In recent years, application fraud has become a major problem for U.S. financial institutions (FIs). In 2017, Aite Group recognized application fraud as the second-greatest challenge FIs face in combatting fraud, trailing only account takeover fraud; this trend continues today. By 2020, application fraud losses related to demand deposit accounts are projected to exceed US$636 million, a costly problem indeed.
As identity crimes continue to flourish, it is increasingly difficult for FIs to determine who they are dealing with in all delivery channels. The prevalence of fake IDs makes proving an individual’s identity difficult even in a physical branch; knowing for certain who the applicant is on the other side of a laptop, tablet, telephone, or mobile device can be even more challenging in the digital space.
In 2017, 60% of demand deposit account (DDA) applications were still submitted in branches, and 26% were submitted via the online channel. Nine percent were submitted via contact centers, and only 4% were submitted via the mobile channel. By 2020, FI executives project that less than half (47%) of DDA applications will be submitted in branches, and online and mobile channels combined will grow to 45% of total volume. As more activity transitions to faceless delivery channels, it is increasingly important to be able to know and verify who the applicant is. Fraudsters are nurturing synthetic or manufactured identities for many months or years, establishing credit bureau reports, obtaining mobile phones, and taking other steps to make them extremely difficult to detect. Stolen identities, synthetic identities, and other fraud schemes must all be addressed to effectively combat application fraud.
During the application process, FIs must properly identify applicants for both compliance and fraud prevention purposes across all delivery channels. End-to-end customer onboarding solutions that fulfil many requirements and make the process more reliable and accurate can be used. Some considerations in the application process are as follows:
Identity proofing is crucial to detect synthetic identities and combat fraud
- Knowledge-based authentication continues to show its vulnerabilities due to the availability of so much personally identifiable information from various data breaches, phishing attacks, and social engineering schemes.
Behavioral scores are helpful, particularly if they incorporate consortium-based data (e.g., known fraudsters), which is highly predictive and can anticipate the potential for first-party fraud or account abuse.
Capturing information about the device used during online or mobile applications is strongly recommended; this data can be used later for online banking enrollment and future logins and digital transactions.
- Recent research shows that 37% of issuers use two types of solutions—verification of device ownership with mobile network operators and queries to a consortium-based known fraudster hot file.
Verifying the opening deposit (along with mobile remote deposit capture for digital account openings) is an important step that can help detect deposit fraud by scrutinizing the item deposited.
Eighty-eight percent of FIs state that improving the customer onboarding experience is very important as they make technology investments. While security is extremely important, the customer experience is even more important. Security methods that introduce friction may not be tolerated, and potential good customers may abandon the account-opening process if it is too onerous. Ensuring that security measures are both effective and as nonintrusive as possible is a worthy goal to improve the customer experience.
FIs across the U.S. are recognizing the need for these types of technology and security investments to combat fraud and meet regulatory requirements. Fortunately, these new technologies previously mentioned both improve the customer experience and improve security compared to older, outdated methods. By 2020, it is projected that U.S. FI spending to combat DDA application fraud losses will reach US$599 million, a testament to the industry’s collective focus on streamlining and securing the new account onboarding process. Don’t let fraudsters take advantage of legacy security platforms – make sure every dollar counts to improve security as well as the customer experience!
If you are interested in hearing more on this topic, American Banker recently hosted a webinar with myself, along with Jim Mortensen from Early Warning, to where we discussed emerging trends that can help you streamline and secure your new account onboarding process. Be sure to watch it on-demand by clicking the link below!