In the wake of Covid-19, digital account opening (DAO) solutions have taken on greater importance than ever before — yet several myths persist about this technology and how it should be optimized. Read on to understand the most common misperceptions about digital account opening and how you can maximize its effectiveness as part of your financial institution’s digital strategy.
Myth 1: The best DAO processes eliminate as much friction as possible—the shorter the process, the better.
Reality: Some friction is necessary to reduce risk.
While conventional thinking suggests that minimizing friction will reduce application abandonment rates, institutions must have enough steps built into the process to identify potential fraud. It’s critical to find a balance between risk and the customer experience, and the “right” approach may vary from one financial institution to another. As analyst firm Celent notes in its report, “Digital Account Opening: You Can Only Improve What You Measure,” a relatively fast and easy application process is important, but seconds really do not matter. Instead, leveraging a solution that provides you with the flexibility to find the right balance for your institution is the key.
Myth 2: Accounts should always be funded as part of the DAO process.
Reality: There’s no right answer when it comes to funding.
Institutions have different views on this topic. Proponents think account holders with a financial stake are more likely to engage with your institution. Others see this as an unnecessary step that adds friction. Whatever your philosophy, a strong DAO solution will be able to adapt the process based on your institution’s needs and preferences and will enable you to evolve it as needed over time.
Myth 3: The DAO process is over when the account is activated.
Reality: Account opening isn’t over until the customer starts using the account. Although account opening is the obvious first step, institutions should not lose sight of the holistic view of the customer journey. The most successful account activations initiate other onboarding activities and provide a bridge to services account holders will need as a customer, including bill pay or credit card services.
Myth 4: DAO should be completely self-service.
Reality: Customers may require support during the account opening process. Rather than delivering a potentially cold, digital-only experience, the DAO process ideally provides “off ramps” from digital channels to assist users if needed. For example, some applicants may need help choosing products and want to ask questions. Offering support either digitally or offline will help to prevent abandonment.
Myth 5: The DAO process should be consistent for all applicants.
Reality: Your process should adapt based on the applicant.
Rather than offering a one-size-fits-all approach, your DAO solution should tailor the workflow based on the responses provided by the applicant. For a known user, some applicants can be approved after as few as two questions, while additional verification should be required for those that are unknown. One suggestion is to require unknown or flagged users to upload personal documents, such as a driver’s license, tax ID card or utility bill.
Myth 6: Traditional KYC practices are most effective for identity verification. Reality: Newer, more effective alternatives are available that provide a better customer experience.
Knowledge-based authentication, such as asking applicants for information like their mother’s maiden name, remains commonplace today, yet this and other traditional KYC processes often introduce significant friction. Alternatives such as telecom data can be a more effective alternative to identify potential fraud, for example, when an applicant’s address is different from the address on the customer’s mobile phone bill.
Myth 7: Your DAO approval and rejection rates should mirror those of the branch environment.
Reality: Brick-and-mortar rates are irrelevant in the digital world.
DAO opens the door for users outside your immediate area to become customers of your institution. Lower approval rates or higher rejection rates are not necessarily negative, as the pool of applicants is much larger with digital channels in the mix. As a result, you should develop digital approval and rejection benchmarks that are independent of those from the branch environment.
Making DAO Effective for You
A modern, seamless DAO solution that can adjust to your institution’s needs should be the ultimate goal to enhance your process and your customers’ journey. Avoiding these myths along the way will help you establish a strategy that best serves your organization.