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Digital Account Opening: Crucial In Staking Claim As Customer's Primary FI But Threat Of Fraud Looms

Digital account opening is critical for financial institutions seeking to attract and retain profitable account holders but expect a surge in fraud as a result of data breaches compromising personal data. These are the findings of a Javelin white paper, Making Digital Account Opening Simpler, Safer and Seamless, which were discussed during an October 22 webinar. "We expect expect a new account fraud surge will ripple through the industry," said Mark Schwanhausser, Director of Omnichannel Financial Services at Javelin. "It's a damage to the brand reputation and of course it hurts the consumer who has to undo this and may hold a grudge against the bank and may change their behavior in where they shop and how they use their cards."

Javelin estimates new account fraud cost the industry $2 billion in 2014 — at a median fraud loss of $780 — and that FIs and consumers spent an average of 25 hours resolving these cases. Data breach notifications in the US more than tripled in the US in 2014, affecting 62 million consumers, and Javelin expects the EMV transition to trigger a surge in new account fraud. While the shift to chip-embedded cards makes it more difficult to profit from fake credit and debit cards, Javelin writes that many crooks "will take over existing accounts to dupe FIs into issuing cards that can be used to purchase goods. And other crooks will stream online to apply to open accounts that will enable them to obtain cards that their local crime rings can swipe at stores."

To counter this wave of fraud, Javelin advises FIs to rely less on personal information (e.g. Social Security numbers) to verify identities and incorporate "unusual inputs such as property records or data from social media. Another tactic is to integrate authentication tools specific to digital channels, such as device reputation, geolocation, and behaviormetrics." Companies like Iovation have touted their ability to check whether a particular device has previously been used for an account takeover or synthetic identity theft. BioCatch is another firm that has generated attention in the field of behavioral biometrics, as it authenticates users through physiological factors like palm size and hand tremors and behavioral ones such as touch. A recent report from Aite Group found that six of the 19 largest banks in the U.S. will enable biometrics for mobile banking by the end of the year.

The rapid shift to digital account opening has been in part driven by consumer preference, as 70 percent of checking and 80 percent of credit card applicants would prefer to apply in digital channels. Javelin found that consumers favored digital channels over the branch on account of convenience, speed of application time and the ability to compare account types and features.  Mobile, in particular, has become a channel of choice. Between 2013 and 2014 account opening on mobile devices increased by 60 percent.

Moneyhawks — representing 13 percent of U.S. adults but 72 percent of the deposits held by consumers who are likely to switch FIs - offered a particularly strong endorsement of mobile, with 1 in 3 using the channel to open an account; Moneyhawks opened a third of new accounts in 2014. However, Javelin noted that emergents - young, mobile savvy consumers representing 35 percent of the population and 45 percent of deposit, loan and investment accounts opened in 2014 - would also be important to FIs. "If you can lock in that relationship and solidify it, you decrease the risk they'll take those other loan needs to another institution," said Schwanhausser, reinforcing that a positive digital account opening experience can support primary FI status. "What will grab them is digital account opening."

Advising FIs that digital account opening must be fast and simple, integrated into an FI's omnichannel strategy — allowing an applicant to start in one channel and finish in another — and secure, Javelin notes that it will be a tougher sell for Traditionalists. Older and affluent, they represent 37 percent of of the population but only 18 percent of new accounts opened in 2014 due to their financial maturity. Traditionalists have significant concerns about the ability of digital channels to protect personal data, preserve confidentiality and provide answers to their questions. "Moneyhawks think it's easy to get their questions answered online," said Schwanhausser. "The Traditionalists are not so comfortable in seeking out their own answer and would feel more comfortable face to face."

While digital account opening is touted as a differentiator, few FIs have had positive experiences with it in the early going. 60 percent of FIs attending Javelin's webinar indicated that they were somewhat or very dissatisfied with their new account opening rates on smartphones and tablets. "That doesn't surprise me at all because the digital account opening tools for online and mobile are still in the early stages and we have a lot of work to do," said Schwanhausser. "If the experience is clunky, authentication is clunky, if the security problems are not solved, this will leave many of you in that range of dissatisfaction."