A Guide to Digital Onboarding: How it Works, Processes & Solutions in 2024

The digital transformation sweeping across sectors is powered by rapidly evolving technologies that enable new possibilities. A key process that is seeing a marked shift due to these advances is user onboarding. Digital onboarding refers to leveraging digital tools to bring on new customers, employees, partners, or organizational users in a seamless, automated manner.

Traditionally, onboarding involved significant paperwork, in-person interactions, and manual verification steps. However, by using modern electronic identity verification and signature tools, the entire onboarding journey can be completed online. This reduces delays, enhances accessibility, improves cost efficiency, and strengthens security and compliance.

Key technologies powering digital onboarding include:

• Cloud platforms
• eSignature tools
• Automation software
• AI/ML-powered identity verification
• Biometric authentication

Together, these innovations are transforming static, paper-based processes into dynamic digital workflows. As per McKinsey, companies that have invested in digitizing onboarding have seen improvements such as:

• 28% reduction in cost
• 31% faster speed of activation
• 19% increase in completion rates

This article will explore the digital onboarding process, types, benefits and challenges, along with solutions that can make implementation smoother.

What is Digital Onboarding?

Digital onboarding streamlines the onboarding process by leveraging online documents, electronic signatures, automated workflows, and identity verification. This enhances convenience, reduces delays, and improves compliance.

It facilitates tasks like:

• Account creation
• Identity verification
• Paperwork
• System access and permissions

Key benefits of digital onboarding include:

• Flexibility
• Cost and time savings
• Better data security
• Improved user experience
• Scalability

How Does Digital Onboarding Work?

There are a few key steps involved in the digital onboarding process flows:

1. Customer Data Submission

Customers first submit required personal data, including credentials like official IDs, photos, scans, etc. Additional requirements may include scans of supplementary documents and images/video capturing face details depending on the business context.

For example, in digital onboarding in banking, KYC norms require the submission of government-issued identity proof, address proof, PAN details, etc. Depending on risk appetites, fintechs may implement additional checks like biometrics, liveness proof, etc.

2. Identity and Document Verification

Submitted credentials and photos go through automated verification checks done by AI systems or manual reviews by KYC agents. This validates document authenticity while matching faces on IDs to live capture or video to confirm the legitimacy of the individual.

Advanced technologies like machine learning better detect sophisticated spoofing attempts today, covering gaps left in manual processes and ensuring watertight identity verification for digital onboarding.

Read More: Your Guide to KYC Onboarding Process and AML Requirements

3. Background Screening and Eligibility Checks

Upon identity verification, additional background checks happen, such as screening names against watchlists, validating documents with government databases, checking regional eligibility, etc. Configured risk rules tagged and filtered out fraudulent or high-risk applications.

For instance, in digital client onboarding in finance, tools that screen sanctions, Politically Exposed Persons, and watchlists provide vital intelligence.

4. Data Storage for Audit

Finally, according to regulatory needs, verified applicant data, including documents, biometrics, etc., are stored securely on cloud platforms enabling seamless audits or training AI models.

Built ground-up with compliance in mind, these systems strengthen rather than weaken the onboarding process.

Types of Digital Onboarding

There are a few key types of user onboarding that are being digitized rapidly across banking and financial sectors:

1. Customer Onboarding

The most common application involves opening new bank accounts or signing up for financial services online for retail or commercial customers. Key aspects like KYC verification, eligibility checks, agreement signing, and account activation are digitized end-to-end.

For instance, neobanks like Nubank have innovated retail customer onboarding, allowing account opening via mobile apps to be done within minutes. Commercial banks are now emulating such experiences.

2. Partner Onboarding

Banks and fintechs increasingly rely on channel ecosystems with partners like agents, merchants, distributors, gig workforce, etc. Digitally onboarding such partners quickly is vital.

By providing easy documentary submission tools and in-app verification, banks can digitally reliably bring onboard new partners across geographies through automated workflows.

3. Employee Onboarding

As banking staff move jobs or get hired, issuing system credentials and access permissions is extremely critical, especially for sensitive roles. Digital employee onboarding tools allow configurable role-based access and training aligned to the bank's policies to issue such credentials securely to new hires.

4. Customer Screening

Existing customer rescreening with refreshed KYC data periodically or during key triggers is also mandated by regulations today to manage risks dynamically. Digital tools that can reach out to customers for documents and integrate with systems to feed updated data enable such ongoing screening seamlessly.

Automation allows such processes to scale across customer bases efficiently.

Read More: AML Risks in Correspondent Banking: A Comprehensive Overview

Digital Onboarding in Banking

Digital onboarding in banking refers to the process where new customers can open accounts and activate services completely online without visiting a branch.

Key steps include digital customer onboarding tasks like:

• Identifying the customer
• Checking eligibility
• Validating credentials
• Signature and documentation
• Account activation

This improves speed for client acquisition and enhances access.

Read More: What is Open Banking? And How Does It Work?

Benefits of Digital Onboarding

Digital onboarding solutions provide immense value through the following:

1. Lowered Costs

By reducing manual efforts in verification and paperwork, costs of customer acquisition drop significantly. McKinsey estimates that an over 28% reduction in costs is possible. Scalable cloud platforms replace legacy systems.

2. Increased Efficiency

Automation ensures faster applicant processing, with over 31% acceleration in onboarding and activation cycles, as per research. Parallel workflows replace sequential steps enhancing productivity.

3. Enhanced CX

On-demand self-service at the applicant's convenience provides smooth user journeys. Dropout rates in complex forms are reduced through pre-population and guidance.

4. Improved Compliance

Digital tools allow configurable risk rules and screening integrating regulations. Automated identity verification and biometrics heighten fraud protection. Electronic audit trails help track records better.

5. New Revenue Opportunities

Increased conversions due to faster applicant onboarding aid faster customer acquisition and expansions into new segments. Higher throughput at lower costs enhances revenues.

Key Digital Onboarding Benefit Metrics

Digital onboarding solutions provide immense value across metrics like these:

‍Note: The metrics above demonstrate hypothetical improvements for representative purposes.

Challenges of Digital Onboarding

While promising, some barriers organizations face when adopting digital onboarding include:

1. Process Reengineering

Migrating from legacy manual processes to automated digital systems requires revamps of process flows, policies, and regulations understanding. Change management across teams becomes vital.

2. Technology Integration

Integrating eKYC tools with core banking or payment systems can involve API development. The use of legacy enterprise software also hinders agility. Evaluating capabilities takes concerted efforts.

3. Ongoing Costs

While software and infrastructure expenses may dip post-implementation, additional operational expenses around managing tools and troubleshooting exceptions continue to need budget allocations. Cybersecurity needs also keep rising.

4. Compliance Management

Adherence to upgraded AML guidelines across regions remains challenging and needs constant changes. Periodic system evaluations are also mandated today by authorities. Dedicated compliance staff are indispensable.

5. Stakeholder Alignment

Getting leadership buy-in and building user capability across teams to adopt new solutions is key to successful onboarding transformations. Cultural resistance hinders outcomes significantly.

Digital Onboarding Solutions by using Focal

Focal offers AI solutions to overcome key digital onboarding challenges related to fraud prevention, 2FA/MFA, and identity verification during account onboarding.

Key capabilities offered by the FOCAL platform include:

• Document Auto-capture
• Face Matching
• Proof of Life Check
• OCR-based data extraction
• Phone and email verification
• Address Verification

This helps enhance fraud protection, minimize data errors during entry, and smoothen identity verification - key processes in digital client onboarding.

FOCAL's solutions are being used across sectors like ride-hailing apps, finance, crypto, security, and more to enable trusted user onboarding.

Conclusion

Digital onboarding is transforming user experiences across sectors. While it provides greater accessibility, convenience, and cost efficiency, key challenges around regulations, verification, and security need to be addressed.

AI-powered solutions for identity verification, biometrics, and multi-factor authentication can help organizations get the best out of digital investments while avoiding pitfalls like fraud during digital customer onboarding. As processes mature, digital onboarding promises to be the default approach for user acquisition across sectors.

Frequently Asked Questions

Q1. What is an example of digital onboarding?

A common example is opening a new bank account completely online. The customer submits KYC documents and personal details via a mobile/web application form which are then verified digitally using technologies like facial recognition and proof of life checks to validate identity. Upon passing checks per AML guidelines, the account is instantly opened for the applicant to use.

Q2. What is the difference between digital onboarding and traditional onboarding?

Traditional onboarding involves extensive paperwork, manual verification of documents, and in-person interactions with advisors/branch officials. This process takes days or even weeks before activation. In contrast, digital onboarding enables remote, automated processing through electronic documents reducing turnaround times to just minutes or hours for faster account activation.

Q3. What are the risks of digital onboarding?

Key risks in digital onboarding may involve technical glitches, the inability to comprehensively verify identities remotely, leading to fraud or money laundering attempts, and the inability to check with watchlists and sanctions lists thoroughly. The risk of fake identities getting through may increase without human involvement. Hence, a hybrid model that balances automation with manual oversight is prudent.

Q4. What is digital onboarding's impact on customer experience in banking?

Digital onboarding provides seamless omnichannel account opening capabilities leading to transparency, accessibility, and significantly better experiences for applicants. Remote onboarding options enhance convenience.

Q5. Which digital identity verification methods offer the most security?

AI-based biometric authentications like facial recognition and proof-of-life liveness checks when combined with human assistance, multi-factor authentication, and phone/email verifications, currently maximize security.