As per a report from Forbes (1), from 1980 to 2010, the Chinese, Japanese and South Korean banking industries’ assets expanded 20-, 15- and 13-fold respectively. And, as per a One Road research (2), post 2010 the Asian banking markets have demonstrated continuous and consistent growth as compared to their counterparts in US & Europe. For example, from 2010 to 2016, assets growth in Chinese banking market has been 9%, Vietnam had a strong growth rate of 12%, Philippines was at 9% and Indonesia at 7%. On the other hand, the banking asset growth rate in US and Europe was 5% and -4% respectively.
The banking landscape has been changing very significantly in response to the evolving forces of customer expectations, regulatory environment, technology adoption, changing face of competition and so on. As per a PWC retail banking 2020 report (3), all banks surveyed view attracting new customers as one of their top challenges. Asian banks have been very successful not only in adapting fast to the evolving banking environment in general, but they have been particularly innovative when it comes to onboarding new customers.
Insights: How Asian banks are solving the challenges in customer onboarding
The customer onboarding experience is undoubtedly a critical step in a customer’s journey with a financial institution as it leaves a long lasting footprint in customers’ minds about how they perceive a financial institution. While banks very well understand the importance of the onboarding process, the process in many banks across the globe is still disjointed and onerous for customers. This article throws a spotlight on some of the best practices adopted by banks in Asia to address challenges in the onboarding process. While as a geography and society, Asia is quite different from the West, the challenges in onboarding a customer are somewhat similar. I believe the way Asian banks have tackled some of these challenges successfully; banks in US and Europe can take a cue and consider implementing some of these practices to overcome their challenges to a large extent.
Customers expect a seamless and digital onboarding experience, period:
With tremendous growth and unparalleled innovation in smartphones and similar handheld devices, customers across the world are changing how they bank. Customers do not wish to limit themselves to a handful of channels and want an instant (plus digital) experience in applying for banking products and services. Traditional ways of filling lengthy physical application forms are passé. They require easy and continuous access to the bank via multiple touchpoints and they expect these different touchpoints to be in complete sync and speak the same language. Technology players like Google, Amazon, Uber and Apple have become the gold standard for customer experience and this has influenced what customers expect from their banks. Banks in Asia have been very fast to adapt to this change. Across Asia, customers are moving from branch banking to electronic channels with a significant share going to hand held devices. A 2017 study (7) from McKinsey (below) indicates a massive shift in banking transactions from branch network to digital channels. While these numbers represent Asia, the shift to digital is the same (if not more) in Western countries as well.
It is quite evident that banks need to develop their onboarding strategies keeping in mind this massive shift towards digital channels, especially handheld devices. Banks need to develop digital capabilities and leverage them in onboarding customers more effectively to create happier customer journeys at the outset. To cash on this trend, many banks in Asia are coming up with custom mobile applications for niche segments by customizing user experience and features as per the target segment. For example, ICICI Bank in India offers five mobile applications for various customer segments viz. iMobile is its primary banking app for retail segment; iPal is an Artificial intelligence powered chatbot; iBiz is for corporates and MSMEs; meraiMobile for rural lending; and Pockets is the bank’s e-wallet. These applications not only have cutting edge onboarding features for target segments but also offer many other services and transaction processing features. In addition to hand held devices, banks have pioneered customer onboarding through other channels as well to make life simpler for the customers. Seven Bank of Japan is incorporating facial recognition technology in its ATMs to enable users to open bank accounts directly through these machines.
Banks are reincarnating themselves with ‘digital only’ avatars. A number of ‘digital only’ banks have been launched in Asia in last few years to attract and onboard large population of digital savvy customers. In South Korea, Kakaobank was successful in onboarding around 1 million customers in just five days of its launch. The bank also issued loans worth USD 3 billion and raised deposits upto USD 3.6 billion in the first 100 days. Kakaobank is now expanding its portfolio to products like mortgages, credit cards and payments. Similar experiments in other Asian countries have also been successful. In Indonesia, Jenius – a digital bank – was launched in 2016 and DBS launched its digital only bank – Digibank – in India in 2016 and in Indonesia in 2017. The Hong Kong Monetary Authority (HKMA) has initiated giving out online-only banking licenses. This gives fintechs and other smaller firms an opportunity to gain access to the territory’s retail small business banking market. Standard Chartered Bank Hong Kong has also been granted a virtual bank license under a separate entity in March 2019. A McKinsey survey (7) suggests that approximately 55 to 80 percent of customers in Asia would consider opening an account with a branchless digital-only bank. With such great potential to onboard new customers, in the years to come Asia will see more ‘digital only’ or ‘mobile only’ banks on the horizon. On the other hand, in the West, we see an encouraging trend in Europe with digital banks like N26 (Germany) and Revolut (UK) making a mark. However, the movement needs more momentum in the US.
High customer effort in application initiation is frustrating and leads to abandonment:
One of the biggest challenges in online account opening is high abandonment rate. As per a Signicat survey (5), approximately 40% of online applications never get completed and get abandoned midway by the customers. Account opening is a tedious job for the customers and requires a lot of effort for them to provide their details, documents and so on. Digitally savvy customers do not wish to spend time and effort in selecting a product and then providing a long trail of information about themselves to get the product. They expect their banks to help them with product recommendations that are personalized and want to spend minimal effort in getting the selected product. Leading banks and regulators in Asia have taken multiple measures to reduce the customer effort while applying for a banking product.
- Extracting value from customer data: In today’s age data is the new currency. It is estimated that, by 2020, about 1.7 megabytes a second of new information will be created for every human being on the planet. Asian banks have a high adoption rate for big data analytics owing to large potential. Banks in Asia have been very proactive in leveraging multiple sources of data to offer customized products, tailored solutions and create better credit scoring models. When it comes to customer onboarding processes, banks are relying on national databases (e.g. Aadhaar in India), non-banking partners (e.g. telecommunication or e-commerce companies) and publicly available information (e.g. social media) to develop better customer insights for better product placement and credit underwriting. Banks are also leveraging these third party data sources to pre-fill customer applications and authenticate customers before issuing a banking product. This goes a long way in reducing the customer effort at the time of applying for a banking product. It is estimated that the Asia Pacific region will occupy more market share in data-based analytics in the years to follow, especially in China and also the fast growing India and Southeast Asia regions.
- Adaption of biometrics in customer onboarding: In 2014, Global Industry Analysts named Asia as the largest and fastest growing market for banking and financial services industry. According to a Text Road Publication Report from 2012, among the banks which have adopted biometric technologies, 52% of them are located in Asia. Asian banks are leveraging biometrics for various purposes like authenticating a customer while onboarding, transaction processing, logging customers to secured networks and so on. Some banks in Singapore like OCBC, Maybank and BBVA have been early adapters of this technology. Recently, 10 Thai banks participated in an initiative from Thailand’s central bank to test the regulatory sandbox around biometric account opening. Large Thai banks like Siam Commercial Bank, Kasikornbank and Bank of Ayudhya participated in this initiative and some banks are also testing iris scan for internal authentication processes. Siam Commercial Bank became the first bank in the country to start opening accounts leveraging facial recognition by using software provided by NEC. As biometrics usage in the onboarding process increases, the customer effort in providing identity documents and authenticating themselves comes down drastically. This also cuts down the long waiting time in the entire onboarding process significantly.
- Use of cognitive tech is on the rise: Artificial Intelligence is viewed as one of the most exciting and profitable ventures in financial services industry in Asia. According to some estimates, Artificial Intelligence (AI) will create value in the range of USD 1.8 to 3 trillion a year by 2030 in Asia. This will be in terms of creating new product and services categories, cost savings due to higher efficiency and better products and lifestyle improvements. Asian banks have started experimenting with cognitive technologies like AI, machine learning (ML) and natural language processing (NLP). These technologies have shown a definite promise in customer onboarding related processes. A number of banks in Asia are leveraging technologies for chatbots and virtual assistants to support customers while selecting and applying for a new product, and many banks are in the pilot stage. State bank of India, one of the largest banks in the world with 420 million customers, has launched an intelligent assistant SIA (SBI’s Intelligent Assistant) in partnership with a US-based startup Payjo. SIA is designed to handle around 10,000 inquiries per second or 864 million per day. SIA continuously learns with each interaction using ML and gets better over time.
The compliance process remains painful for customers and banks:
In my view, ensuring KYC and AML compliance is the most cumbersome and time consuming step in the onboarding process. Financial institutions need to ensure compliance with local and regional laws, as well as ensure that customers have a smooth onboarding experience – and all of this must also be financially feasible for the bank. As a result, banks across the board are struggling to comply with this ever-evolving KYC/AML/CTF framework, while trying to strike the right balance with customer experience and costs. In Asia, some banks are leveraging cognitive solutions in the field of fraud, KYC and AML to tackle these challenges. The Monetary Authority of Singapore (MAS) is exploring the use of AI and ML in the analysis of suspicious transactions to identify those transactions that warrant further attention, allowing supervisors to focus their resources on higher-risk transactions. OCBC Bank has partnered with ThetaRay to use its AI solution to identify potentially suspicious transactions. The solution has reduced the volume of transactions reviewed by AML compliance analysts by 35% and increased the accuracy rate of identifying suspicious transactions by more than 4X. Apart from that, banks are exploring new ways to leverage cognitive technologies in predictive analytics to flag high risk customers at the time of onboarding, extract functional information from account opening forms and KYC documents, improve underwriting for lending products and so on.
Asian banks have always shown extensive appetite for new technologies to gain efficiency and improve customer experience. Leading by example, some banks in Asia are experimenting with usage of blockchain technology in customer onboarding. Blockchain is a single, cryptographically secured, time-stamped, public and distributed database of every transaction that has ever occurred on the network. This makes blockchain apt for accumulation of data from multiple authoritative service providers, which is a perfect use case for KYC process during customer onboarding. In Singapore, a consortium comprising OCBC Bank, HSBC, Mitsubishi UFJ Financial Group (MUFG), along with the Infocomm Media Development Authority (IMDA), has become the first in South-East Asia to develop a prototype of a blockchain-based KYC solution.
A huge opportunity lies in front of banks in US and Europe when it comes to re-engineering their compliance related processes. As per a Deloitte study, most banks in the West are still using ‘Gen.1’ solutions for regulatory compliance. These are primarily the traditional out of the box name screening (fuzzy matching), rule-based customer profiling solutions. Whereas, ‘Gen.2’ solutions offer new ways to perform due diligence (like adverse media search or drawing inferences from social media profiles). These solutions provide advanced AI-based counterparty screening tools that rely on open source data and offer to identify corporate shareholding structures and related parties as well.
Activation takes forever – don’t test the patience of modern day customers:
Once the customers have gone through the entire process of application initiation and compliance checks, they are often made to wait for their product to get activated in the bank’s systems. While, most banks have got cutting edge front ends with great UI, often middle and back offices are broken. Traditionally, banks have back offices manned with large number of personnel who perform various tasks like exception handling and data entry into system of records manually.
Many banks in Asia have taken concrete steps in automating their middle and back offices using technologies like workflows and Robotic process automation (RPA). RPA is growing exponentially in the Asian markets when it comes to FIs. IDC Financial Insights estimates that RPA will be in use in 40 percent of Asia Pacific banks and insurance companies by 2020. Many banks in Asia have either adapted or are in advanced stages of testing with the RPA technology. This has helped them to dramatically streamline a wide variety of back office processes related to customer onboarding. RPA is being leveraged for multiple use cases within the onboarding process like background checks, credit checks, KYC process, fraud detection, contract creation, multiple validations, data entry in system of records and so on. Some banks are experimenting with the concept of intelligent automation by complimenting RPA with cognitive technologies like ML and NLP. These technologies can be leveraged for reading customer documents and converting unstructured document images into meaningful data to support compliance and credit decisions at the time of customer onboarding. By shifting much of these tedious, manual tasks from humans to bots, banks have significantly reduced the need for human involvement, which has had a direct impact on everything from turnaround time, performance and efficiency levels to staffing issues and cost. Some of the major Asian banks like DBS Bank, UOB, Axis Bank and ICICI Bank have been early adaptors of RPA and have been successful in reaping the benefits significantly.
In most US and European banks, the leadership has already started experimenting with basic automation of back end processes to save cost. However, the potential is massive and banks must accelerate the usage of RPA combined with cognitive tech to reap maximum benefits. Also, many processes in the onboarding journey continue to be manual. Banks in the West should work with service providers and domain experts to develop intuitive solutions that can automate even complex front, middle and back office processes.
Un/Underbanked population can drive massive growth, but is often ignored:
Financial inclusion has been a buzzword for Asian banks and regulators for a few decades. In Asia, many countries have large percentage of population that is underbanked. This applies to not only population with lower per capita income but also a huge work force of immigrants who are employed across Asia and remit funds to their native countries. These segments largely do not have access to banking facilities and if targeted appropriately can drive tremendous growth for banks. As a strategic initiative, Asian banks have developed custom designed products to onboard such customers. The Cash2home app by Malaysia’s Alliance Banks is a very apt example. Malaysia has a huge population of foreign workers from countries like India, Pakistan, Bangladesh, Nepal and Philippines. The Cash2Home app enables the bank to open savings accounts for these workers effortlessly and completely online with features like eKYC, biometric facial recognition and OCR to scan documents. Functionally, Cash2Home is linked to a migrant worker’s savings account where s/he gets his payroll. This enables any remittance to be debited directly from the worker’s account to the beneficiary’s agent, eliminating the need for risky cash handling. Alliance Bank has also enabled the app with native language support for all major migrant worker nationalities to remove the barriers. Union Bank of Philippines is spearheading a challenging “island-to-island” (i2i) project in the Philippines which focuses on financial inclusion prosperity using blockchain as the interconnecting ecosystem by linking rural banks with major financial networks through collaborative approach so that they can become more relevant to their customers.
As per a 2017 survey (8) by Federal Deposit Insurance Corporation (FDIC), approximately 8.4 million households in the US were unbanked and an additional 24.2 million households were underbanked. This creates a huge opportunity. US adults who are considered un/underbanked, have been ignored by most banks because they typically have poor credit ratings and are unlikely to generate meaningful deposits or banking fees. But as more banking services go digital, banks must start to see the potential of this large group in the US and think about creating customized banking products and channels to onboard them. By giving this population an access to savings accounts, credit and loans, banks can help build and strengthen emerging middle class populations that in turn drives growth not only for banks, but for the economy as a whole.
External environment is challenging- fintechs, regulators
- Dealing with Fintechs: From Southeast Asia to China to India, fintechs are transforming Asian banking by creating new ways for businesses. It is of significant importance for the banks to co-survive with fintechs in this challenging environment. Banks in Asia have been pioneers in collaborating and co-innovating with Fintechs to offer innovative and cutting edge products and services to the customers. A survey conducted by The Asian Banker4 across 33 financial institutions in Asia Pacific and Middle East showed that a significantly high, 82% of banks surveyed have a strategic fintech approach in place while only 18% of banks said that they are in a ‘wait and watch’ mode. Fintechs are revolutionizing the customer onboarding by adding a fascinating speed to the process and banks are gaining by partnering with such fintechs. For example, while traditional banks rely on credit scores from the credit bureaus for credit underwriting, the P2P lending startups use algorithms and integration with third party databases to make such decisions. This credit profiling uses more data points (like social media) and quantifies not only the ability to repay but also the customer’s intention to pay. The entire credit profiling happens in a matter of minutes, enabling lightning fast customer onboarding. Many banks in Asia have partnered with fintechs for lending and financing business like BillionLoans has partnered with Yes Bank and ICICI Bank in India for extending loans to their customers. As per a recent CNBC report6, In US, fintech companies accounted for 38 percent of all US personal loans in 2018. That’s a revolutionary growth from just 5 percent in 2013. On the other hand, traditional banks’ share of these loans has fallen down to a mere 28 percent that used to be 40 percent in 2013. The fintech environment in the West is posing many challenges for the incumbent banks and it is of utmost importance for the banks to proactively engage with fintech disruption, whether by building their own capabilities or by partnering or acquiring.
- Working with the regulators: In Asia, while regulatory and political environment needs more stability, consistency and maturity in many countries, banks have been actively engaging with regulators. Many regulators and governments are pushing very strongly for digitization in banking and financial services across Asia. Gaining acceptance with users is a challenge faced by many digitization initiatives, and the government’s role has certainly been helpful in this regard. This push by regulators and tireless efforts by banks has reaped some great results in the space of customer onboarding. The Securities and Futures Commission of Hong Kong (SFC) published a circular to intermediaries in 2018 which clarifies alternative procedures available to intermediaries to verify individual clients’ identities when onboarding clients online. This follows significant industry initiatives that will develop digital identification and electronic KYC identification. The Hong Kong Monetary Authority (HKMA) noted in its virtual bank consultation conclusions that one of the three work streams under its ‘Banking Made Easy’ initiative is to identify and streamline supervisory requirements relating to remote or digital onboarding of customers. In India, digital KYC through Aadhaar has been a key enabler in promoting paperless and online customer onboarding. Recently, Bangko Sentral ng Pilipinas, the regulator in Philippines has amended some of the provisions in its AML regulations to enable banks to open accounts online by conducting customer identification procedures virtually.
It would be fair to state that many banks in Asia are moving in the right direction and have achieved success in overcoming a number of challenges in the onboarding process. These banks contribute numerous case studies for their counterparts in the West to learn from and implement. However, there are some areas where Asian banks can do much better:
- While usage of voice banking (voice assistants like Alexa) is on the rise, it is quite limited in onboarding related processes. Voice assistants are largely being used in basic account enquiries and other simpler processes. The time has come to experiment with this technology by building more complex use cases and leverage the same in core account opening and lending processes. To achieve this, banks must collaborate and experiment more with tech giants and fintechs.
- Many times customers completing digital applications have to pause or stop because they need support and there is no immediate way to get it. It is critical to have a mechanism to support customers in the online onboarding process to address any queries. While many banks have offline customer support (like contact centers), there is a definite need to integrate an online collaboration platform (like online chat, co-browse etc.) to handhold customers in the onboarding process.
- Banks surely need to up their game when it comes to product enablement. Most banks do not have structured interventions to push the usage of the product issued to the customer. Banks must look at analytics backed solutions for customer outreach and to drive the usage.
About the Author: Vaibhav Grover is a Senior Leader and Subject Matter Expert with over 19 years of multi-faceted experience in Consumer Banking having exposure in India, Australia, Africa and US regions. He has keen interest in banking transformation, compliance and emerging technologies. He is passionate about writing on latest trends in banking and how emerging technologies can be leveraged to solve challenges in banking across the globe.
Disclaimer : The article represents author’s personal views only and does not represent his employer’s or anyone else’s views