The Future of Customer Onboarding

The current onboarding processes at many financial institutions are outmoded. Fortunately, FinTech companies are offering end-to-end customer onboarding operations which are being received with a lot of interest in the Indian market place.

The main problem with banks is to know with reasonable, satisfactory and verifiable details about the customer. In this digital era where the banks rarely interact with their customer face-to-face, the customer onboarding module has become the central piece for data capture.

Technology driven innovation can provide a solution to this problem keeping in mind the financial regulatory compliance issues. Decimal having gathered intelligence across the entire gamut of Know Your Customer identification and verification innovations in the market, we believe enhancing and shifting to digital customer onboarding is an opportunity for the banking industry not only for customer acquisition but also to enable selling the vast product offering of the bank.

Digitalized customer onboarding is efficient, increases user experience and is very robust from the regulatory and risk management perspective. Decimal believes that enhanced standardization in the customer onboarding process allows for efficiencies in time, cost and also complies with the regulatory framework.

The Present Situation

Current processes for client onboarding employed by many financial services organizations involve collecting documents or individually engaging credit reference agencies to verify customer identity against other independent data sources on their behalf. However, this poses a number of challenges. We discuss below the technologies that are already having an impact on how financial institutions onboard customers.

Access

Time Consuming

Variable Quality

With the shift demographics of the customer base, immediate services have become mandate. Customers expect easy access to financial services and certainly no physical contact with the bank branch.

Based on Decimals interaction with the banking industry the customer onboarding process has been found to be long. This is costly for the bank and frustrating for the customer.

Owing to the human interface compliance officers set due diligence standards to varying degrees of rigor, resulting in varying strength of KYC documentation obtained.

 

Digital Identities

As a society, we are more and more comfortable with the concept of digitalization. It is evident that we are integrating more and more of our lives with technology. The creation of a digital identity – a unique identifier for you that verifies that you are who you say you are – seems to be the natural next step to facilitate customers desire to digitize.

 

Case Study:

In Norway a bank ID can be used as a digital identity to both the public and private sectors, including all Norwegian banks. A study has shown that 80% of the adult population has a digital identity and through the use of this Bank ID, an individual can easily open a bank account and the financial institution will have comfort from a regulatory and an anti-money laundering (AML) perspective that the customer’s identity has been verified.

 

RBI has allowed the acceptance of Aadhaar UIDAI based digital identity in the process of bank account opening. The advantages Aadhaar has over other traditional identity proofs in India like driving licence, voter ID, Passport is OTP based authentication and biometric based authentication. Using OTP and Biometric the authenticity of the customer can be established in real time. This is leading to disruption of customer onboarding process in terms of efficiency, authenticity and turnaround time. In India Aadhaar has already create a single digital market and is being integrated with other customer functions like PAN etc. To say in the coming future customers will need Aadhaar for any kind of payment related services is not farfetched. Aadhaar based digital identity meets the minimum regulatory standards required for identifications by the RBI as in highly unlikely to change in the near future.

The customer onboarding process involves customer identification and verification, wider KYC, PAN details and other onboarding processes are often combined into one broad concept.

Combining these concepts can lead to the perception that regulatory requirements are a source of delay at the customer onboarding stage. However, information being requested from new customers, is actually not strictly required at onboarding – for example, data to help inform a future credit decision. Decimal suggest, to drive efficiencies, financial institutions must therefore determine what they want to achieve from their onboarding process, identify the data fields and also keep a keen focus on the sources for this information and developing a user experience around them.

Biometrics

While talking about the customer onboarding and verifying the authenticity of the customer, a major question that comes out is the level of assurance provided by any identification process.  There are 4 levels of assurance in the identification and verification process, with level 4 providing the highest level of assurance and 1 the lowest. These levels of assurance are set out in the Good Practice Guide 45 produced by by the Communications-Electronics Security Group (CESG), the UK Government’s National Technical Authority on Information Assurance.

The challenge in the level of assurance provided boils down to the intrinsic issue of how you can prove who you are in a non-face-to-face scenario. The independent identity of the customer cannot be determined using scanned copies of driving license, Voter ID, Passport etc. The question is does this provide sufficient comfort as to the identity of the individual attempting to open an account? Also, what if the customer in question does not have a credit footprint?

Biometrics is an exciting field of technology that can help provide the answer. Biometrics describes the science of recognizing an individual based on his or her physical or behavioral traits and as such, are widely considered to be more secure and reliable than alternative methods of identity verification. The increasing sophistication of mobile devices and the use of biometric security features in Aadhaar document present a significant opportunity to enhance the effectiveness and efficiency of customer identification and verification.

Conclusion

Digital identities, biometrics and KYC Utilities offer solutions to improve the identification and verification of new customers on realtime basis. When we talk about customer onboarding, the technology has arrived and so has customer readyness, Decimal has already developed off the shelf end-to-end customer onboarding platform harnessing the digital identity of the customer. The absence of significant banking infrastructure in rural India means the biometric identification will have farfetched advantages once the banks decide to incorporate digitalization as a customer onboarding strategy.

In terms of managing a bank’s exposure to financial crime, onboarding is an important component. Another important objective of the onboarding process is to gather sufficient information to enable effective ongoing monitoring. From Decimals experience of working with technology-enabled banks; these are better positioned to demand less of the static data typically gathered at onboarding and rely more on the transaction and activity data to highlight unusual behavior. They will often have a single source of customer data, enabling profiling for business, as well as ongoing (financial crime risk) monitoring, purposes.