Why Digital Account Opening is Key to Bank Success

Big banks spend a lot of money on customer acquisition and current digital account opening tactics. By one estimate, it costs $1,500 to $2,000 to bring on a new banking client. That's several times the estimated $300 or so spent by budget-strapped financial startups. But the question for both remains the same — despite this hefty investment, why is it so hard to get new customers? The answer may not be in the failure of marketing or an inability of banks to offer enticing deals. It's the outdated and inefficient onboarding process. Banks have tried to resolve this by making it possible to open accounts online. But even that has proved to be a challenge. A high number of people abandon the digital account opening process — about 19 percent, or almost one in five. So why does this happen? The onboarding process is simply too complicated, cumbersome, and lengthy. With so many other options to choose from, customers feel it's just not worth the effort and navigate away from the page. Thankfully for banks, there are ways to fix this so they can stay competitive in an increasingly digital marketplace.

New Accounts Are a Priority

It may seem obvious to say that banks want new customers. Expanding their client base means more money and assets coming into the business. People don't switch banks very often, so financial institutions want to maximize every opportunity to appeal to new consumers. Furthermore, banks know the world is increasingly online and digital. They know younger generations have never lived without smartphones, and understand the urgent need to make their services broadly accessible, so they won't go the way of a previous generation of businesses who folded out of a failure to modernize. So digital account opening seems like an obvious and necessary option banks should provide. But their good intentions often don't meet with success. What's going on?

Where Banks Go Wrong With Digital Account Opening

Banks are highly regulated institutions. They must comply with a number of legal requirements, including anti-money laundering (AML) and Know Your Customer (KYC) rules. Banks also vigorously assess risk. Those two factors mean there are a number of specific procedures they must follow when inviting a new customer into the fold. Some of those procedures are mandated by law, others are a matter of internal policy. When banks go digital, they tend to lead with those regulatory requirements. While that may protect the bank, it leaves the customer experience team behind. Those whose job it is to make the onboarding process easy and welcoming are secondary. As a result, it doesn't seem to the outside observer that the bank has done much to modernize. Often, banks take their existing onboarding processes and put them online. They don't bother to create a new unique online procedure. Sometimes that results in excessive steps to verify identity, or even an in-branch visit for a new customer. Forced to drop their phone, gather identity documents, find a branch and make an appointment, these customers often walk away. But it's not just in-branch visits that cause issues. Banks that do allow for online identity verification often use knowledge-based authentication. This requires that the customer answer a series of personal questions based on data available on a credit report or in another accessible database. But credit reports go back a long time, and customers often can't remember every detail — which can mean a client is unable to prove who they are. They might get a refusal from the bank or have to go visit a branch to show ID in person. There are thousands of banking options for consumers. If it's too hard to sign up, many won't bother. The poor user experience damages the bank brand, and those lost clients will likely never come back.

Wasted Resources

So, what does this mean? All the work the bank pours into making its onboarding process digital may in fact be a waste. It does offer another avenue to reach new clients. But if it still requires them to switch from online back to offline in order to complete the process, it may not be as significant an advancement as the bank intended. It's important to note again here the cost of new customer acquisition. That couple of thousand dollars may be from marketing costs, sign up bonuses, extra rewards points, and even the implementation of the digital account opening initiative itself. If the online process is disappointing, there's little hope for the banks to scale and bring down that acquisition cost.

Advancements in Digitization

Despite all of these challenges, there are easy and efficient ways to streamline the digital account opening process. These make it possible for a consumer to respond quickly to an bank's outreach or marketing, and to complete the onboarding within a matter of minutes — not hours or days. Better still, they can finish the entire process on their smartphone, within the palm of their hand. Here are some features: ID verification. Instead of relying on in-branch visits to show ID or knowledge-based authentication which asks obscure questions, new technology allows for AI-powered ID authentication. New customers can take a photo of themselves and their ID, and let the tech do the rest. Interactive forms. It is easy for customers to fill out documents online, through responsive intake technology. Banks send new clients a text message with a link to an online questionnaire. There's no need to use cumbersome fill forms or to print out a PDF. It's all electronic with no need for extra steps. eSignatures. When time comes to seal the deal, customers sign using their fingertip. It's as simple as swiping across their smartphone screen. These features work together to take the frustration out of digital onboarding. For banks who want to make their mark on a new generation of consumers, it's a vital step in the innovation process. Implementing these features is an easy way for banks to make the most out of their customer acquisition dollars. As their onboarding success rate improves, they will elevate their brand identity and start a new generation of banking consumers on the way to a healthy financial future.