Client onboarding is critical for fintech firms. Simple, streamlined processes encourage user adoption and help keep clients engaged.
Security, however, is just as important as client satisfaction. If companies can’t effectively assess client risk, they could find themselves the victims of fraud — and potentially in violation of FINRA rules 3310 and 2090, which lay out anti-money laundering (AML) and know your customer (KYC) obligations.
To help fintech firms find onboarding balance, we’ve created a five-step guide for success.
The Current State of Client Onboarding
Customer experience during the onboarding process plays a key role in overall satisfaction. In a recent research paper published in the Journal of Theoretical and Applied Electronic Commerce Research, the authors found that customer experience is directly tied to satisfaction and loyalty. The better the experience, the better for clients.
As noted by the 2022 PYMNTS report, The FinTech Fraud Ripple Effect, meanwhile, fintech firms say they’re losing more than $50 million each year in fraudulent transactions. Furthermore, 46% of these firms say that fraud is hurting the client experience.
The result is a process paradox: While a positive experience is paramount for client satisfaction, onboarding processes that are too simple can increase the risk of fraud. Processes with more friction, meanwhile, can reduce total risk but may negatively impact the client experience.
With the right approach, however, it’s possible for fintech firms to find the balance.
Step 1: Personalize the Process
According to recent survey data from Capco, 72% of clients say that personalization is “highly important” in financial services.
As a result, fintech companies are well-served by implementing personalized processes including gamification and progress completion that encourage clients to finish the onboarding process. In practice, this could take the form of badges, stars, or other digital rewards that clients can earn as they complete the onboarding process — and conduct ongoing transactions — and which can be redeemed for discounts or other benefits.
It can also be something as simple as a percentage bar that shows progress toward 100% profile completion.
Step 2: Streamline the Setup
Effective onboarding also looks to reduce friction. This friction can take many forms, from applications or websites that are slow to load, onboarding questions that are vague or return errors without explanation, or processes that require clients to enter the same information multiple times.
Here, integration with platforms such as Plaid can help fintech firms limit onboarding friction. Plaid is a third-party service that connects with thousands of banking applications and financial organizations worldwide and allows participating firms and clients to quickly and securely share relevant financial data.
Step 3: Request Only What’s Required
More data isn’t always better when it comes to client onboarding.
Consider KYC rules, which require companies to “use reasonable diligence, in regard to the opening and maintenance of every account, to know (and retain) the essential facts concerning every customer and concerning the authority of each person acting on behalf of such customer.”
The key word here is “essential”. Under regulatory rules such as the California Consumer Privacy Act (CCPA) and the EU’s General Data Protection Regulation (GDPR), fintech firms have a legal basis for collecting data directly related to identity and transactions. Collecting and using additional data, however, could put companies at risk of non-compliance.
As a result, it’s important to create onboarding forms that require clear client consent and ask only for the specific data required to reduce fraud risk.
Step 4: Prioritize the Pillars
To meet AML expectations laid out in the Bank Secrecy Act (BSA), five components — also called pillars — are required:
- A system of internal controls to manage ongoing compliance
- Independent testing of BSA/AML compliance processes
- Designation of an internal compliance officer
- Staff training to detect potential fraud
- Risk-based procedures for creating client profiles and identifying suspicious transactions.
Onboarding processes offer the opportunity to implement risk-based procedures that help fintech firms evaluate potential client risk before accounts are created. By creating secure workflows that ask targeted questions of clients based on the data they provide, organizations can create comprehensive identity verification workflows that demonstrate due diligence and reduce the risk of fraudulent activity.
Step 5: Ask for Feedback
Finally, fintech firms can’t be afraid of asking for feedback, both from clients and from independent compliance auditors.
As noted above, both groups play a role in effective onboarding. For example, clients might call out the length of time between identity verification requests and account approval, while third-party assessments may highlight issues with the number of staff that have access to client data after collection.
Both cases offer room for improvement. With more targeted data collection during the initial phase of client onboarding, it may be possible to reduce the amount of time between account requests and approvals. The implementation of more robust identity and access management (IAM) policies, meanwhile, such as role-based authentication, can help ensure that the right people have access to the right data at the right time.
Finding the FinTech Balance
Client onboarding for fintech firms is all about balance. If processes are cumbersome and complex, clients may take their business elsewhere. If potential risks aren’t effectively assessed, however, firms may find themselves failing to meet AML and KYC expectations, which could in turn put operations at risk.
Finding solid footing means taking a five-step approach: Personalize the process and streamline the setup, but only request relevant data and ensure AML/KYC expectations form the foundation of onboarding efforts. Finally, ask clients where the fintech experience could be improved to facilitate both speed and security.
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