased by 14.5%, only 40% of banks offer account opening facilities through mobile devices. Along with opening bank accounts, banks should adopt a “mobile-first” approach to improve customer experience.

The research done by McKinsey shows that banking clients are already using different digital platforms to get their questions answered. To provide excellent customer service, banks need to blend their mobile-first approach with smooth human interaction across different touchpoints.

Making KYC Process Easier

Regulatory compliance takes action for any concerns about user experience. Just like traditional banks, fintech companies face growing pressure to meet strict financial regulations. KYC and AML requirements can’t be skipped to speed up the signup procedure. So, UX/UI designers should emphasize creating simple KYC processes, including necessary steps & reducing extra steps.

Customization

Customization in digital onboarding enhances customer engagement by tailoring the experience to individual needs. By leveraging data and user preferences, fintech companies can offer personalized services and recommendations, significantly boosting customer satisfaction and retention. During onboarding, valuable insights into a customer’s risk tolerance, financial goals, and preferences can be gathered, enabling the delivery of customized products that align perfectly with their needs. This personalized approach not only improves the user experience but also strengthens trust and loyalty in the financial institution.

Set Up Automatic Customer Follow-ups After Onboarding

After the completion of the digital onboarding process, financial institutions can set up automatic follow-ups, and push notifications to guide and educate users about the features of their fintech app or promotions, services, or products that they are currently offering. This can potentially increase user engagement and satisfaction, as it makes the system more welcoming and easy to understand.