Digital Transformation is Changing How We Open Accounts

Financial Institutions (FIs) are weaving digital technologies into the overall tapestry of their organizations to transform customer experience and improve operational efficiency. As a result, account opening, and verification processes are undergoing significant change. 

The Account Opening Process  

New digital identity and verification (IDV) and Know Your Customer (KYC) solutions are being implemented to streamline the account opening processes, improve efficiency and security, and meet regulatory requirements. These changes represent a key aspect of the ongoing digital revolution in the financial industry, as FIs strive to maintain compliance, manage risk, and provide customers with a seamless experience across various channels and platforms. 

Account opening refers to the process undertaken by a client to establish a new account with a financial institution and going through the customer onboarding process. This may include opening a bank or checking account, among other account types.  

Although the steps involved in the account opening process can vary between organizations, it generally includes product selection, collecting data and documents, risk assessment, identity verification, and related party management. Nowadays, most Financial Institutions are adopting a digital-first approach, allowing clients to easily complete the account opening process using online channels. 

Since compliance requirements dictate that collected data must be accurate and up-to-date, KYC processes occur concurrently with account opening procedures.  

FIs are required to establish their customers' true identity and verify the accuracy of the information provided as part of their overall compliance framework, which includes anti-money laundering (AML) and countering the financing of terrorism (CFT). This is necessary to assess the risks associated with the accounts and ensure that all regulatory requirements are met. 

4 Key Steps in the Account Opening Process 

Financial Institutions are responsible for their own KYC compliance and must define procedures to ensure their customers are legitimate, while assessing and monitoring associated risks. In order to achieve this, the account opening process typically involves several key steps that are vital to ensuring FIs comply with KYC and AML regulations. These steps include: 

1. Identity verification  - Identity verification usually involves providing personal information, such as name, address, and identification documents, as well as agreeing to terms and conditions for the account. This is necessary to authenticate the identity of the person opening the account to prevent identity fraud.  With the general trend of digitalization, businesses are adapting to implement new methods of customer onboarding and verification. IDV solutions can weed out fraudulent applications and deter criminals, since this technology can analyze uploaded ID documents, extracting their data and verifying their authenticity through algorithmic checks against verified databases.  
2. Data and document collection - This step involves collecting relevant information about the customer, including personal data and financial details, the source of funds and purpose of the account. This allows FIs to understand their clients’ financial position, and in so doing, meet transaction monitoring and suspicious matter reporting obligations. Compliance requires FIs to ensure the accuracy and completeness of the information provided in order to monitor for fraud and other illicit activities.  
3. Risk assessment  - It is important for FIs to establish the level of risk associated with different types of accounts, whether they are individual or corporate, to comply with regulations and reduce associated risks. The risk assessment stage involves classifying potential customers according to their risk profile.  The level of compliance checks that an applicant is subjected to depends on their risk profile, with enhanced due diligence (EDD) checks only being applied to higher risk applicants. Failure to conduct adequate risk assessments and implement effective risk management strategies can result in regulatory fines, reputational damage, and financial losses. 
4. Product selection  - At this stage, Financial Institutions collect information on the clients’ intended activities and assess the risks associated with each product or service that they plan to use. In doing so, FIs can tailor their offerings to meet the needs of different customer segments while implementing additional measures to safeguard against potential risks. For example, a client who intends to trade in high-risk securities may be subject to additional due diligence measures compared to a customer who will only use basic banking services. By assessing the potential risks related to each product or service offered, FIs can foster consumer protection, market confidence, adherence to ethical standards and ultimately an overall stability of the financial ecosystem.  

By following these procedures, FIs can safeguard against potential financial, legal, and reputational risks. 

Digital Transformation and Account Opening  

Prior to digital onboarding, manual processes were used to collect customer data. These processes often involved a patchwork of paper documents and email attachments, which were not only cumbersome and time-consuming but often resulted in multiple outreaches during the account opening process.  

Fenergo research shows that Financial Institutions which employ outdated legacy systems or manual processes, may need to have at least 12 touch points with a single client throughout the onboarding process.  

Digital onboarding has revitalized account opening by leveraging digital channels to eliminate the potential for human errors and the need for manual paperwork. This has made the process less labor-intensive, less costly, and more efficient, ultimately improving the overall customer experience.  

As a knock-on effect, customers increasingly prefer to open accounts through digital channels. Not only do they offer a more seamless experience, but digital channels also allow customers to complete the process at their convenience without having to physically visit a bank branch.  

This results in faster account opening times, elimination of duplicate data, and more efficient system hand-offs. As a response to customer demands for digital journeys, Financial Institutions are readily embracing digitalization to enhance the account opening process.  

It is therefore no surprise that the role of Artificial Intelligence (AI) in Financial Institutions is generating a buzz, while the pressing call for automating compliance processes is progressively gaining traction.  

An International Monetary Fund paper published in 2021 reported that AI and machine learning (ML) has a significant role to play in data collection and data analytics. For example, optical character recognition (OCR) is a data analytics tool which uses AI and ML to automate the extraction of data from identity documents in the initial IDV stage of account opening.  

Not to mention, when combined with facial and voice recognition and natural language processing (NLP) capabilities, AI and ML have the potential to significantly impact the digital onboarding of customers. As more advanced language models and NLP tools are developed, the integration of AI is poised to accelerate within FIs.  

By adopting AI/ML/NLP and institutionalizing new technologies like OCR, Financial Institutions can reduce the risk of errors and also speed up the onboarding process. In 2023, Regula conducted a survey exploring the business impact of investing in IDV. The study found that businesses generally anticipate a significant return on investment after deploying an IDV solution, with 61% of banking institutions recognizing that successful IDV implementation centers around enhanced customer experiences by streamlining the onboarding process. 

The significance of maintaining a robust compliance framework has been a long-standing priority in the financial sector. The Basel Committee on Banking Supervision's paper on Customer Due Diligence for Banks recognized as early as 2001 the importance of customer identification in account opening.  

The steps in the account opening process are to prevent, detect and address any deviations, illegalities or nonconformities at the earliest stage of the banking relationship. This builds the foundation for a strong and independent compliance function that can mitigate risks related to misconduct, money laundering and other forms of non-compliance.  

In today’s increasingly global landscape, businesses are recognizing the importance of embracing technology as a means to stay competitive and relevant. FIs in particular are rewiring their processes through technology to elevate customer experiences and fuel innovation in new products and services. Through digital onboarding, the elimination of manual paperwork, and the integration of AI technologies, FIs are unlocking new opportunities for growth and innovation.  

The seismic impact of digital transformation is undeniable, and its ongoing metamorphosis promises to continue revolutionizing traditional ways of banking, ushering in a new era of digital-first solutions designed to meet the ever-evolving needs of customers. 

Find out how to digitally transform your account opening process with Fenergo.