It’s easy to see why.
Digital banks are expected to offer greater access, convenience and value for all, with many entrants striving to reach the unbanked and traditionally underserved segments in emerging markets or meet evolving customer demands in developed markets.
Regulatory authorities in Australia, Japan, Hong Kong and Taiwan have already issued virtual bank licenses, while regulators in Singapore received more than four times as many applications as licenses on offer. Malaysia and the Philippines are also looking to catch up and offer similarly advanced banking services.
The ongoing competition with these new digital entrants and changing customer expectations are putting pressure on the incumbent traditional banks to accelerate their transformation efforts. Many are upgrading their digital platforms and offerings to stay relevant and compete.
For today’s digital banks to succeed, it is imperative to overcome the twin challenges of ensuring a frictionless customer experience, and meeting compliance mandates. These challenges can be addressed by leveraging the latest technologies and can ultimately be turned into an opportunity for banks to strengthen their competitive advantage.
User acquisition vs. fraud detection: Finding the sweet spot
Customer acquisition in the banking industry is an expensive and painful process. Acquisition costs can range from a few hundred to thousands of dollars per customer. As the market becomes increasingly saturated, it is getting trickier to attract the right customers affordably.
Banks also face sky-high customer drop-off rates during the application and onboarding process. A study in Europe showed that banks in the region lose up to 40% of prospective customers during the application process, likely due to a poor and onerous user experience.
While banks can alleviate this by focusing on user experience during the account creation process, this often translates to lower levels of identity assurance and fraud detection. On the other hand, prioritizing fraud detection adds incremental friction in the customer onboarding process, adversely impacting conversion rates.
Therefore, for digital banks looking to maximise online customer conversions, it’s critical to strike a delicate balance between ensuring a seamless onboarding process and ensuring the necessary identity assurance stopgaps to enable fraud detection.
Getting compliance right
Compliance is the longest enduring hurdle in the banking and financial services industry. Banking regulations, which include Know Your Customer (KYC) and anti-money laundering (AML) requirements, are major stumbling blocks for digital banks and their customers. According to a FICO survey of chief risk officers in Asia, the largest barriers to acquiring customers online are changing regulations, as well as the need to create digital KYC/AML solutions.
Adhering to KYC and AML procedures is tough for consumers, too. Successfully completing the process is onerous, and customers typically get directed out of their onboarding session and their preferred digital channels for identity verification. In today’s world where attention can be considered a currency, this distracts customers and leads to abandoned applications.
Overcoming the eKYC hurdles
How can banks go about balancing customer experience with compliance?
According to Jumio’s latest report, “How eKYC is Streamlining Digital Banking,” building a fully digitized operational process and customer-centric infrastructure is one of the key ingredients that drives the success of digital banking. The report further explains why adopting a full stack eKYC service makes more practical and economic sense for modern enterprises that are diversifying their businesses online.
The eKYC process starts with validating and establishing the online customer’s identity, ensuring the person is who they say they are. Traditional identity verification systems often require stitching together multiple point solutions — optical character recognition (OCR), facial recognition biometrics and liveness detection solutions. Because these individual solutions were not originally developed for digital identity verification, cobbling them together can lead to greater organizational roadblocks down the line and low verification accuracy that requires incremental manual reviews, thus slowing down the onboarding process and adding to the risk of customer abandonment.
A better long-term solution would be to partner with an experienced integrated eKYC service provider that offers a full suite of online identity verification and AML screening technologies. These solutions leverage AI, OCR, computer vision, biometrics, automated watchlists and human review (when needed), to deliver faster and more reliable ways for verifying remote users, detecting online fraud and simplifying regulatory compliance.
Embracing change and capitalising on data
According to Asia Risk and Oracle, less than a third of banking executives in Asia are equipped to handle the changing regulatory landscape, and lag behind their European and North American counterparts in modernizing their finance, risk and security processes and use of data.
In a rapidly evolving banking landscape, it is thus more critical than ever for banks to continually strive toward improvement and renewal, gaining speed in the way they learn, act and react to change. Adopting the right stack of technology solutions will continue to be a key enabler and differentiator of speed, security and success for digital banks, and will set players apart in an increasingly competitive and saturated banking landscape.
