The digital transformation that has taken place in banking over the last decade is radically changing how customers interact with financial institutions. More and more customers are opening accounts on a smartphone, tablet or laptop, resulting in a growing emphasis on digital onboarding. According to Cornerstone Advisors, checking account openings in digital channels exceeded branch openings in 2019 and grew to 66% of the volume by the end of 2020.
Now, as digital account openings become more common, financial institutions face increasing pressure to detect fraudulent activity at the point of onboarding. "It's more important than ever to know that the customer logging into your online banking application is who they say they are," says Paramita Bhattacharjee, vice president and product line leader of risk insights for Early Warning Services, LLC. At the same time, she says, banks must also provide a way for customers to get through the application process quickly and with minimal friction.
One of the biggest hurdles financial institutions face while offering digital account openings is the ability to confidently validate a consumer's identity. Without this knowledge, banks cannot make accurate decisions about whether they can do business with a particular customer, what privileges should be granted on the account or even what products should be offered. And with fraudsters becoming ever more sophisticated in beating customer identification programs, banks must deploy accurate and reliable solutions when it comes to identity verification.
The first—and most critical—step in the process is to confirm the information a potential customer is providing. These basic elements—name, date of birth and Social Security number—need to be matched against the ultimate source of truth – the Social Security Administration. Real-time Identity Chek® Service–New Account Scores from Early Warning Services can determine the likelihood that a customer is who they say they are, whether the customer submits the account application via a smartphone, tablet, laptop or in person in a branch. As a Trusted Custodian® over a unique cross-institution data set combined with sophisticated analytical and predictive scores that go beyond rules-based solutions, Early Warning provides both broad and deep coverage with insights into millions of transactions and identities.
The scores, key factors and summarized attributes garnered from this intelligence database, says Bhattacharjee, give financial institutions the kind of insight they need to open accounts confidently and tailor account offerings while reducing the chance of fraud losses in the process. It also allows them to do this without undue friction.
"Recent research from The Financial Brand's Digital Banking Report found that unless a financial institution can open a new account or complete a new loan application in less than five minutes, the potential for the customer to abandon the account opening increases to 60% or more," she says. "Alternatively, faster account openings reduce abandonment rates to almost 25% or less."
Verifying that a customer is who they say they are is only the first step in staying ahead of fraud during the account opening process. Financial institutions must also be on alert for application fraud and synthetic identity fraud. Application fraud involves the use of false information to open an account with the intent of engaging in criminal activity. In synthetic identity fraud, the account opener uses mostly factual information, but then slightly manipulates either a Social Security number or date of birth to avoid detection, or to hide from a previous bad credit history. Bhattacharjee says that, according to research from the Aite Group, synthetic identity fraud is one of the fastest-growing types of financial crime in the U.S.
Real-time Identity Chek Service from Early Warning enables financial institutions to determine a valid identity in real-time as well as determine the likelihood of potential losses within the first nine months of an account opening. Its ID Confidence score gives banks the ability to better detect both synthetic and manipulated identities and determine whether an applicant is presenting their true identity.
"It is ultimately the responsibility of the financial institution to open the account or not," Bhattacharjee says. "But we are giving them the data and recommendation of whether we believe that person is who they say they are—and, further, whether they are going to default due to first-party fraud within nine months or whether that consumer will default due to account mismanagement within nine months."
The pandemic may have accelerated some of the fraudulent activities that banks are experiencing today, but it's clear that digital account openings will continue long after the pandemic is over. Early Warning's technology gives banks the confidence to expand their customer portfolio by helping them verify identities quickly, accurately and in a way that keeps both banks and their customers safe, secure and happy.
To learn more about top fraud trends in the new account opening process, you can view this on-demand webinar here.