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In 2021, about 80% of financial institutions implemented new systems for creating digital accounts and improving existing ones. More simply, they’ve chosen to embrace the advantages of digital account opening.

Not familiar? No worries, you’re in the right place. Here, we’ll discuss everything you need to know about the digital account opening process from top to bottom.

What is digital account opening?

Digital account opening (DAO) is a type of consumer onboarding workflow for financial institutions, such as a bank or credit union. More specifically, it’s the process of setting up a customer’s new account over the internet rather than in person.

Although this DAO is a much more convenient and faster alternative to traditional onboarding, it does introduce a few notable challenges. Because it takes place online, identity verification is all the more important. Financial services are obligated to safeguard customers from fraud and other cyber threats — but how does that work in the digital world?

Fortunately, that’s where digital account opening solutions come into play. As we’ll later discuss, there are many ways to secure DAO from start to finish. For now, let’s review some of the basics:

What is a digital account?

A digital account can mean many different things depending on the type of financial institution. For instance, a bank may allow you to open an online checking or savings account. Credit unions may issue you a credit card. In either case, as long as the account is opened online, it can be considered digital.

They work much the same way as an ordinary bank account. However, some financial institutions are digital-only, opting not to provide any physical branch locations. In this example, the consumer can manage their online account through digital banking and similar services.

What’s different about digital account opening?

Generally, there are three ways to open a new account:

  1. Traditional: The new customer must be physically present at a branch location to fill out paperwork in person. For example, if a consumer wanted to open a savings account, they’d have to travel to their bank and go through identity verification in person.
  2. Hybrid: This approach mixes the digital and physical account opening process. Rather than doing everything on-site, the consumer can complete half the work digitally and the rest in person. For instance, they may verify their identity at home by submitting their ID document online, but may have to be physically present at the branch to sign paperwork.
  3. Digital: Online account opening happens entirely over the internet — no travel or physical paperwork is required. In the case of a bank or credit union, the new customer would receive their new debit or credit card in the mail once verified.

Notably, digital onboarding can include various authentication methods. Knowledge-based authentication, for instance, requires the user to submit something they know, such as a password, birthdate, or Social Security number.

Other solutions, like Entrust, use biometric verification. Instead of a form-fill, users simply use a camera — such as their smartphone — to take a selfie photo. When submitted alongside an identity document, our system can use facial recognition to verify the user matches their ID.

What is the digital account opening process?

According to the Fair Isaac Corporation (FICO) — the company that developed the FICO credit scoring model — DAO should at a minimum:

  • Capture basic personal identity information
  • Qualify applicants against risk and fraud threats
  • Verify identities
  • Fund the account in real time through a credit or debit card
  • Integrate with the core banking system

At best, the account opening process should also include:

  • Contextual prequalification
  • Online and mobile single sign-on (SSO)
  • Omnichannel integration to resume account opening at any point
  • Electronic signatures
  • Photo or file uploading abilities

In short, digital account opening must be fast, user-friendly, and — most importantly — secure. The good news is that with the right solutions, you can deliver each of these components simultaneously in one fluid process.

As a matter of fact, secure digital account opening can happen in 60 seconds or fewer. Why? Because it boils down to three easy steps:

  • New account sign-up: At this stage, users submit all of the relevant data for online account opening: names, addresses, phone numbers, etc. With Entrust, our technology automatically reads the name, birthdate, and home address on the government-issued identity document, requiring only an additional email address and phone number. The system then uses digital tools to check that the information is valid. If so, the consumer moves on to step two.
  • Identity verification: Next, the user must confirm their identity, usually by providing an identity document like a photo ID. This can include the use of biometrics, such as a fingerprint or facial recognition software, to compare the photo against a selfie.
  • Product setup: Once approved, the user can continue the onboarding process and access the products or services they’re looking for, including their new digital payment card.

Why is digital account opening important?

No matter if you’re a customer or a financial institution, account opening is a crucial moment — albeit for several very different reasons. To understand why DAO is so significant, let’s discuss the advantages it provides to both customers and financial services.

Benefits for customers

Onboarding is the start of a consumer’s relationship with a financial institution. As such, the customer experience has to be seamless — otherwise, it could drive them away. Fortunately, DAO has the advantage of three key characteristics:

  • Efficiency: Online account opening gives consumers and businesses a way to rapidly open a new account in a matter of minutes from almost any device. Previously, customers would have to take time out of their day to travel to and from a specific location, but this is nullified with the help of digital account opening solutions.
  • Simplicity: According to Entrust research, 92% of consumers say that ease of account opening is very or somewhat important to choosing a financial institution. DAO is inherently simpler than traditional methods, and even more so with the right technology backing it up.
  • Preference: As of 2022, 78% of adults in the United States prefer to open a new account and manage finances online.

Benefits for financial services

On the flip side, there are also several reasons banks, credit unions, and other financial institutions would invest in DAO. For example:

  • Growth potential: Nearly 53.7 million people in the United States will have a digital-only bank account by 2025 — almost 20% of the country’s population. Moreover, that’ll be practically double how many Americans had a digital account in 2021. Providing a fast and easy online account opening process can help financial institutions tap into this enormous growth opportunity.
  • Cost-savings: Banks, credit unions, and other financial service providers can reduce operational costs by enhancing the account opening process.
  • Productivity: Automating the identity verification process can cut manual review time dramatically. Employees will have more time to dedicate to other critical activities.
  • Customer acquisition: Consumers abandon roughly 68% of onboarding attempts for financial services. In other words, the average person starts an application but rarely completes it. Providing a frictionless experience can help you maximize completion rates and successfully onboard more customers.

DAO risk factors and how to avoid them

Although the advantages are numerous, implementing an online account opening solution has its challenges.

Here’s what to keep in mind when considering your DAO process:

  1. Compliance: Given the nature of their work, banks and credit unions are under strict obligation to protect financial information and personal data from exposure. Industry regulations such as Know Your Customer (KYC) and anti-money laundering (AML) laws require financial institutions to implement protective measures for identity verification and screening. It’s vital your DAO strategy factors regulation into the equation so that you can maintain compliance and avoid costly violations.
  2. Fraud: As more consumers open digital accounts, bad actors are targeting them at a greater velocity. Organizations must ensure they provide a secure digital account opening process from start to finish, preventing fraud at every juncture. This can include the use of identity and access management (IAM) tools, such as credential-based authentication, mobile ID proofing, SSO, and more.
  3. Poor user experience: DAO is intended to streamline account opening and support customer acquisition. However, if your process is cumbersome and frustrating, it can annoy applicants and drive away new customers. Organizations must strike the right balance between security and convenience. Entrust’s portfolio, for instance, applies a minimally disruptive process while still providing high-assurance authentication.

Accelerate and secure onboarding with Entrust

Secure digital account opening solutions shouldn’t be hard to come by — and with Entrust, they aren’t. Our portfolio of digital onboarding tools offers a comprehensive and feature-rich array of protective capabilities.

And the best part? They enable you to streamline account opening without sacrificing security. From adaptive authentication to credential issuance, we’re here to support your entire onboarding journey every step of the way.

For more information on how Entrust can help your organization, check out our digital onboarding solutions today.