Opening up a new checking or savings account at a bank or credit union has been and remains a common and fairly simple process. Typically, the consumer fills out an application and provides identification such as a driver’s license. Then the bank does a bit of research to make sure the consumer isn’t a fraudster and hasn’t abused checking or savings accounts elsewhere.
This process is not treated with the same scrutiny of opening a new credit card account or a loan, nor should it be. The risk and potential loss is much less on average. When assessing the process, it can be broken into three components: risk, fraud and compliance. Financial institutions need to understand the risk associated with the account, manage the potential fraud and also make sure they are compliant with all necessary regulations.
On the risk side, the information solutions are very mature. Virtually all banks and credit unions use ChexSystems, Early Warning (EWS) or credit bureau solutions to understand the risk associated with a customer. In addition to managing risk, financial service companies have deployed solutions to meet their fraud detection and compliance needs. When talking to bankers about the new accounts desk these days, it can be a pretty sleepy subject. The typical banker does not want to think about the new accounts desk, make changes to the new account desk platform or think about bringing a new vendor into the picture.
However, this is beginning to change dramatically. There are a variety of market forces driving this change and the industry is going to see some massive shifts in new account decisioning. While it can be a sleepy subject, checking and savings accounts are still the anchor accounts used to build deeper and more lucrative customer relationships.
CFPB Having Impact on Risk
The Consumer Financial Protection Bureau (CFPB) has been very active recently, strongly suggesting that banks provide banking options for everyone. In addition, they are warning banks to be wary of using what they call “negative lists” such as ChexSystems and EWS to open accounts, claiming the data is not always correct. The CFPB is making these recommendations and the banks are following suit. Some banks have gone so far as to shut off all access to negative databases. Additionally, banks have already started to create new low-risk products that will allow anyone to open an account.
This is changing the paradigm of the risk component. Whereas the negative databases and bureau information historically has been used to accept or decline accounts, it is increasingly going to be used to assign the right product. The value of the data itself has shifted, from a negative impediment to new account decisioning to a positive source of marketing intelligence. Financial institutions that are able to manage the early lifecycle of the account stand to win.
Despite the CFPB’s initiatives to increase access to financial services for all, financial institutions are not obligated to do business with fraudsters. Fraud continues to be a top-of-mind issue and will receive even more focus – especially as the ability goes away to use risk data (non-fraud) for straight-up declines. There is an emerging need for much more sophisticated fraud solutions given the abundance of consumer identity data on the black market and the increased sophistication and complexity of these fraud schemes.
Like fraud, compliance is not going away and will continue to be a primary focus. Meeting and exceeding all compliance needs is mandatory. Appropriately screening against terrorist and other watch lists, running Identity Verification, complying with FACTA Red Flag rules is paramount.
Online Account Opening
More and more banks are allowing and encouraging consumers to open up new accounts over the internet. To do so requires more security and fraud solutions than in the branch. As such, banks are typically investing more in the digital channel than in their legacy branch systems, including the new account opening process. It stands to reason that at some point, these new, security-rich online new account platforms and legacy branch platforms will eventually merge, with the online platforms being the winner. This is already happening. For some mega banks, when you walk into the branch – instead of having the banker collect the application and the identification, the banker is directing them to an iPad where they capture an image of the driver’s license, populate the application electronically and the submit through their online account opening system.
The Vendor Landscape
A continued focus on security, regulations and data breaches are going to place an increased burden on banks with respect to vendors of these solutions. Five years ago, getting a new vendor through the process was relatively easy. These days, that is not the case. Getting a new vendor set up and approved can be a very lengthy and difficult process. This will put additional pressure on the vendor landscape. Expect to see more mergers and acquisitions to leverage existing vendor relationships. This will drive even more business to a bank’s core processor. Accordingly, companies like Fiserv and FIS can expect to continue to grow their businesses by solving their customer’s ongoing problems.
The new account desk of the future may look substantially different when compared to its current incarnation. Online and branch platforms will continue to consolidate, with the more secure online platforms being the winner. Nearly every new account will be opened but with a special emphasis on “putting consumers into the right product” from day one. Fraud and compliance solution needs will continue to expand and evolve, and regional and community banks will continue to look to their core processors for these solutions.
Despite everything that’s changing at the new accounts desk (or the virtual desk), the principles and objectives stay the same – make smart, information-driven decisions to manage risk and cover compliance while pursuing financial success and customer satisfaction. Easier said than done!