Consumers increasingly expect to be able to transact business online — whenever they need to and wherever they want. For heavily regulated industries such as financial services this has proven to be especially challenging. Because of the need for compliance and also in the interest of preventing and combating fraud, banks have largely adhered to the more traditional process of onboarding customers at one of their branch offices.
Providers of other essential services, such as utilities and telecom, have also largely required customers to initiate these business relationships in person. However, in order to remain competitive, alternatives that take less valuable time away from the customers must be considered. This calls for reliable systems to authenticate new customers, which in many cases also need to be accepted by local governments as well as regulators.
The need for digital onboarding
Signing up new customers is vital for any business or service provider that wants to grow revenue. To make this process as smooth as possible every provider needs to remove as many artificial barriers as possible. One of the most stubborn barriers to overcome historically has been the need to have a client physically present in order to present to them the attendant documentation and to complete the necessary paperwork. Until recently, customers as well as the organisations they patronise have accepted this requirement as the price of doing business. However, with other business categories having embraced online commerce, consumers have since gotten used to be able to complete transactions from the comfort of their own homes. While the perceived technical barriers no longer exist, the legal barrier of compliance is something these same clients do not feel the need to be involved in.
To put it colloquially: it is not their problem.
In lending credibility to the anxiety of service providers to include digital customer onboarding in consumer banking, the numbers speak for themselves. Sector analyst firm McKinsey found that physical 'sales' for branches account for about 85 per cent of conversion rates while online sales yield a fraction of that number, just 15 per cent. Taking that figure at face value alone, however, disregards the fact that many customers appear at the branch only to close the deal they already selected once solicited (and closed) by an outbound call. In contrast, financial consulting firm Javelin found in 2015 that 70 per cent of likely customers would prefer digital applications over face-to-face sales. Also, physical onboarding demands staff attention and its manual nature means it is error-prone and that costs are relatively high. Increasingly, traditional banks face rising competition from online only institutions that have already 'nailed' digital onboarding.
IDing a customer
The overarching reason for companies that face regulatory scrutiny to retain traditional face to face onboarding is the need to identify the person opening the account. The employee gets to visually identify the client and to perform a check of his or her documentation. In most instances a photo ID is all that is needed for successful authentication. Additionally, the customer also has to physically sign documents in front of the employee, adding another layer of authentication. This process is perceived as lowering the incidence of identity theft occurring and reducing the opportunities criminals might have in committing fraud. It also allows more cooperation from the bank during any legal investigations involving one of its accounts.
Ideally, online onboarding would therefore involve a way to visually identify the new client. Indeed, in recent years banks in Germany, Austria and Switzerland have started to use video calls as a way to authenticate new prospects. But while startups have appeared that offer online-only banking using video as an onboarding method, this solution is not universally available. To allow for this, banking laws in these countries had to be reinterpreted. In other countries, this method might not even be available due to current legislation.
However, more mature alternatives do exist. One of these is identity brokerage, or i-brokerage, where both parties use an intermediary to confirm the applicant’s identity. The broker specialises in compliance to local regulations and allows for customers to identify themselves online for services that demand high security and risk management. Most i-brokers use identity proofing. This technique not only involves strong authentication, but also thorough, automated checks of a person’s identity using information on public and proprietary data sources, as well as other advanced methods.
One notable example is Luxembourg’s LuxTrust. LuxTrust offers Signing Server solutions that use tokens to connect to the server. The tokens are used to complete operations that require identity authentication, after which users can use a digital key to securely confirm their ID online at many different organisations. This means he or she does not have to repeat the same steps over and over again just to prove identity and, significantly, removes one of the main perceived barriers from the customer side in doing business with that organisation.
Governments are also buying in
Even when there are very good reasons for it, it may seem governments are primarily creating obstacles for digital onboarding by enforcing strict rules and regulations. However, in a growing number of countries local and national governments are buying into identity proofing technology in order to make their services available online. In some cases, this results in a de facto national standard for identifying online users without the need for face to face contact.
For example, governments, educational institutions and banks in Norway and Sweden have developed and used their own individual systems since 2003. While separate, the systems are named BankID in both countries and are similar in function. BankID certificates can be loaded on smartcards, smartphones or other devices and allow consumers to complete a variety of operations including opening bank accounts and even filing tax declarations. BankID also allows for electronic signatures. Due in part to the Swedish and Norwegian success stories, other countries are looking into the possibility to adopt similar systems.
Because technology has enabled it for many years now, consumers find it increasingly harder to accept legal reasons for not being able to complete certain operations online. Indeed, for a growing number of people having to visit an office just to open a simple bank account seems like a waste of precious time and energy. Meanwhile, providers feel pressured to streamline the organisation and remove obstacles for customers to come in and buy their services.
The good news is that technology is not only enabling factual, practical implementation of services that could be acquired only in traditional face-to-face settings, but also satisfying any legal compliance associated when doing so. This means organisations that face some of the toughest regulations can securely do what customers expect them to do: offer services without demanding them to jump through perceived bureaucratic hoops.
Jan Valcke, President & Chief Operating Officer, VASCO