Why is digital sales broken in banking?

To answer that, let’s take a look at how banks stack up against digital-first companies. The verdict is pretty damning: tech titans such as Amazon and Netflix report conversion rates of 74% and 93% respectively — compared to a staggeringly low 15% for banks.

Yes, you read that right. Banks are failing to convert 85% of customers on digital channels.

Above: the stages of a classic customer acquisition journey

In other words, it doesn’t matter how much money banks throw into elaborate marketing campaigns; it’s just a waste of money if prospects ultimately abandon an account application.

So why exactly do banks experience such high drop-off rates in their digital account opening process?

Here are some reasons, to start:

• Completing an application is time-consuming. According to one case study, opening an account online with some of the traditional banks requires nearly 100 clicks. [1]
• The amount of information that’s required from the customer can be pretty insane. For instance, asking for an address history stretching back several years.
• An inability to complete the application in stages. When the process takes that long, a customer should be able to pause it and resume later — but very few banks offer this option. What’s more, a customer can rarely start the application on one device and finish it on another. In today’s age of mobile banking, this is a major pain point for modern customers.
• A lack of digital ID verification. One of the main reasons customers apply online is the convenience of completing the process from wherever they choose, but a lack of digital ID verification means they still have to visit a branch to drop off paper copies.
• Customers seldom get immediate access to their account, even after persevering through the application process. They can’t fund it until it’s open and often have to wait several days for the debit card to arrive in the post to start spending.
• Multiple PINs and passwords complicates the login process. Many banks have introduced multi-factor authentication for justifiable reasons, but from a customer’s perspective, simply accessing an account can be stressful.
• Limited or difficult access to support. If customers experience issues with their card, they often don’t have many options to resolve issues on their own, through digital channels. That means having to call the provider to report a card lost or stolen, or even to just change spending limits. On top of that, banks don’t provide a quick and easy way to reach their customer support team, such as through a chat function.

As Jouk Pleiter, Backbase founder and CEO summed up in the video above:

The message for banks is a resounding one: if you make it difficult for your customer to open an account, don’t be surprised if they take their business elsewhere.

But digital sales in banking isn’t just about opening a bank account. Once the account is open, the next step is to get your customers to sign up for products with higher profit margins, such as loans.

However, once again, a poor digital experience discourages loan applications, because...

• Applying for a loan is frustrating, even for existing customers. Completing an application involves providing financial statements (and sometimes details for different parties) and submitting information the bank already holds.
• Customers often have to provide their own credit score. This is especially true for customers applying for a mortgage, for instance. Often that results in the customer having to visit an external site to calculate the score, and then sharing it with the bank — a simple service that banks could easily offer their customers instead.
• Loan applications can’t be completed online. As with the onboarding process, this option is rarely available to customers. In fact, many have to go to the trouble of visiting a branch to get it done.
• Loans take a long time to be approved. After submitting the application, customers must wait for the loan to be approved and for the funds to land in their account. From start to finish, the whole process could take weeks, or even months.

An often overlooked factor is how bank staff aren’t well equipped to improve the customer experience in the digital sales process — which results in further unnecessary drop-offs.

Legacy systems are largely to blame, forcing employees to complete many tasks manually.

For instance, customer service staff have to rely on different programs, open across a variety of screens, to find the information they need to handle simple requests. Not having a single overview of the customer’s details not only slows down the process considerably; it also increases the likelihood of error.

Some of these manual processes are unavoidable, because not all decisions should be automated. However, machine learning could reduce the length of time required to complete an application — and that’s time that could be more effectively used to build lasting relationships with customers instead.

Clearly, the digital sales experience that banks make their customers go through is pretty dismal. But if that wasn’t bad enough, a new crop of digital-first businesses now have their sights set firmly on the trillion-dollar banking industry, too.

Challenger banks, Big Tech firms, fintechs and payment platforms have plowed right into the financial services market. These new players have a deep understanding of how today’s consumers want to experience a digital sales process, and they’re ruthlessly taking advantage. Offering a seamless onboarding experience and elegantly-designed user interfaces, these companies have streamlined and enhanced the customer experience to such a degree that expectations have shifted across the sector.

The next generation of the banking landscape is here. The question is: can the incumbents keep up?

Why are customers leaving traditional banks for the challengers? One big reason lies in the fact that challenger banks have designed their digital sales process to be exceptionally convenient.

Number of clicks required to open an account

For instance, Monzo’s account opening process requires 45 clicks.

That’s much quicker than Lloyds (69 clicks) and Barclays (74 clicks)—the traditional banks with the quickest applications, or the slowest with HSBC (99 clicks) and First Direct (120 clicks). [2]

Monzo’s number of clicks is nearly half the average of the incumbents (88). The new account is then active — customers can use the debit card and access online banking from a mobile device — within two days.

Monzo allows customers to open an account within its app, without having to visit the bank’s website or call customer services. Customers can also verify their ID through the app by uploading scanned versions of the necessary documents and a photo or video selfie.

Another way Monzo improves the experience is by only requiring a customer’s current address rather than a history stretching back several years. If the app struggles to find a credit report, it simply asks for further details.[3]

If traditional banks aren’t taking notes, they should be.

In addition to competition heating up, customer loyalty is being put to the test too.

In the past, customers tended to stick with their banks — in some cases for life. But switching to a different provider is now much easier, thanks to regulations like the EU’s PSD2 (the Revised Payment Services Directive) which came into force in early 2018.

To promote competition, the directive forces banks to share data with third parties. For the first time, customers have control of their data and can use it to shop around and find the products that best match their needs, rather than accept whatever their existing provider offers.

Meanwhile, regulatory requirements covering Know Your Customer and Customer Due Diligence checks have become more demanding. Banks employing manual processes will lose business due to the drawn-out onboarding experience. To make matters worse, manual processes are unlikely to keep up with increasingly complex regulations in the future — although the incumbents can access the same regtechs used by many of the challengers). Compliance costs are also rising, from an average of $142 million in 2016 to $150 million in 2017 for financial institutions with an annual turnover of at least $10 billion.[4]

The race to revolutionize digital sales in the financial services industry is on — and banks are limping behind. Customer expectations have shifted, new regulations are piling on the pressure, and ambitious new players are eager to get a foothold in the market.

The only option left for traditional banks and credit unions is to evolve. But here’s the good news: the same technologies used by challenger banks are available to incumbents, too. The challengers may have raised the bar, but the opportunity is ripe for traditional banks to level the playing field.

What’s in store for banks and credit unions that do take action today? To find out, read the next chapter in our series: The ROI of digital sales in banking.