Published by American Banker
While branch offices are still the most popular way for customers to interact with their financial institutions (FIs), consumer demand for immediacy is shifting expectations and putting more focus on the digital channels. Recent research from PwC shows that 42% of today’s customers would rather open an account digitally or through a call center than in person, and 41% would prefer to apply for a loan online rather than walk into a local branch.
For FIs, the message is clear: offering online and mobile account opening is key to attracting and keeping customers. But without the face-to-face identity verification that a branch experience allows, it’s a challenge for banks and credit unions to confirm someone’s true identity and have the necessary intelligence to determine what account privileges can be offered.
That means FIs need a solid new account opening and onboarding process that can protect the institution from fraud, help ensure regulatory compliance and cater to the customer experience.
The Threat is Real
In 2017, more than 2.5 billion records were compromised by data breaches, according to the most recent numbers from Breach Level Index. Among those breaches, 69% involved identity theft, exposing personally identifiable information (PII) that can be used to defraud FIs and their customers.
“We’ve heard from our partners at Aite Group, the rise in breaches tracks with the steady rise in FI application fraud, particularly within the digital channels,” says Robin Love, Vice President of Product Management at Early Warning Services, a financial technology company that delivers payment and risk solutions to financial institutions nationwide.
To protect themselves when onboarding new demand deposit account (DDA) customers, FIs typically fall into three camps:
Open Door: These FIs have a more liberal approach to accepting new customers and would rather manage risk on the back end, after the accounts have been opened. While the consumer may be satisfied at the point of application and acceptance, the customer experience suffers if accounts or privileges must be revoked. This approach can also leave the door open to fraudsters to take advantage of the institution before the account is closed on day two.
Guarded Fort: These institutions have a much more conservative onboarding process, declining a higher percentage of new accounts to support more conservative risk thresholds. While the institution is protected, it may cause regulators to question mainstream financial inclusion depending on screening methods.
Optimization: These are the FIs that are leveraging intelligence and predictive scoring models to better assess applications, striking the balance between managing risk and driving growth.
What’s the best solutions for all these FIs? “For FIs, it’s important to be able to grow their customer base while accurately assessing risk, both from an identity and behavioral perspective. It requires solutions that can authenticate, identify and predict behavior using a variety of data sources, coupled with analytics,” Love notes. “This will help mitigate risk and also provide for a better customer experience during the process.”
The Three-Step Solution
1. Confirm the Identity
“The most effective identity verification solutions use predictive analytics along with a deep set of contributed and third-party data sources,” Love says. “Analytics, along with these data sources, provides the FI with a score and summarized attributes that help the FI to quickly spot synthetic or manipulated identities. This information is also used to support the FI’s Customer Identification Program (CIP) requirements, reducing the number of solutions currently used within the institution.”
2. Assess the Risk
Once an FI positively identifies the applicant, it needs to understand if that person is likely to commit first-party fraud, or default on their account for mismanagement. “For years the financial services industry has depended on credit scores or negative data sources to measure risk, but these don’t give the full picture,” Love says. “Just because I can’t pay my credit card bill doesn’t mean I’m going to default on my checking account. You need the big picture of past performance while looking at positive and current aspects of that consumer’s relationship with FIs.”
Love recommends using predictive analytics applied to deposit account data. Analytics can track the account history of the applicant, including current and prior information associated with the checking accounts—check and ACH history, including returns, velocity of accounts opened and closed, and current status of accounts. All of this plays into the ability to predict how that applicant will behave in the future. “Coupling that data together gives you a really great profile,” Love says. “It’s this type of innovative technology that is influencing FIs to move away from the standard binary responses that simply return a yes/no match that are currently seen in the market.”
3. Engage the Customer
While the FI’s primary focus is on managing risk, customers are singularly focused on convenience. They want 24/7 access to their financial accounts. They want all of their bank interactions to be fast, accurate, and painless. And, above all, they want to be confident that their money and all of their financial information is safe.
Love notes that rising customer expectations are ramping up the pressure on FIs to deliver seamless, frictionless service at every customer touchpoint—be it online, mobile or in person at a branch. “Financial institutions need to find the solutions that will improve efficiencies, mitigate risk, and make it easy for the customer,” Love says.
That starts with leveraging the right technology to help FIs meet customer demands while protecting themselves and their clients. For more information on mitigating new account fraud, click here to watch a webinar.
 “PwC’s 2018 Digital Banking Consumer Survey: Mobile users set the agenda,” PwC, June 2018. (found here: https://www.pwc.com/us/en/financial-services/publications/assets/pwc-fsi-whitepaper-digital-banking-consumer-survey.pdf)
 Data Breach Statistics, Breach Level Index. (found here: https://breachlevelindex.com/)
 “Digital Channel Fraud Mitigation: Evolving to Mobile-First.” Aite Group, 2017