The Costs of Your Outdated Customer Onboarding Blueprint


The march toward digital customer acceptance was well underway long before COVID forced banks to shutter branches and severely limit face-to-face interactions. Thanks largely to the shift in customer demographics to favor digital-native Millennials and GenZ, banks and financial institutions found themselves scrambling to upgrade their online and mobile customer experience to address the increasing demand for digital services. 

Yet as demand has grown, so has the fraud risk and KYC compliance management burden. In the face of scaling up, many businesses continue to do what they have for decades: play a game of vendor roulette, swapping out some of the older systems and layering on newer components. Yet, this Band-Aid approach obstructs them from achieving the full potential of digitization. The frictionless acceptance of risk-free, profitable customers is constantly sacrificed to keep fraud at bay due to an outdated blueprint and customer onboarding technology layer-cake. 

Almost half of the world banks do not upgrade old systems as soon as they should, according to a report by the UK’s Financial Conduct Authority. A study by Thomson Reuters also found that costs for customer onboarding and KYC compliance management were steadily rising, with banks spending $48 Million annually on average (including labor and third-party costs). 10% of the world's top financial institutions spent between $100 Million and $500 Million annually. 

Indeed, banks have come to realize that their ability to survive will depend on their ability to scale to the demand while becoming an advocate for their customers.


Digital Banking Challenges

While system upgrades and process changes aren’t new in the banking industry, the last two years have forced banks to rethink their traditionally cautious approach to digital investments.

One trend that has emerged is the continued emphasis on online and mobile applications to deliver the primary banking experience. While bank branches may re-open, consumers have become accustomed to carrying out their daily financial services via a mobile device. The Ipsos-Forbes U.S. Weekly Consumer Confidence Survey found that 76% of consumers use their financial institution’s mobile app for their everyday banking needs.

This banking trend is more dramatic when factoring in the age of banking customers. Younger consumers are using mobile banking much more so than Baby Boomers. According to the American Bankers Association, 92% of younger adults ages 18-34 use a mobile device to manage their bank account compared to less than half (49%) of adults ages 65+. Indeed, banks need to attract deposits and forge relationships with a younger demographic. To do so, they must deliver a mobile experience that meets this group’s needs.

Another crucial challenge is fraud, which continues to grow unabated thanks to the remote modality of digital channels. Cybercriminals know that consumers are spending more time on mobile devices and, therefore, exploit device vulnerabilities and app confusion. Technology that once worked to thwart online criminals is no match for today’s fraudsters who have increased both the volume and sophistication of their attacks.


The Flawed Approach of Financial Institutions

Many financial institutions handle customer onboarding with a set of disparate tools, including some offered by the credit reporting agencies themselves. These toolboxes often do not talk to one another, meaning that employees are still heavily involved and performing manual processes for customer onboarding. Further, these toolboxes are often outdated or inefficient, meaning that the wrong customers often slide by and are onboarded erroneously, increasing the bank’s risk profile. 

Manual processes do not work for consumers seeking a fast, digitized, mobile banking experience. Consumers cannot wait one hour, let alone 24, to be onboarded and open an account.


8 Crucial Costs of Outdated Customer Onboarding Technology

There is a real risk and a cost inherent in outdated customer onboarding technology. For one, it might not be able to handle a surge in customers who need to be onboarded, leading to system failures and customer frustration. Existing customers might tolerate “System unavailable — please try later” messages, but new customers typically will not, leading to missed revenues from monthly fees and finance charges. Secondary losses amount to negative PR, with bloggers and reviewers sharing their poor customer experience with audiences. 

Conversely, outdated technology can also let in too many new customers, including fraudulent ones. It may not adhere to the strictest compliance measures, or it may rely on older databases and weak security protocols. Therefore, it is often not able to tell a good customer from a bad one. The bank is then vulnerable to account abuse and fraud.

Banks need to upgrade technology to meet the needs and demands of today’s increasingly digital and mobile consumers while still adhering to the strictest Know Your Customer (KYC) rules to safeguard the bank’s assets.

The following are some of the key challenges with using outdated customer onboarding technology.


1. Time Consumption

Many banks are using outdated technology, with some of it dating back to the 1960s. Such software was written for the hardware and networks of its day and not for today’s advanced systems and users who have come to expect a particular experience when onboarding with a bank.


2. Extra Expenditure

Older software needs to be updated by IT professionals and engineers who hold that expertise. As years pass and newer platforms and frameworks take hold, those IT professionals become harder and harder to source. Banks beholden to their legacy platforms might be forced to pay higher fees for these IT folks to consult when issues arise. There are also the costs of allowing fraudsters to enter the bank’s security perimeter, as already mentioned.


3. Resource Allocation

Bank investments in IT are nothing new. Customer onboarding, however, is only one of hundreds or even thousands of IT projects competing for the same internal resources. Often banks are focused on keeping their current customers happy, perhaps by offering new services backed by technology. If a customer onboarding system, albeit an aging one, still works, then IT management would most likely ignore upgrading it.


4. Vendor Management

Another hidden cost lies in the management of multiple vendors, either third-party or outsourced, to carry out a business process, in this case, customer onboarding. Vendor management is often manual and handled by many stakeholders and teams within the bank, often slowing down the process when adjustments or upgrades are needed. Manual vendor management is inherently prone to human error. Some banks build systems that connect disparate services so that they can “talk” to one another. Yet, even these custom-built services can grow in cost and complexity, erasing any efficiencies they initially sought.


5. Digitization

Banking customers are increasingly seeking mobile and digital experiences. According to consulting firm PwC, digital banks now make up 20% of all primary bank relationships in the US, up from 10% in 2019. Banks that do not upgrade their digital offerings are at risk of losing customers to banks that do.


6. Lost Customers from Changing Demographics

Banking customers are only getting younger. While it is not known how many prospective customers a bank loses when the bank’s mobile experience does not meet the consumer’s expectations, the digital customer onboarding experience is a great gauge. Abandonment during the digital customer onboarding process can serve as a key indicator that the digital experience is clumsy and difficult, signaling to the bank that it needs to consider improving its digital customer onboarding process.


7. Loan-to-Value Losses

Banks that underwrite underperforming loans increase their Loan-to-Value (LTV) losses. They need a solution that shifts fraud losses from their balance sheets, freeing up capital to issue loans for stronger and more creditworthy borrowers. Banks’ existing customer onboarding and fraud detection systems do not incorporate LTV losses.


8. Manual Reviews

Manual reviews of prospective customers during the customer onboarding processes will lead to account abandonment, regardless of that customer’s risk profile. Manual reviews are a drag on employees’ time and only lead to customer frustration. Manual reviews incorporated into the customer onboarding process might work when onboarding larger, institutional customers, but they are inefficient and wasteful when onboarding individual customer accounts.


9. Loss Liability

Allowing the wrong customers in during the customer onboarding process increases the risk of loss liability. Rather than be seen as a sunk cost by the bank, digital customer onboarding can be seen as a risk management measure that lowers the potential for liability.

Instead, banks need a one-stop-shop for their digital customer onboarding needs that will minimize all of the costs associated with outdated technology and customer onboarding operations.


Why Work With Instnt Accept™?

How is Instnt Accept™ different from traditional customer onboarding technology? Instnt provides a fundamental shift of perspective. We look at the entire picture. While legacy onboarding focuses on fraud reduction,  Instnt Accept™focuses on growth as well as on mitigating fraud. 


Instnt Accept™ is the industry leader in digital customer onboarding technology. It can help you onboard more good customers without the challenges of outdated technology. Our fully managed solution saves you time, money, and other resources to focus on your core operations: signing up customers and boosting revenue. Our innovative approach stands out for several reasons:

Pay-for-Performance - Only pay for the users we accept — nothing more.

Improved User Experience - With Instnt, your digital customer onboarding experience is yours. We work only on the back end to verify and accept more good customers.

Fully Managed - The Instnt Accept™ solution is ready out of the box, on-demand, with minimal strain on IT and other internal resources. 

Fast Integration - The no-code/low code solution means that digital customer onboarding and fraud detection can be launched in days.

Loss Liability Indemnification - Banks and credit unions receive loss liability indemnification of up to $100M annually, thus increasing their profitability.

One bank worked with Instnt Accept™ to grow top-line revenue by $67 million with only an investment of $3 million. How did we do this? By reducing their rejection rates. The toolbox stack was costing them $75M because they were rejecting up to 60% of people. Instead, Instnt offered a managed service that eliminated the need for a range of tools and services. With its all-in-one management service, Instnt reduced the cost while growing revenue.


Optimizing for Growth With Instnt Accept™

Banks should consider a single solution provider with experience helping hundreds of banks onboard thousands of customers. Whether traditional with brick-and-mortar locations, or a neobank with completely online operations, banks need to present the most compelling digital experiences that also serve as a way to fight fraud and build top-line revenue.

For more information on Instnt Accept™, start a free demo today.


Jake Wengroff writes about technology and financial services. A former technology reporter for CBS Radio, he covers such topics as security, mobility, e-commerce, and the Internet of Things.



The Financial Brand - What Consumers Actually Want From Their Bank’s Mobile App

American Bankers Association - Consumers Give High Marks to their Bank's Online and Mobile Experience for Second Consecutive Year

PwC - 2021 Digital Banking Consumer Survey


About the Author

Instnt's fraud loss indemnification technology provides coverage of up to $100M for fraud losses stemming from synthetic, third-party, and first-party fraud. With Instnt's comprehensive fraud loss protection, businesses can confidently extend their services to a wider customer base, enabling them to embrace more opportunities and enhance revenue streams while maintaining a secure, fraud-free environment.