All About Customer Onboarding in Banking: Process, Challenges, Benefits, Best Practices etc. [2024]

According to Deloitte research, about 38% of customers drop off midway through the customer onboarding process in banks, which comes with a lot of paperwork and is cumbersome. Moreover, regulatory frameworks make it mandatory for customers to visit the bank in person for their onboarding. 

This is not just tiring but also cumbersome both for customers and employees. Forrester's client survey report says banks lose about 64% of deals and revenue. 

But what is customer onboarding in banking? Why is it important? Can this process be digitised to save customers' and banks' time and effort? Let's explore!

What Is Customer Onboarding in Banking?

Customer onboarding in banking is critical to welcoming and integrating new clients into a financial institution's ecosystem. It's the first step in building a long-lasting relationship that benefits the bank and the customer. But what exactly does this entail?

Customer onboarding is the vital link connecting customers to a bank's services. It encompasses the procedures, technologies, and interactions guiding customers from expressing interest in a bank's services to fully engaged users.

Primarily, it involves collecting essential customer information to adhere to regulatory compliance. Yet, it transcends mere paperwork; it's about curating a personalised, seamless, and secure experience. Banks leverage digital tools to streamline the process, from electronic signature platforms to online identity verification.

Moreover, customer onboarding stretches beyond the initial setup of an account. It also includes educating customers about the diverse array of banking products, offering advice on optimal choices, and providing continuous support. This ensures that customers understand the variety of options available and grasp how to derive maximum benefit from them.

Steps of Traditional Customer Onboarding Process in Banking 

The traditional customer onboarding process in banking involves several steps, which are listed below:

1. Identity Verification

‍At the forefront, banks run the essential identity verification task, an imperative dictated by regulatory norms. An intricate web of personal details, employment specifics, tax records, and assorted verification documents converges to confirm the customer's identity.

2. Know Your Customer (KYC) Checks

‍KYC checks ensure a vigilant quest for illicit activity like money laundering or terrorist financing. It also involves revealing sources of income, professional pursuits, and the customer's financial history.‍

3. Document Collection

‍The process continues with document collection from the customer. This includes the proof of identity, the proof of address, and many other papers that might be required for the verification.‍

4. Account Opening

‍Upon successfully verifying identity and completing KYC checks, the next step is to open an account. The customer can now use the bank's array of products and services.‍

5. Face-to-Face Interview

‍The bank asks for a face-to-face interview in specific scenarios. It will give banks a closer look at prospective clients and an additional layer of connection into the onboarding process.‍

6. Follow-up

‍As the account opens, banks follow up with the customer, ensuring customer satisfaction resonates with the onboarding process.

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Problems Faced During Traditional Customer Onboarding in Banking 

Did you know that 18% of banks still use manual and traditional customer onboarding processes? Moreover 2018, banks globally lost around $3.3 trillion due to applicants leaving their onboarding process midway. 

The traditional customer onboarding process in banking is often associated with several challenges, which are listed below: 

1. Time-consuming Paperwork: The traditional onboarding process involves a lot of paperwork, which can be time-consuming and prone to errors.
2. In-person ID Verification: Verifying a customer's identity often requires in-person visits to a bank branch, which can be inconvenient for customers.
3. Disorganised Data: The data collected from customers during the onboarding process can be unstructured and disorganised, making it difficult to manage and analyse.
4. Prolonged Wait Times: The traditional onboarding process involves several departments, such as tax, operations, legal, credit, risk, etc., which can result in prolonged customer wait times.
5. Increased Costs: The traditional onboarding process can be costly for banks, as it involves several manual processes and requires significant staff time.
6. Non-compliance Risks: Non-compliance with regulatory requirements can result in fines and penalties for banks.

What is Digital Customer Onboarding in Banking? 

Digital customer onboarding in banking is a streamlined process that enables individuals to register and verify their identity online, eliminating the need for physical visits to a bank branch. 

This automated procedure grants customers access to various financial services, including account opening, loan applications, and association with digital or neobanks. It is characterised by its emphasis on speed, simplicity, security, and adherence to legal regulations, mirroring offline procedures.

The significance of digital customer onboarding for banks is multifaceted. It facilitates rapid and efficient customer acquisition, mitigates the risks of fraud and regulatory non-compliance, and safeguards the bank's reputation. However, it also presents challenges as malicious actors seek to exploit online channels for illicit activities.

This process comprises several key components:

1. Online Application: Customers initiate client onboarding through the bank's website or mobile app, electronically submitting personal information and necessary details.
2. Document Verification: Automated verification processes often require customers to upload essential documents like IDs, proof of address, and income statements.
3. KYC (Know Your Customer) Checks: Banks rigorously verify customer identities by cross-referencing provided information with various databases, ensuring strict compliance with regulations.
4. Risk Assessment: Banks evaluate customer risk profiles based on financial history and credit scores, determining the level of services they can access.
5. E-signatures and Agreements: Many banks enable customers to electronically sign agreements and consent forms, reducing reliance on physical paperwork.

Digital customer onboarding in banking enhances customer satisfaction and drives digital transformation in the financial sector, fostering growth and adaptability. By seamlessly integrating technology with regulatory compliance, banks can efficiently onboard customers while safeguarding against potential threats, ensuring a secure and customer-centric banking experience.

Traditional vs. Digital Customer Onboarding in Banking 

Traditional and digital customer onboarding in banking represents two distinct approaches to welcoming individuals into the world of financial services. While the ultimate goal remains the same - to acquire and serve customers - these methods diverge significantly in their processes and advantages.

Traditional onboarding necessitates face-to-face interactions at a physical bank branch. Customers visit the branch to complete paperwork, present identification, and engage with bank personnel. Whereas digital onboarding occurs entirely online through a bank's website or mobile app, allowing customers to initiate the process from anywhere with internet access.

Moreover, paperwork is the backbone of the traditional bank client onboarding process. Customers must fill out forms, sign agreements manually, and provide physical documents, such as IDs and proof of address. In comparison, one of the primary advantages of digital bank onboarding is its paperless nature. Customers submit electronic documents, and agreements are often signed using e-signatures.

Traditional bank onboarding can be time-consuming due to the need for physical visits and paperwork. Customers may need help accessing banking services. In contrast, digital onboarding is known for its efficiency and speed. Customers can complete the process swiftly, often within minutes, leading to quicker access to banking services.

Traditional bank onboarding has restricted accessibility. Customers must be close to a physical branch, which can be inconvenient in rural or remote areas. Whereas digital onboarding transcends geographical limitations, making it accessible to individuals regardless of their location, thereby expanding a bank's potential customer base.

In addition, traditional bank onboarding often provides customers with personalised guidance from bank staff, offering a human touch. Whereas customers typically navigate the process independently, without needing in-person assistance. Clear instructions and user-friendly interfaces guide them through the steps.

Benefits of Digital Customer Onboarding in Banking

Digital customer onboarding in banking has reduced touchpoints by 60%, speeding up the entire process by about 67%. Digital onboarding is revolutionising how businesses engage with new customers, offering many benefits that must be addressed. The benefits of digital client onboarding in banks are as follows: 

1. Speed & Cost Savings: On average, traditional customer onboarding often takes an agonising three weeks, but with digital solutions, this process can be whittled down to just a matter of minutes. This efficiency saves time and resources, translating into substantial cost savings.
2. Improved Customer Experience: Digital onboarding paves the way for a vastly improved customer experience. It provides an opportunity to showcase the benefits of your products or services, ensuring that customers are well-informed about the features and tools available to them. This, in turn, fosters long-term customer happiness and loyalty.
3. Increased Customer Loyalty: Speaking of loyalty, a seamless and user-friendly onboarding process can significantly boost customer retention. Clients who find the sign-up process hassle-free are more likely to stick around.
4. Compliance with Data Privacy Regulations: In today's era of strict data privacy regulations, digital onboarding can be a lifesaver. It aids businesses in complying with these regulations, reducing the risk of costly legal troubles.
5. Personalisation: Personalisation is also a key benefit. Digital onboarding allows for tailored product offerings and customer relationship models, enhancing the customer experience.
6. Analytics: Data-driven decision-making is becoming increasingly important, and digital onboarding tools offer valuable analytics capabilities. They can track user behaviour, providing insights for strategic decisions.
7. Global Reach: Digital onboarding allows businesses to tap into a worldwide market, operating 24/7 to accommodate different time zones.

Technologies that support Digital Customer Onboarding in Banking 

Digital customer onboarding in the banking industry relies on advanced technologies to enhance security, streamline processes, and create a seamless customer experience. Here's a concise overview of the critical technologies supporting digital client onboarding in banks:

1. Strong Identity Verification

‍Robust identity verification technologies are fundamental to confirming the identity of customers, ensuring the person opening the account is legitimate.

2. Facial Recognition

‍Facial recognition technology plays a pivotal role by matching a customer's face with their official ID photo, bolstering security.‍

3. Biometric Verification

‍Technologies like fingerprint scanning offer an additional layer of identity verification through biometrics.‍

4. Cognitive Technologies

‍Cognitive tools, particularly natural language processing, automate onboarding procedures, enhancing efficiency and customer journey.‍

5. Responsive Websites

‍Responsive websites collect valuable customer preferences and behaviour data, aiding in personalised service delivery.‍

6. Personalised Videos

‍Personalised and interactive videos are deployed to educate customers about banking products and services, fostering understanding and trust. 

7. In-App Onboarding

‍In-app client onboarding in banking guides users through the process within the banking app, simplifying the experience and reducing friction.‍

8. Risk Management

‍Technologies for risk management, including identity affirmation and ID verification, are essential for safeguarding against fraudulent activities.

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8 Best Practices for Digital Customer Onboarding in Banking in 2024

Only 11% of banking professionals surveyed said customers can sign up for a new account independently, with 27% indicating that "most" customers are still onboard at the branch. Sounds surprising. 

While digital client onboarding in banks is easy and quick, why do customers still prefer branch onboarding? It's because digital bank onboarding has many touchpoints, making it a complicated process.

Creating an effective digital client onboarding in banks requires careful planning and adherence to best practices. To ensure a seamless experience for customers, here are fundamental principles to follow:

1. Prioritise Customer-Centricity: Craft a process of client onboarding in banking that places customers at the forefront. This approach aims to foster long-term relationships by enhancing satisfaction and ensuring compliance with legal requirements.
2. Leverage Automation: Streamline onboarding procedures through automation. This not only reduces errors but also accelerates turnaround times, enhancing efficiency.
3. Digital Identity Verification: Employ digital identity verification methods to bolster security and reduce the risk of identity fraud. This facilitates a smooth and secure onboarding experience.
4. Consistency Across Channels: Maintain a consistent onboarding experience across all digital channels. This ensures customers encounter a cohesive design and user experience, promoting trust and familiarity.
5. Emphasise Clarity and User-Friendliness: Make the onboarding process intuitive and transparent. Offer in-line support, helpful tips, and clear error explanations to guide customers effectively.
6. Robust Verification and Security Checks: Implement stringent verification and identity checks. Banks should focus on enhancing security measures to detect potential fraud that manual processes might miss.
7. Continuous Improvement: Continuously refine your digital onboarding process. Identify and address workflow issues that could disrupt the customer journey. Incorporate cutting-edge technology to enhance efficiency over time.
8. Mobile-Friendly Approach: Ensure that your onboarding process is mobile-friendly. Mobile-enabled banking services provide a competitive edge from the outset of customer onboarding.

By adhering to these best practices, employees can create a competitive and personalised experience in bank client onboarding. This approach enhances customer retention rates and increases profitability in the digital banking landscape.

Conclusion 

While traditional customer onboarding relies on physical presence and paperwork, digital onboarding leverages technology to create a more convenient, efficient, and accessible experience. It's a transformative approach that every modern bank and BFSI business must consider.

Ultimately, these two approaches depend on a bank's strategy, customer base, and the balance between personalised service and modern efficiency. However, it's noteworthy that conversational AI in banking transforms the entire financial landscape, from customer onboarding to helping customers with product recommendations.

If you're looking forward to digitising your client onboarding process in banks, you will need an interactive conversational AI to engage with your customers. In that case, here's what App0 has to offer you. Our advanced AI-powered messaging platform harmonises communication across various channels, offering a transformative opportunity to elevate operational efficiency and nurture meaningful connections. With App0, you can build conversational support software and AI chatbots for customer onboarding quickly within no time. Request a personalised demo with App0 today and embark on a journey towards streamlined workflows and enriched client interactions.

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FAQs: Customer Onboarding in Banking