Could Digital Identity Solve the Onboarding Issue for Banks?

With all the digitization efforts (PSD2 went live in January and GDPR will take effect in two days) in the banking sector, European traditional banks still face a problem with onboarding new retail customers: prospective customers drop out before they complete the onboarding process. The issue has only gotten worse over the years.

According to a report released today, “Battle to On-Board II,” European banks have already lost 52% of potential customers during the onboarding stage this year. That number is up 35% from just two years ago.

At the heart of the problem is the cumbersome application process, which often involves paperwork. This is a major customer pain point, not just for European banks, but banks around the world. The most cumbersome part of the application process, according to the report, is the proof identity stage.

This is usually the last stage of the process that typically requires the customer to present identity documents such as their passport or driver’s license either in person or through the mail. The 2016 report from Signicat, a digital identity company, which is focused only on the U.K., showed that 40% of customers quit during this step. This year that number is 56%.

So how can a bank automate the proof-of-identity requirement? Well, according to Signicat, the solution is digital identity. In India for instance, there’s the government-backed Aadhaar. Aadhaar is a unique 12-digit identification number based on biometrics given to each Indian resident. This identity is stored in a unified database. The initiative has given rise to a lot of innovation in the digital banking sector, not just among fintechs, but even among the traditional banks in the country. This is perhaps why India has managed to leap forward into the digital banking era.

In Europe, however, there is no such system. Yes, there are challenger banks such as N26 or Monzo that have a purely digital onboarding process. But even with the challenger banks, users typically have to link to their existing bank accounts to verify their identity.

Banks would be a suitable organization to create and maintain a customer’s digital identity, according to the report. And for banks, using digital identity could help gain cross-border customers. In fact, the survey showed that most consumers would not only be comfortable with their banks retaining their digital identities, they would also want a uniform digital identity that banks can access across Europe. 

The report showed that 72% of those surveyed wanted bank-led digital identity to ease the onboarding process. Most of those surveyed even said they preferred to get their e-IDs from their banks instead of the government or a social media platform.

In today’s report, Signicat CEO Gunnar Nordseth, said:

The research uncovered some fascinating consumer behaviour around digital identities. It shows that customers that have verified and trusted digital identities are more likely to sign up for more financial products. Customers trust banks to supply this identity above governments and social media and in markets where there isn’t a pervasive digital identity scheme, this presents a significant opportunity for banks to increase revenues. Given the potential upside of increased sales, it is clearly worth the banks’ while to explore this further.

The report was commissioned by digital identity firm Signicat and was conducted by research firm Sapio Research, which looked at 4,000 consumers across banks in the U.K., Germany, Sweden and the Netherlands.

Check out the full report here.

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