Agreement Automation Explained: How to Improve CX and Achieve Compliance with Digital Customer Onboarding

Sarah Dixon,

Financial institutions (FIs) around the world sign, manage, and enact agreements with their customers millions of times a day. Agreements are at the very core of every businesses and essential for generating revenue. From loans and leases, to mortgages and insurance, each customer relationship begins with a new agreement.

What is Agreement Automation?

Agreement Automation is the digitization of the customer journey for financial agreements — from a customer completing an application, through to digital identity verification, the electronic delivery, presentation, signing of an agreement, and the capture and management of all supporting audit trails. Agreement automation is part of digital customer onboarding.

As FIs seek to further their investments in digital transformation by digitizing front-office processes that directly impact the customer experience (such as customer onboarding), the business case for agreement automation software is clear. By digitizing customer agreement processes FIs can deliver a fast, consistent, digital user experience while also helping to protect against fraud.

Why Agreement Automation Is Used by Financial Institutions

When a customer decides to open a new account, take out a new loan, sign a leasing agreement, or sign up for any number of new financial products, they enter into a financial agreement with a financial institution. The financial agreement defines the service levels and terms that need to be agreed to by both parties for the agreement to be completed and the product or service delivered.

Currently, many customers transact with FIs in-person, at a branch location, or through an intermediary using paper documents and manual identity checks.

In today’s digital world, financial institutions need to offer customers a fully digital and secure customer experience, so that users can access products and services quickly and easily. This means that customer new account opening process needs to be digitized and automated.

How Agreement Automation Supports Digital Onboarding

Agreement automation is just one aspect of the entire customer onboarding journey, which includes customer acquisition, account opening, and customer onboarding. The diagram below shows where agreement automation fits into the overall customer journey.

Financial institutions looking to automate the entire customer onboarding journey should look for solutions that are able to integrate together to deliver a positive digital journey for the customer.

Agreement Automation Benefits for Financial Institutions

Financial institutions automate their agreement processes for three key reasons:

1. Improve Customer Experience, Reduce Abandonment & Increase Conversion

By speeding up the customer agreement process and eliminating major points of frustration for the customer, such as paper forms and in-person identity verification, FIs can significantly improve the customer experience. Agreement automation includes digital identity verification and e-signatures, which enable FIs to remove paper forms and in-person identity verification. This improved workflow leads to higher conversion rates, and ultimately an increase in revenue.

Digitization also delivers a consistent customer experience across channels and allows customers to complete the process on their own device and in their own time.

Research from Aite Group has revealed that abandonment rates for financial account opening processes are between 65-95%, depending on the product. By removing manual and paper steps and implementing mobile-first processes, such as mobile data capture and digital identity verification, FIs can reduce customer abandonment, leading to an increase in top line growth.

For one motor finance company, agreement automation enabled them to grow revenue rapidly to over £150 million (~USD$200 million) in new business per month, without adding additional headcount.

Digital Agreements Best Practices

Digital Agreements Best Practices

This whitepaper discusses insights and best practices for financial institutions looking to transform identity verification and document signing processes to improve compliance, eliminate human error, and reduce the risk of fraud.

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2. Improve Efficiencies

Agreement automation leads to multiple operational efficiencies when compared to paper-based and manual alternatives. By fully automating the customer agreement process and removing paper forms and wet signatures, paper consumption is significantly reduced. The removal of manual steps also reduces costs for FIs, enabling them to reduce the cost of growth. A top 5 US Bank which digitized consumer loans and SMB lending, eliminated 80% of document handling costs with automated agreement processes, representing millions of dollars saved.

Automating the agreement process also leads to reduced application processing time due to the removal of manual steps, such as the need to manually review applications for errors. Ensuring error-free loan applications can greatly improve performance. For US Bank, this meant that bankers no longer needed to manually handle and process documents, therefore freeing them up to spend more time selling more loans and servicing customers.

3. Reduce Risk & Achieve Compliance
One of the biggest digitization challenges FIs face is the need to balance improvements in the customer experience (CX) with security considerations. Agreement automation does not require FIs to make a CX/security trade off: it delivers both a frictionless digital experience while also providing the necessary security safeguards against risk.

Agreement automation can also reduce risk, because it allows FIs to control the workflow from beginning to end – meaning that the process is carried out in a compliant way. Digitizing the agreement process allows financial institutions to capture tamper-evident electronic evidence throughout the process in the form of digital audit trails. Digital audit trails can include evidence of compliance, evidence of the customer’s identity, or evidence of their intent to be bound by the agreement. If stored in a tamper-evident package, the evidence can help prove that the resulting agreements are legal, compliant, and enforceable if challenged. For the Bank of Montreal (BMO), automation helped the bank achieve an 80% efficiency ratio in the bank’s audit trail function.

Agreement automation can also help FIs meet necessary Know Your Customer (KYC) requirements. To comply with anti-money laundering regulations, regulators require FIs to verify the identity of potential customers. KYC processes help FIs prove that the customer is who they say they are, and that the FI can legally do business with them.

KYC verification can be carried out digitally by matching verified application data (such as name, address, date of birth) to trusted data sources such as voter lists and identity bureaus. KYC verification can mitigate the risk of first party, third party, and staff application fraud by screening applicant details against negative data to identify fraud and AML activity. IP geo-location, device verification, and corporate checks also contribute to building a strong verification profile for an applicant. An unknown applicant’s identity can be verified digitally using a digital identity verification method such as ID document verification.

Agreement Automation Best Practices for Financial Institutions

  1. Remove Paper Form Friction  Manual steps, such as paper forms, slow down the new account opening process and frustrate customers. Today’s applicant is looking for speed, ease, and convenience. Paper forms cause friction and increase the risk of customer abandonment.

  2. Eliminate Manual Data Entry & Application ChecksPaper forms necessitate an FI to enter customer data into an application manually. This process increases the risk of human error. Manual checks and the process of re-keying applications due to human error dramatically increases acquisition costs. By digitizing the customer information capture stage, manual steps are removed and acquisition costs are reduced.
  3. Digitize Identity Verification – Requiring applicants to bring physical ID documents into an FI’s local branch causes customer friction and frustration. Digital identity verification gives financial institutions the ability to prove an applicant’s identity quickly and compliantly, therefore reducing friction and frustration during new account opening.
  4. Reduce Application Fraud – According to research from Aite Group, application fraud is the #2 cause of fraud loss for FIs after account take-over fraud. Fighting application fraud is therefore an uphill battle for financial institutions. As first-party fraud continues to grow, it is increasingly important for FIs to determine and prove who they are transacting with. Digital identity verification allows FIs to prove who their applicant is and that they are genuinely the person the FI is transacting with. Aite Group research indicates that 90% of FIs indicate plans to implement mobile identity document capture and verification solutions within the next two years.
  5. Capture Customers Intent  – E-Signatures have the same legal status as handwritten ink signatures in the United States (ESIGN Act & UETA), Canada (UECA), the European Union (eIDAS), Australia (Electronic Transfers Act), China (Law of the People’s Republic of China on Electronic Signature), Brazil (Provisional Measure No. 2200-2 of 2001), Japan (Law Concerning Electronic Signatures and Certification Services), and many other countries. When digitizing the entire agreement process, the signature element is often experienced by the customer as “click here to sign”.
  6. Secure Digital Audit Trails – FIs should capture digital audit trails to prove that fair and compliant practices were followed, that the applicant’s identity was verified, and that applicants were fully aware of what they were signing up for at the time of signing an agreement. Digital audit trails also help FIs prove compliance and avoid compliance failures and potential financial fines.
  7. Future-proof Solution  Change is an inevitable part of the financial services industry. Adapting to change requires processes and technology that can be easily updated. If technologies cannot be updated, financial agreement processes risk becoming non-compliant, obsolete, or operationally expensive.

FIs should also ensure that they are not reliant on a single digital identity verification provider or verification method, and that they have access to new digital identity verification methods as they come on the market. Access to multiple identity verification methods enables FIs to adapt to changes in technology and consumer expectations and helps reduce new application abandonment rates.

Sarah is a technology marketing expert with 10+ years of marketing experience in fast-growth B2B SaaS and professional services companies within financial services and law.