Five important fintech tips for smart and secure finserve onboarding

You never get a second chance to make a first impression. This phrase has never been truer than in banking and fintech today, with soaring customer expectations and a flood of new players and products driving the competition. In the digital-first landscape, customers form opinions at lightning speed and quickly drop suppliers that do not meet their needs.

For fintechs, onboarding is often the very first interaction many of your customers will have with your brand. And unless you manage every aspect of the journey from start to finish, you’ll lose potential customers before they’ve even touched your product.

The battle to keep customers

Customers care about onboarding. Signicat’s latest Battle to Onboard report found that 68% of consumers abandoned financial products and services at the onboarding stage – a big jump from 40% in 2016. A GlobalData survey found that UK small and micro business owners care more about easy account opening and onboarding procedures (38%) than some schemes and packages to support SMEs (7%).

Fintechs often position fast, efficient and fully digital onboarding as one of their key market differentiators. But the pursuit of this competitive advantage can have high costs. In a review of six (unnamed) challenger banks, the UK’s Financial Conduct Authority (FCA) recently highlighted a catalog of ineffective controls, inadequate checks on new customers and failure to identify high-risk customers during onboarding. It’s clear that companies – and especially fast-growing, early-stage fintechs – need to ensure that they don’t sacrifice good risk management in their quest to deliver the best possible onboarding experience.

So how do you satisfy customers’ demands for a fast, frictionless experience without compromising critical due diligence to weed out bad actors? Companies that get it right early on will gain a leg up on the competition now and will be able to grow and scale more sustainably in the medium to long term. Here are four tips to get you started on getting the balance right.

1. Do your research

Established companies have years of customer data that they can use to create the right onboarding rules. Startups don’t have that luxury. It’s hard to know what your customer base will look like and what risk they’ll pose when you haven’t onboarded anyone.

It may sound like a catch-22, but setting up the onboarding rules for the first time doesn’t have to be guesswork. Take advantage of your own experiences and your contacts in the compliance field – have they worked with a similar product before? What do they wish they had done differently? You should also do as much research as possible on all types of customers who think they might engage with your product – even those who are not in your primary target segment.

Remember that startups are targeted by criminals from the start, precisely because they are seen as more vulnerable. It is critical to have your anti-fraud, counter-terrorist financing (CTF) and anti-money laundering (AML) controls in good shape from the start. Research where things went wrong at similar companies that were targeted for financial crime and see what you can learn from these cases.

2. Simplify and contextualize

Some AML and Know Your Customer (KYC) steps are essential in any onboarding process – but that doesn’t mean they have to be painful for your customers. There are some quick, easy ways to minimize frustration:

• Use plain and simple language throughout the process to help customers navigate easily through each step. Avoid industry jargon or complicated legal language that is irrelevant to their needs.
• Do not burden customers with repeated requests for information; ask once, and make it easy to upload any supporting documentation.
• If it is unclear, explain why you are requesting certain information or documentation. There is a tendency in financial services to keep the reasoning behind due diligence hidden in the shadows – but providing a little extra context can put your clients at ease and help reduce confusion.

3. Put friction in the right places

Friction-free. Smooth. Seamless. When we talk about onboarding, we often talk about friction as the enemy. But in fact, the key to smart, secure onboarding is putting friction in the right places, at the right time, and in front of the right people (ie high-risk customers and criminals). At the same time, you want to ensure that low-risk customers get the fast, frictionless onboarding experience you want your brand to be known for.

Unfortunately, there is no one-size-fits-all in onboarding. Putting the friction in the right place means making the process as dynamic as possible. If you onboard everyone the same way, you’ll inevitably put too much friction in front of legitimate customers who want to use your product for its intended purpose or make it too easy for bad actors to slip through the net. Instead, the onboarding process should be customized based on the level of risk presented by the person or company you’re onboarding.

4. Combine the power of technology with compliance expertise

Automation is the future of onboarding – when done right, it reduces the time and effort spent on manual reviews, minimizes human error, increases the speed of acceptance and frees up compliance teams to focus on the big picture. But it is important to know where automation is acceptable and where it can lead to increased risk. All startups should be aware that excessive reliance on automated systems to dictate outcomes can create a potential risk of customer harm. There will always be some issues that need to be reviewed by a human, and your system needs to be set up to flag these consistently and accurately.

Many regtech companies offer great products from a technical perspective, but leave so much of the work – and risk – of implementation to the customer. Getting to grips with these systems can be time-consuming and confusing for early-stage companies without specialist personnel. And if they make a mistake in setup, it can open them up to risk at their most vulnerable point.

When choosing your regtech vendors, consider whether they have the in-house expertise to understand your needs and help you tailor their product in a way that works for your business, customers, and risk appetite.

5. Optimize twice. On board once.

Onboarding can make or break your business – especially if you’re an early stage fintech. It’s worth investing in getting it right and optimizing every step to make it as smooth as possible for low-risk customers, while putting the right guardrails in place to deter criminals and minimize risk. It’s the best thing to do for your business and the right thing to do in a world where the vast majority of financial crime still goes undetected.

About the author: Alex Nash is the Anti-Money Laundering Officer for Griffin. He specializes in Regulatory Compliance, UK Financial Regulation,
EU financial directives, international special knowledge against money laundering, prepaid platforms, fraud investigations and project risk analysis.