Customer onboarding in banking – the balance between security & UX

Offering digital services is nothing new for the financial services industry. However, we have seen the pace of adoption has increased significantly during the COVID19 pandemic,  and along with this has come a rise in fraud and other crime. With its basis in customer trust, security is crucial in the banking industry. Banks have to quickly adapt to the changing environment while ensuring they meet the highest levels of security and regulatory requirements. Experts from IDnow, Ziglu, Santander, and Scotia Bank recently discussed digitalization, customer onboarding, and digital identity in banking. In particular, how to embrace these technologies to offer the best customer experience whilst maintaining security and trust as the key drivers.

Growth in digital banking services

The events of the past 18 months have led to many changes in banking. Webinar participants agreed that the use of digital services has increased significantly, as has the range of services offered – not all of them expected before the pandemic. This has brought with it higher levels of customer onboarding and verification services. As highlighted during the webinar, a study by McKinsey suggests that companies are now seven years ahead in digital transformation due to the pandemic. As evidence of this remarkable adoption, IDnow shared that it has experienced a growth of up to 1,000% in the demand of verifications.

Rise in financial crime

Both unfortunately and unsurprisingly, the rise in digitalization has been accompanied by an increase in financial crime. At IDnow, we have seen overall fraud increases of around 250%  – and a 180% rise in document fraud. James Sullivan, Chief Operating Officer at Ziglu, also agreed and shared his experience at his organization. James explained how over the past 12 months, they have seen an increase in fraud. This includes a significant rise in impersonation fraud, money mule activities, and scams. The lack of digital IDs in the UK is undoubtedly a contributing factor.

Building trust is vital for banks

Data security is paramount for all companies, most importantly for banks as they are the custodians of customers’ personal information and security is the foundation in trust. Rod Boothby, Global Head of Identity at Santander, explained his view of this and the importance to banks, saying: “People trust banks as a store of their value. That means things like cash, securities, but also data. They know that banks will protect their data – which is very useful when you are trying to establish trust on the internet.” Rod from Santander and Zemfira Khisaeva from Scotia Bank both highlighted how building trust online is critical. Without getting it right, they are not only risking security, but they are also potentially losing out on customers and revenue. Rod explained how recent digital identity approaches are being developed with data minimization in mind, which would enable banks to request less information to customers when performing KYC processes.

ID verification as part of a digital strategy

The importance of digital identity verification is becoming more evident especially as both the volume of online services and the level of fraud increases. Roger Tyrzyk from IDnow explained how this is a hot topic in many industries now. As banks add new services and functions, they also face different challenges. This includes thinking about new sources for digital identity, embracing new technologies, and ensuring a seamless experience across multiple channels and backend systems. A primary drive of the changes we see from a verification technology point of view is how to ensure that the person is who they claim to be. Just capturing a photograph on an ID might not be enough. Going forward there will be the need for more advanced techniques which can authenticate documents – some examples are the use of video techniques for checking dynamic security features and Near Field Communication (NFC) technology. The use of biometrics such as face, voice, or fingerprints will continue to be widely used as it is today, but the adoption of more robust data protection and security processes will also need to be considered. Rod also agreed with this and expanded about the key difference between the physical world and the digital world. An ID document or passport can be produced in the physical world, but this is radically different in the digital world. How can it be proved that a person is who they claim to be during a digital session?

Identity standards as a catalyst for trust

During the webinar, all participants expressed how standards shared between organizations are important too. Zemfira from Scotia Bank explained how banks in Canada use the same system to perform these verifications. Rod also shared how Santander (together with other banks) is working on developing an open ID trust framework for digital identity, which is aimed to standardize the verification approach not only for financial services, but also for other industries. Ultimately, this trust framework would allow organizations to onboard customers easily and securely, but with the customer in control of what data is shared.

Providing identity insurance for banking transactions

Another new development discussed was the introduction of identity insurance. This could see a small insurance premium on a transition to insure against fraud. Rod from Santander explains how this could greatly help trust and global financial inclusion, claiming that “By transferring the risk we allow people to act as though they are trusted everywhere.”

Importance of the user experience

Security, functionality, and better services are great, but what about the customer experience? Zemfira pointed out that this is not something that has been so important in the past, with security and trust the main drivers. However, the focus has changed over the years as new generations come and challenger banks arise. User experience is moving from a ‘nice to have’ to a key differentiator amongst banks going forward.

How to achieve a great user onboarding experience

Participants also shared their views on KYC and the onboarding process, and how to make this process a good one for users. The suggested main areas of interest include:
  • Ensuring speed of customer onboarding. Users can give up if the process is slow. They are there to engage with your products and services, so get them doing this as soon as possible.
  • Reduce friction points. There is a level of “friendly friction” that customers are prepared to deal with, however it is important to communicate with the customer the value of your products and the reason for this ‘friction’.
  • Aim for a reliable solution: It is also very important to choose the right identity partner which systems and processes have been widely tested.

Compliance is both important and challenging

There is a real challenge between regulatory requirements and friction points for customers during onboarding and verification. The art of finding the right balance between those two will be a key differentiator. The regulatory ecosystem can be cumbersome to navigate for organizations as regulatory requirements typically differ from one country to another. Due to Brexit, UK companies operating in Europe, for example, will now need to acquire a license in the countries they wish to operate and comply with local regulations. Another example are crypto currency companies with a license in Europe that wish to onboard customers in Germany. With the implementation of the 5AMLD in Germany, now these crypto companies are required to obtain a license in Germany and comply with BaFin regulations, where a video-based verification is required. Participants raised the fact that the user experience will also be limited by local regulations. This is the case of Germany mentioned above and another example is Mexico, where onboarding can only be performed in person or via live video. The lack of government digital IDs is also a limiting factor. This varies between countries. Countries like Estonia and Sweden, are well ahead with this. Sweden which uses BankID to onboard customers and Estonia the only country with a full digital identity which enables banks to onboard customers 100% using this. On the other hand, the UK is likely to face different challenges due to the lack of an identity document  – James from Ziglu believes this is a leading contributor to the UK’s high level of financial crime. James also raised the point about outsourcing and bank regulatory responsibility. There is a growing trend where financial services organizations are relying on third parties to perform their KYC processes. This is mainly due to the continuous developments of technologies which makes the processes more robust and reliable. However, it is important to mention that even though this process can be outsourced banks will still be responsible to choose the right partner and be aware on how they fulfill their regulatory responsibilities. Learn more in our other banking blog article on how to balance regulation and customer experience.

Looking to the future

It is always helpful with any technology to look at upcoming changes. Participants agreed that in the near future, changes would mostly come through improvement and maturing of current technology and reduction of errors in verification and KYC – rather than new developments. Using existing tools to better outsmart fraudsters will be a critical area as we move forward and choosing the right partner who continuously innovates is vital in order to stay one step ahead of them. Fraud sophistication is increasing – including in areas that are not seen much yet, such as deep fake technology and quantum computing. Furthermore, there is value in getting it right. Rod drew attention to data from McKinsey once again, which suggests that if we can solve the challenge of fraud and trust, it could add 3% to GDP in developed countries and up to 13% in developing countries. There is plenty more to understand about these new regulations and their implementation. For some more insight from the experts, watch the full webinar. By
Customer onboarding in banking – the balance between security & UX 1
Francisco Martins Senior Identity Consultant, Financial Sector UK/I at IDnow Connect with Francisco on LinkedIn


Let's talk!