Over the past few decades a body of research has grown confirming the fact that not only do humans base a huge amount of both their short and long term judgements on their first impressions, they form them remarkably quickly.
According to a prominent Harvard psychologist, the role our initial judgements play is firstly to determine whether a person can first be trusted, and secondarily whether they can be respected – in official terms, their warmth and competence.
Furthermore, a series of experiments by psychologists from Princeton University found that traits such as trustworthiness were decided upon in the first 1/10th of a second – and if there’s one thing the financial sector knows the power of, it’s trust.
In an age of brand personification where companies have personalities and corporations banter back and forth on social media, businesses are increasingly viewed like people – and it’s vital for them to understand what traits both potential and existing customers associate with them. A Google study found that people make their first impression of a company website in as little as 50 milliseconds, meaning that aside from a few early analytics you may have very little idea of what has driven potential customers away.
The first concrete proof many businesses have is during the onboarding process – more specifically, through the drop-off rate. A recent Paypers report argues that retail banks’ outdated onboarding processes are behind ongoing customer losses; citing findings that a remarkable 40% of European consumers have completely abandoned bank applications, with more than a third of these abandonments being entirely due to the length of time involved.
Dissatisfaction and drop-offs aren’t only related to the length of a transaction: according to McKinsey, much also rides on the ease with which it can be completed. They examined various customer onboarding journeys – those that were completely online, those that started online and finished in a branch, those that were completely in branch, and those that started in a branch and finish online – and found that overall digital-first journeys led to much higher customer satisfaction rates, scoring 10-20% more than traditional journeys. And the kicker? They also found that every 10th percentage-point gained in customer satisfaction enabled a revenue increase of 2% to 3%.
Despite legislation having been in place to permit electronic identity verification since 2004, manual reviews are still incredibly common. Even when started digitally, they require applicants to go offline and gather very specific, material documentation, often then asking them to either send precious original copies or go to the hassle and expense of having them certified – and, as we discussed in a previous blog, many customers may not have the required documents in the first place. On top of that, it can take hours, days, or even weeks for the review process to be completed. Research has shown that banking customers are only willing to wait for 14 minutes and 20 seconds before abandoning the process completely – and that’s not to mention the high costs of these processes for the businesses themselves. One study found that not only could the process take as long as 34 weeks for institutions with completely manual client onboarding, it could cost as much as $25,000 (USD) per client.
Many consumers are unaware of the regulatory requirements that sit behind these checks, instead associating the difficulties and inconveniences they face purely with individual businesses – particularly if others are offering automated reviews that can be completed in minutes or even seconds. Manual processes can feel cumbersome, confusing, and intrusive; and despite industry efforts to improve consumer trust, this lack of understanding means that the mass population still has low levels of trust in financial institutions.
These issues are not unique to the financial sector – any business that legally has to conduct AML and KYC checks as part of their onboarding processes are affected. And, since the EU’s Fifth Money Laundering Directive (5AMLD) came into play at the start of 2020, that includes crypto-currency platforms, pre-paid card providers, certain letting agents, and art dealers. Perhaps unsurprisingly, a significant portion of the directive is aimed at actively encouraging uptake of electronic verification, not just for the speed and convenience it provides for consumers, but because its far more cost-effective for businesses and robust in preventing fraud. In light of this, a future where electronic verification is required by law doesn’t seem too far off.
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