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Compliance

3 biggest obstacles to a better conversion rate

article

Every financial institution wants a better conversion rate, but what happens when your risk and compliance efforts actually lead to application abandonment?

Key takeaways:

  • Achieving a higher conversion rate should be a top priority for any bank or credit union.
  • Financial institutions can best balance compliance and customer experience by avoiding three common missteps in online account opening (OAO).
  • In order to optimize conversion, your OAO solution should include three key components.

As consumers demand greater speed and convenience from their financial institutions, one of the biggest obstacles to success is failing to provide a positive user experience for online account opening (OAO). Banks and credit unions with a clunky website or inefficient account opening process will not only acquire new customers more slowly, but also sacrifice the opportunity to grow relationships with existing customers.

High-performing OAO solutions enable FIs to deliver a superior online experience and, in turn, convert customers and members at rates of over 35 percent. Achieving these kinds of results can be a challenge, however, if you aren’t using a high-performing platform or aren’t configuring your OAO process for higher conversion. Suboptimal configuration is in fact a leading reason why some banks and credit unions have invested in OAO, only to achieve underwhelming conversion rates (and subsequently poor ROI on their technology investment). 

So, how can your FI address common mistakes and achieve the results you’re looking for? Here’s an overview of how to avoid the biggest obstacles to conversion. 

Why high conversion rates matter

For FIs, conversion rates measure how many applications are approved and booked out of all the applications that are started. You can calculate your conversion rate as follows:

Submission Rate  x  Approval Rate  =  Conversion Rate. 

For a high-performing OAO solution, the benchmark submission rate is 55 percent and the approval rate is 65 percent, with the conversion rate ranging from 30-40 percent. A low-performing solution, on the other hand, has a benchmark submission rate and approval rate of 30 percent, with a conversion rate of below 10 percent. The top solutions therefore outperform other options across all three metrics.

The biggest obstacles to better conversion

Achieving a high conversion rate can help community banks and credit unions grow more efficiently. Unfortunately, there are some common workflows that FIs rely on which can negatively impact conversion.

Conversion suffers every time you take up more of a customer's time or ask them to go through additional, tedious steps. The following are three of the biggest obstacles to better conversion:

Asking out-of-wallet questions

While knowledge-based authentication (KBA) was once considered a top-of-the-line security measure, its effectiveness has fallen over time. Private data has become more easily accessible, due in large part to the prevalence of social media and KBA’s susceptibility to fraudulent actors. Nowadays, KBA can be spoofed by simple search engine research. Worse, customers and members who secure their accounts with personal information may find themselves more vulnerable to social engineering campaigns in addition to identity fraud and other forms of attack simply because this information is so easy to find or fake. 

Relying on documentary customer identification programs (CIP)

Asking for documentation (like a scan of a driver’s license) can cause up to a third of your customers or members to abandon their applications — all while delivering negligible fraud reduction. Data shows that documentary CIP leads to a 29 percent reduction in conversion rates, which is likely not worth a mere 1.5 percent reduction in fraud. Document metadata including date of birth, address, and social security number also delivers minimal fraud reduction (1 percent), while reducing conversion rates by as much as 15 percent. 

Requiring manual funding and micro-deposits

Manual entry, which requires applicants to manually enter their account and routing numbers before completing a micro-deposit, is a traditional method that is relatively labor-intensive and error-prone for both applicants and bank employees. Research from MX found that the drop-off rate for businesses using the micro-deposit process was as high as 49 percent — meaning some banks have let almost half of potential new accounts fall through the cracks. For those who do complete the manual entry process, waiting up to five days for a micro-deposit can prove frustrating. 

The takeaway

The above processes are time-consuming, which is often a deal-breaker when it comes to digital experiences. The current reality is that every 10 seconds added to the application process correlates roughly to a 5 percent increase in application abandonment. 

How to improve conversion while remaining compliant 

You can’t get a high conversion rate without ensuring a great submission rate. The best way to do that is to make the application process effortless and speedy, so that a higher proportion of customers who start an application actually follow through with it. Investing in a high-performing OAO solution is the simplest and most effective way to achieve this. 

A quality solution will result in a higher approval rate, as well. Advanced know your customer (KYC) and anti-money laundering (AML) automation is baked into the best OAO platforms, allowing legitimate applicants to be approved more quickly and accurately. 

A high-performing OAO solution can also reduce risk and prevent fraud in a customer-friendly way. Top OAO software leverages an abundance of data sources to assess the fraud risk of every applicant with greater accuracy. That means FIs that use high-performing OAO should see a 60 percent (or greater) drop in fraud. 

To achieve these impressive results, your OAO solution should include:

An alternative to out-of-wallet 

Instead of using KBA, a strong OAO solution lets you build a more complete picture of a person’s identity by taking information collected from a user — both information that’s directly provided (name, DOB, SSN, address, phone number, email, etc.) and that’s passively gathered (browser type, IP address, linked bank account information) — and comparing it to identity information available in public and private spheres. That picture not only reduces fraud, but it also significantly decreases the time it takes to open an account.

Non-documentary CIP 

From a compliance perspective, non-documentary CIP is just as valid as documentary CIP. The difference is that non-documentary CIP methods work better online, delivering a better digital experience to customers and members.

Instant Account Verification (IAV)

IAV integration presents real-time balances from external accounts to customers during the funding process. This allows consumers to make funding decisions with perfect information about their existing balances (leading to initial funding that is three times higher on average). On the other hand, when a person doesn’t know how much money is in their existing accounts, they are more likely to fund the minimum required amount or a “safe amount” for fear of overdrafting. Further, the onboarding drop-off rate for IAV is as low as 1 percent, suggesting that data sharing consent is not a significant bottleneck if the rest of the account funding experience is streamlined.

With these features, your institution can expect less fraud, fewer false positives, and less application abandonment, which translates directly into a higher approval rate, and, ultimately, a higher conversion rate.

Achieving better conversion

By delivering a fast, convenient OAO experience, you demonstrate that your institution values consumers’ time. If you’re serious about optimizing conversion, MANTL strongly recommends making the above changes. We can say this with confidence because we’ve seen what works and what doesn’t work digitally.

If better conversion is your goal, there are simple steps you can take to achieve it. MANTL’s OAO platform offers strong conversion rates, but our team is also well-versed in the question of conversion vs. risk. Schedule a demo today to learn how MANTL’s high conversion rates can put your FI in a position to win digitally.