You don’t get a second chance to make a first impression. This phrase has never been truer than it is today in banking and fintech, with rising customer expectations and a glut of new players and products fueling competition. In the digital-first landscape, customers form opinions at lightning speed and quickly reject providers who do not meet their needs.
For fintechs, onboarding is often the very first interaction many of your customers will have with your brand. And if you don’t capture every aspect of the journey from start to finish, you’ll turn potential customers away before they’ve even touched your product.
The battle for customer loyalty
Customers are interested in onboarding. Signicat’s latest Battle to Onboard report found that 68% of consumers abandoned financial products and services at the onboarding stage – a big jump from 40% in 2016. A GlobalData survey showed that UK small and Micro businesses are more interested in easy account opening and onboarding procedures (38%) than SME support programs and packages (7%).
Fintechs often position fast, efficient and fully digital onboarding as one of their key differentiators in the market. However, striving for this competitive advantage can come at a high cost. In a recent review of six (unnamed) challenger banks, the UK’s Financial Conduct Authority (FCA) highlighted a catalog of ineffective controls, inadequate screening of new customers and failures to identify high-risk customers during onboarding. It is clear that companies – and particularly fast-growing early-stage fintechs – need to ensure they don’t sacrifice good risk management in order to provide the best possible onboarding experience.
So how do you meet your customers’ demands for a fast, frictionless experience without compromising critical due diligence to weed out bad actors? Companies that get it right early will now get a head start on the competition and can grow and scale more sustainably in the medium to long term. Here are four tips to get you started on the right balance.
1. Do your research
Established companies have years of customer data that they can use to create the right onboarding rules. Startups don’t have that luxury. It’s hard to know what your customer base will be like and the risk they pose if you don’t have one on board.
This might sound like a catch-22, but setting up your onboarding rules for the first time doesn’t have to be a guesswork game. Use your own experience and that of your contact person in the area of compliance – have they ever worked on a similar product? What would you have liked to have done differently? You should also do as much research as possible on all types of customers who you think might interact with your product—even those who aren’t in your primary target segment.
Keep in mind that startups are targeted by criminals from the start precisely because they are seen as more vulnerable. It’s critical that your fraud prevention, terrorist financing (CTF) and money laundering (AML) controls are in good working order from the start. Research where things went wrong at similar businesses that have been targeted by financial crime and see what you can learn from these cases.
2. Simplify and contextualize
Some AML and Know Your Customer (KYC) steps are essential in any onboarding process — but that doesn’t mean they have to be painful for your customers. There are some quick and easy ways to minimize frustration:
- Use simple and straightforward language throughout the process so customers can easily navigate through each step. Avoid technical jargon or complicated legal language irrelevant to their needs.
- Do not burden customers with repeated requests for information; Ask once and make it easy to upload all supporting documentation.
- If unclear, explain why you are asking for specific information or documents. There’s a tendency in financial services to keep the reasons for due diligence in the shadows – but a little more context can put your customers at ease and help avoid confusion.
3. Use friction in the right places
smooth. Smooth. Seamless. When we talk about onboarding, we often talk about friction as the enemy. In fact, the key to smart and secure onboarding is creating friction in the right places, at the right time, and in front of the right people (e.g., high-risk customers and criminals). At the same time, you want to ensure that low-risk customers get the fast, seamless onboarding experience you want your brand to be known for.
Unfortunately, there is no panacea when it comes to onboarding. Using friction in the right place means making the process as dynamic as possible. If you onboard everyone in the same way, you will inevitably cause too much trouble for legitimate customers who want to use your product for its intended purpose, or make it too easy for bad actors to slip through the net. Instead, your onboarding process should adapt to the risk posed by the person or company you are onboarding.
4. Combine the power of technology with compliance expertise
Automation is the future of onboarding – when done right, it reduces the time and effort required for manual reviews, minimizes human error, speeds signoffs, and frees compliance teams to focus on the big picture. But it’s important to know where automation is acceptable and where it can create increased risk. All startups should be aware that over-reliance on automated systems to provide results can pose a potential risk of customer harm. There will always be some cases that need human review, and your system must be set up to flag these consistently and accurately.
Many regtech companies offer great products from a technical standpoint, but then leave much of the work—and risk—of implementation to their customers. Familiarizing yourself with these systems can be time-consuming and confusing for young companies without specialist staff. And if they make a mistake with setup, they can be at risk at their most vulnerable point.
When choosing your regtech vendors, consider whether they have the in-house expertise to understand your needs and help you customize their product so it’s right for your business, your customers, and your risk appetite.
5. Optimize twice. Once on board.
Onboarding can make or break your business — especially if you’re an early-stage fintech. It pays to invest in the right approach and optimize each step to make it as smooth as possible for low-risk customers while setting the right guard rails to deter criminals and mitigate your risks. It’s what’s best for your business and the right thing to do in a world where the vast majority of financial crimes still go undetected.
About the author: Alex Nash is Griffin’s Anti-Money Laundering Officer. He specializes in Regulatory Compliance, UK Financial Regulation,
EU financial directives, international anti-money laundering expertise, prepaid platforms, fraud detection and project risk analysis.