Digital onboarding in banking has revolutionized the process of account opening for consumers. However, as with any new technology, it comes with its own set of risks that banks must know.
Although we refer specifically to the banking sector, the benefits, risks, and suggestions we are going to list apply to any company that wants to take advantage of digital onboarding.
What is digital onboarding?
Digital onboarding is the process of moving customers onto digital channels for their needs.
In terms of banking, it mainly refers to opening an account with a financial institution using its website, mobile app, or even through a third-party provider.
The goal of digital onboarding is to make the account opening process faster, easier, and more convenient for customers. In fact, many activities involving the bank require no small amount of effort on the part of the consumers. For example, they must print, collect and photocopy documents, send them or go to the office to sign them. These are long and inconvenient processes. In contrast, digital onboarding makes it possible to do all this from the comfort of home, via the Internet.
As you can immagine, this brings many benefits, such as:
- Increased customer satisfaction: digital onboarding provides a smoother account opening experience for customers and gives them more control over the processes;
- Improved loyalty: when customers are satisfied, they have no reason to turn to a competitor;
- Cost & Time savings: digital onboarding can save banks money by reducing the need for paper documents and in-person interactions. The same applies to customers;
- Increased customer acquisition, since digital onboarding facilitates it;
- More data: the digital channel help banks gathering more information about customers, which can be used to improve products and services.
The risks of digital onboarding
The risks of digital onboarding involve data security, legal aspects and even marketing. Here are some of them:
- Fraud and money laundering: digital onboarding makes easier for fraudsters to open accounts using stolen identities, and for money launderers to move money around;
- Compliance risks: digital onboarding can make it harder for banks to comply with anti-money laundering (AML), know-your-customer (KYC), and even privacy regulations (such as GDPR);
- Data breaches: as sensitive customer information is often stored electronically, the risk of data breaches increases;
- Customer churn: when digital onboarding is not properly set up, customers may not complete it because they find it too difficult. As a result, banks may miss out on potential customers, or old ones may decide to switch to another bank that offers a better digital experience.
How to reduce digital onboarding risks
Banks (and companies) can do much to reduce the risks of digital onboarding. The following steps are a great starting point.
1) Use strong authentication methods
Digital onboarding should include strong authentication methods, such as two-factor authentication, to verify the customer’s identity.
Two-factor authentication is an additional layer of security that requires the user to provide two pieces of evidence to verify their identity. This could include something they know (a password or PIN), something they have (a physical token or key), or something they are (biometric data such as a fingerprint).
Using two-factor authentication can help to reduce digital onboarding risks by making it more difficult for fraudsters to open accounts using stolen identities.
2) Educate customers about digital risks and how to protect themselves
Banks should educate customers on how to spot data breaches and fraud and what to do if they suspect that their account has been compromised. They should also provide guidance on how to create strong passwords and keep them safe.
By making customers more aware of the dangers they improve their ability to protect themselves from digital risks, such as phishing and social engineering.
3) Build a user-friendly digital onboarding process
A digital onboarding process that is difficult to use will frustrate customers and may result in them abandoning the process altogether.
To avoid this, banks should design a digital onboarding process that is user-friendly and easy to understand. This includes using clear and concise language, providing visual cues, and using progress bars to show customers how far they have to go.
However, a user-friendly digital onboarding process also includes an excellent customer service that supports the consumer when they need it.
Often, banks make the mistake of following the consumer only in the initial onboarding phase, that of acquisition, then leaving them without information on how to use tools such as home banking app or portal. This abandonment undermines a positive customer experience and push the consumer to switch banks.
4) Using data analytics to detect fraud
Data analytics can be used to detect fraud by looking for patterns in customer data that may indicate fraudulent activity. For example, data analytics can be used to identify customers who are opening multiple accounts using the same identity or those who are making unusually large transactions. By flagging these customers for further investigation, banks can help to prevent fraud.
5) Implementing risk management processes
Banks should have risk management processes in place to identify and mitigate digital risks. These processes should be regularly reviewed and updated to ensure that they are effective.
6) Conducting regular audits
Regular audits of digital onboarding processes can help to identify weaknesses and areas for improvement. These audits should be conducted by an external party to ensure impartiality.
Some of the issues that can be identified are incomplete documentation, lack of customer guidance, or poor customer service.
7) Invest in cybersecurity and privacy protection
Banks should invest in software, hardware and expertise that help them protect their customers’ information from unauthorized access or disclosure: from data encryption systems to firewalls, from cybersecurity experts to privacy experts.
Additionally, banks should have policies and procedures in place to avoid risks and manage crisis. These policies should be regularly reviewed and updated to ensure that they are effective.
8) Working with trusted digital partners
Banks should work with digital partners that they can trust to help them reduce digital risks. These partners should have a good reputation and be able to provide evidence of their security measures.
Digital partners can help banks in many ways, such as by providing data analytics services, improving data security levels, or helping to design a user-friendly digital onboarding process. One example is Namirial, which offers banks and companies numerous services for digitalizing documents and workflows.
