Fighting Fraud in the Online Account Opening Channel

Digital account opening solutions have undoubtedly emerged as one of the most essential initiatives a financial institution should invest in. In fact, account opening has been a very hot topic in Cornerstone's What's Going on in Banking report for the past four years.

A study from The Financial Brand found that "institutions that have grown deposits during four quarters of brutal rate increases for the balance sheet have something in common: They've used digital account opening to remove friction from funds coming in the door."

Despite these trends, many banks and credit unions are still hesitant to offer digital account opening. Concerns about costs, fraud, and a steep learning curve are front and center. These concerns are valid. The shift toward digital is making the growth in online account openings bittersweet. The potential for more applicants is weighed against an increase in operational costs to perform manual reviews and the potential for new fraud.

In fact, according to the 2024 Bank Director Technology Survey, 65% are much more concerned about new account fraud in the digital channel than they were just one year ago.

Strict KYC and AML regulations cause many financial institutions to have a lack of confidence in the fraud decisioning process. Valuable (and costly) resources are often devoted to manual reviews.

Not only is it crucial for organizations to resolve the questions "Is this person who they say they are?" and "Is this behavior normal?" … but also "Is this person a fraud risk?"

Let's break these down to their simplest forms:

Customer Identification Program (CIP)

The backbone of identity verification aims to answer the question: "Is this person who they say they are?" To be CIP compliant, financial institutions primarily check four pieces of Personally Identifiable Information (PII) - customer name, date of birth, address, and identification number.

Know Your Customer (KYC)

KYC seeks to answer the question, "Is this person behaving normally?" KYC both enriches the identification of a user at the opening of an account and focuses on the ongoing identity relationship between the institution and accountholder.

Fraud Threats

As banking moves digital, fraud threats continue to evolve. Financial institutions must adapt new methods to answer the question, "Is this person trying to deceive me?" The most common types of fraud a person can commit virtually are first-party fraud, third-party fraud, synthetic ID fraud, and account takeover fraud.

Mitigate New Account Fraud with Secure Automation

For budget-conscious and resource-constrained community and regional financial institutions, manually reviewing every account application and closely inspecting documents isn't the best use of your employees' time or talents.

For example, for a designated employee who is paid an hourly wage of $20 per hour plus 40% of the hourly rate in employment costs (benefits, taxes, etc.), each 30-minute manual review will cost the financial institution $14. If there are 1,000 applications sent through manual review, the cost is $14,000.

Not only is manual decisioning expensive and time-consuming, but your accountholders experience delays while their information is being processed - which can cause them to abandon their applications and open accounts elsewhere.

In fact, clunky authentication questions are the source of 40% of abandoned applications. Automating the identity verification process can make it easier to acquire more qualified applicants and cut manual review time and costs dramatically.

Investing in a digital account opening platform, coupled with a sophisticated and layered security approach, not only enhances the accountholder experience, but can also drive substantial financial benefits for your institution.

Digital Account Opening Simplified

Digital account opening isn't slowing down (in fact, quite the opposite), and you can no longer rely on branch visits or manual reviews for account opening. Instead, you must offer an experience that rivals that of today's biggest brands. Jack Henry™ can help you provide a full-service, forward-thinking, secure digital experience that leverages the trust and relationships you have built over time.

Save the date for Wednesday, January 15 at noon CT, as we dig more into this topic and discuss trends in identity verification and fraud prevention that can help your financial institution craft a digital account opening strategy that is tough but seamless for the user experience.

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