Open banking is transforming the financial services landscape, offering numerous benefits such as increased competition, innovation, and improved customer experiences. One area where open banking has had a significant impact is digital customer onboarding. By leveraging open banking apis (application programming interfaces), financial institutions can streamline and enhance the onboarding process for new customers. This blog explores how open banking improves digital customer onboarding in the financial sector.
Understanding digital customer onboarding
Digital customer onboarding refers to the process of acquiring and integrating new customers through digital channels. It involves verifying the identity of the customer, collecting necessary information, and setting up accounts or services. A smooth and efficient onboarding process is crucial for enhancing customer satisfaction and reducing drop-off rates.
Statistical insight: according to a study by signicat, 40% of european consumers abandoned financial applications in 2018 due to a lengthy and complicated onboarding process.
How open banking enhances digital customer onboarding
1. Streamlined data collection and verification
Open banking enables financial institutions to access customer data directly from their existing bank accounts, simplifying the data collection and verification process.
Key points:
Direct data access: open banking apis allow for the secure retrieval of customer data from their primary bank, including personal information, transaction history, and financial standing.
Automated verification: this direct access reduces the need for manual data entry and document uploads, speeding up the verification process.
Example: a new customer opening an account with a digital bank can consent to share their data from an existing bank account, allowing the digital bank to quickly verify their identity and financial information.
2. Enhanced security and compliance
Open banking apis are designed with strong security measures and compliance with regulatory standards, ensuring the secure handling of customer data.
Key points:
Strong customer authentication (sca): open banking requires sca, which uses multi-factor authentication to verify the customer’s identity.
Regulatory compliance: open banking adheres to regulations such as the general data protection regulation (gdpr) and the payment services directive 2 (psd2), ensuring data protection and privacy.
Example: a financial institution can leverage open banking apis to securely verify customer information in compliance with regulatory standards, reducing the risk of fraud and ensuring data privacy.
3. Improved customer experience
Open banking simplifies the onboarding process, making it faster and more convenient for customers.
Key points:
Faster onboarding: by automating data collection and verification, open banking reduces the time required to onboard new customers.
Reduced friction: customers no longer need to manually enter extensive personal and financial information or provide multiple documents, enhancing the overall experience.
Statistical insight: according to deloitte, streamlined onboarding processes can increase customer conversion rates by up to 20%.
Example: a fintech company can use open banking to quickly onboard new users, allowing them to start using the service within minutes instead of days.
4. Personalization and tailored services
Access to comprehensive financial data through open banking allows financial institutions to offer personalized and tailored services right from the onboarding stage.
Key points:
Customized product recommendations: financial institutions can analyze transaction data to understand customer behavior and preferences, offering relevant product recommendations during onboarding.
Tailored financial advice: personalized financial advice can be provided based on the customer’s financial history and current standing.
Example: a digital wealth management platform can use open banking data to provide personalized investment advice and product recommendations as soon as the customer completes the onboarding process.
5. Seamless integration with third-party services
Open banking facilitates the integration of various third-party services, enhancing the functionality and appeal of the onboarding process.
Key points:
Aggregated services: customers can access multiple financial services, such as loans, insurance, and investments, through a single platform.
Cross-platform access: seamless integration with other financial platforms and apps allows for a more cohesive user experience.
Example: a digital banking app can integrate with third-party budgeting and investment tools, providing a comprehensive financial management solution during the onboarding process.
Challenges and considerations
While open banking offers numerous benefits for digital customer onboarding, there are also challenges and considerations to keep in mind.
1. Customer trust and consent
Ensuring customer trust and obtaining explicit consent for data sharing are crucial for the success of open banking initiatives.
Key points:
Transparency: clearly communicate the benefits and security measures of open banking to customers.
Informed consent: ensure that customers fully understand and consent to the data sharing process.
2. Technical integration
Integrating open banking apis with existing systems can be complex and requires technical expertise.
Key points:
Api standards: adhere to standardized open banking apis to ensure compatibility and interoperability.
Technical support: provide adequate technical support to address integration challenges and maintain smooth operations.
Future trends in open banking and digital customer onboarding
1. Expansion of open banking ecosystem
The open banking ecosystem is expected to expand, incorporating more financial services and providers, further enhancing the onboarding process.
Key points:
More data sources: access to a wider range of financial data sources will enable even more comprehensive and accurate customer profiles.
Broader integration: integration with a broader range of financial services, such as insurance and real estate, will enhance the onboarding process.
2. Ai and machine learning integration
Ai and machine learning will play a significant role in analyzing open banking data to further enhance the onboarding process.
Key points:
Predictive analytics: use predictive analytics to anticipate customer needs and provide proactive solutions during onboarding.
Enhanced personalization: machine learning algorithms can continuously improve personalization and service recommendations based on evolving customer data.
Statistical insight: according to a report by accenture, ai has the potential to increase profitability in the banking sector by an average of 38% by 2035.
Conclusion
Open banking is significantly enhancing digital customer onboarding by streamlining data collection and verification, improving security and compliance, enhancing customer experience, and enabling personalization. While there are challenges to address, the benefits of open banking in the onboarding process are substantial. As the open banking ecosystem continues to expand and integrate with advanced technologies like ai and machine learning, the onboarding process will become even more efficient, secure, and customer-centric.