The evolution of digital onboarding: How BFSI and Fintech sectors are leveraging AI for identity verification

By Varun Parvathaneni, Product Manager, Jukshio Technology Innovation Pvt. Ltd

Financial institutions in the digital world are progressively adopting novel technologies to streamline their processes and customer experiences. Concurring with a report by McKinsey & Co., 42% of businesses in the finance sector spend between 5-10% of their digital budget on AI. As the corporate world continues to be  more digital, the requirement for smart security solutions is greater than ever. With the rise of cyber threats, data breaches, and sophisticated fraud strategies, businesses are turning to artificial intelligence (AI) platforms to strengthen their security systems.

In this changing terrain, the emergence of artificial intelligence is transforming the traditional customer onboarding process, from error-prone measures to digital techniques. The traditional onboarding process struggles to keep up with rapidly evolving fraud tactics and it may also appear time-consuming to some customers. As per research, 70% of consumers drop out of the onboarding process if they find it too complex. However, the shift toward AI-integrated onboarding is presenting BFSI and fintechs with multitudes of prospects for innovation and growth.

The need for the digital onboarding process
The year-earlier underscored the significance of onboarding processes with the fallout of several financial institutions. The aftermath of these establishments witnessed a prominent shift in depositing patterns, as large financial institutions were struggling with an unprecedented influx of business, which overwhelmed their functioning bandwidth. The effects of this reached beyond operational challenges and profoundly impacted the income streams.

However, the consequences of sluggish onboarding processes are not restricted to financial giants. Retail banks also faced notable challenges with the manual onboarding technique, which brought a wave of customer dissatisfaction.

The impact of AI-powered onboarding 
GenAI in the banking industry is expected to add a value of USD 200-300 billion annually, as per a study conducted by McKinsey & Co. AI-based platforms provide significant advancements over traditional KYC solutions, which were primarily designed to meet regulatory criteria imposed by agencies such as TRAI and RBI. The following are some of the technologies that can help make the digital banking ecosystem faster, more accurate, and secure.

Optical character recognition (OCR): OCR solutions can help banks to monitor client spending behaviors, analyze statements, and evaluate creditworthiness. It can automatically extract information from identity documents and speed up the onboarding process reducing the need for manual data entry.

Intelligent document processing: Modern-day AI methods use Intelligent Document Processing (IDP) to obtain and verify data from varied sources. These sources include government IDs, address proofs, and banking information. IDP employs machine learning models and Natural Language Processing (NLP) to analyse and extract relevant information from unstructured and structured data.

Biometric authentication and security 
AI-powered biometric technologies like facial recognition and fingerprint scanning are already widely used in smartphones. These technologies can help enhance the security of financial institutions while also making digital onboarding easier.

Face recognition: Facial recognition systems are highly reliable and accurate as they utilise deep learning technology. Industries with high onboarding volumes and a strong risk of fraud benefit most from these solutions. It develops as a common theme among biometric solutions. Facial recognition technology, like recognizing a familiar face in a crowded space, identifies users based on their distinguishing characteristics. The transition from pixelated photos to powerful algorithms capable of mapping facial landmarks transformed the landscape of identity verification.

Behavioural biometrics: The concept of identity verification extends beyond what meets the eye. With its various characteristics and particular pitch, voice recognition has proved useful in digital identity verification. Automated KYC systems use speech biometrics to validate users’ legitimacy, similar to how you might recognize a close friend over the phone.

Mobile banking promoting seamless onboarding 
The accessibility of smartphones is fuelling the shift in customer onboarding through mobile apps. Fintech companies are developing user-friendly applications to complete onboarding processes from the comfort of their homes. Tasks such as document uploading, verification of identity, and the entire onboarding process are condensed into a few steps. Mobile applications not only make the onboarding process more efficient but also allow customers to have control over their interactions with the bank.

Way forward
The digital onboarding process in the financial services industry has undergone substantial change. The integration of AI into the procedure has helped make it efficient, effortless, and secure. From automated data acquisition to intelligent document processing and validations, artificial intelligence has enhanced every aspect of the customer onboarding experience. Financial institutions embracing the digital revolution are bound to stay ahead of the demands and security threats while developing trust among their customers. The future of digital onboarding looks more promising than ever with AI’s innovative solutions streamlining the operations of financial institutions.