Why can't banks get digital account opening right?
Jason Henrichs, Managing Director of Fintech Forge, an innovation consultancy to financial services firms, says that "Banks get digital account opening wrong because their view is driven by their own technological limitations and compliance processes, not the problem the customer is trying to solve."
If banks are failing at digital account opening, it's not for lack of trying.
Digital account opening has been at the top of the list of technologies financial institutions intend to add or replace for the past three years.
Banks often anticipate an increase in application volume after deploying digital account opening systems, only to be disappointed when the volume doesn't materialize. What are they doing wrong? A study from Cornerstone Advisors identified a number of reasons including:
1) Ineffective process design. Many banks approach the account opening process from a regulatory compliance perspective, putting them at a disadvantage right off the bat. Designing a successful account opening process requires out- ofthe- box thinking. According to Chris Nichols, Chief Strategy Officer at CenterState Bank:
"If you ask bankers what it takes to satisfy the regulations to open an account, they will give you a long list of items. The reality is that it takes very little information to get an account open. The risk isn't for bad actors to move money in, but to move money OUT. As such, if you restructure your process to allow for the simplest account opening and funding possible, you can go to work to reduce risk and satisfy the regulation."
2) Poor user experience. A second mistake is asking for the same data the offline process asks for- and, in general, basically just digitizing the existing process. There are five components to effective digital account opening experience: 1) Simplified data entry; 2) Immediate account funding; 3) Digital application signing; 4) Instant account approval; and 5) Preventing application abandonment. Too many banks aren't addressing all five components when deploying digital account opening tools.
3) Inadequate integration. The third mistake many financial institutions make is failing to integrate their entire digital ecosystem when implementing digital account opening tools. In addition, they often underestimate the complexity of integration. Systems integration may be the most obvious form of complexity, but organizational issues like dealing with crossproduct and cross- line of business issues further complicates matters.
Banks Gotta Get This Right
According to research from BAI, roughly three- quarters of Millennials and two- thirds of Gen Xers prefer digital channels for opening deposit accounts. Just three of five consumers who want to open accounts online actually do so, however.
Why the discrepancy? According to Jim Marous, "many institutions don't allow customers to open their first account digitally due to identity verification concerns, fraud prevention, and other reasons. Banks that believe the majority of consumers prefer to open accounts in a branch are biased by the reality that most consumers aren't given a choice."
Consumer preference to apply digitally isn't the only factor forcing banks to get digital account opening right.
Speed- the ability to react quickly to market changes and opportunities- has become a key competitive requirement in banking. Account opening is just one aspect of the need for speed.
If banks can't get account opening right, how are they going to get all the other things they need to do quickly right?