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Compliance

A Guide to Balancing Risk Mitigation and Customer Experience

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How can banks meet compliance requirements while maintaining a positive user experience throughout the digital account opening process?

Banks face a delicate balancing act when it comes to mitigating risk and maintaining a positive user experience. Offering good UX is important for a number of reasons—it increases conversion rates, optimizes customer engagement with the product, allows for cross selling, creates positive brand association, and can help your bank stand out from the competition. Plus, it cultivates customer trust and is a key contributing factor to overall satisfaction.

Yet mitigating risk is also key to ensuring that customers’ finances and personal information remain safe. Banks that don’t keep their compliance procedures up to date are more susceptible to fraud, money laundering, hacking, and other criminal activities. In turn, this can cause retail and business customers to lose faith in your financial institution.

Given these challenges, how are banks supposed to minimize risk while guaranteeing a smooth and seamless customer experience? The good news is that the right technology makes it possible. Here are a few strategies to help your bank prevent fraud without jeopardizing user experience on your digital channels.

Avoid Conflating Risk with Compliance

Collecting document images and metadata as part of the application process seems like a straightforward and effective method of reducing risk. After all, documentation is an essential component of any in-branch account-opening process.

However, MANTL’s work with our community bank partners has shown that requiring documents from online applicants can be a mistake. Our research has found that collecting an ID image reduces conversion rates by 29 percent, but only reduces fraud by 1.5 percent. Similarly, collecting document metadata—such as date of birth, Social Security number, address, etc.—reduces conversions by 15 percent with only a 1 percent reduction in fraud.

Why are these methods, which banks have relied on for decades, so ineffective at reducing fraud now? The reason for their declining utility is that driver's license verification coverage is mainly provided by LexisNexis and Socure, the two industry leaders in this area. Together, these databases encompass less than half of the total US population, and their coverage is dropping every day. As many state DMVs have stopped updating their digital driver's license databases due to data security concerns, these records are becoming less and less useful for identity verification.

Thankfully, collecting customers’ ID image or metadata is not actually mandated by law, and technology offers alternative ways to meet regulatory requirements. Modern account opening platforms like MANTL leverage compliance automation software to verify customer identities in real-time without the need for documentation. This can help your bank improve know-your-customer (KYC) decisioning, routinely update BSA and AML decision waterfalls, and create a better, more efficient customer experience — all while following compliance guidelines and leaving behind a comprehensive audit trail.

MANTL’s approach streamlines the process to a few simple, secure steps. Our solutions compare information provided by the customer during the onboarding process with public and non-public databases, including those established by the Community Reinvestment Act (CRA), along with others that help to detect fraud and limit risk to your institution.

Use Alternatives to KBA Questions to Verify Customer Information

KBA (short for Knowledge-Based Authentication) questions have historically been used in the financial services industry as a key data point in customer identification programs. For instance, users might set up questions like, “What is you mother’s maiden name?” or, “What is the name of your first pet?” to which they input answers. These questions are then asked on subsequent login attempts to verify the user’s identity. But how well does this method actually work?

To put it simply: not too well. Customers who secure their accounts using personal information may find themselves more vulnerable to social engineering campaigns, identity fraud, and other forms of attack, in large part because personal data is easier to find (or fake) than ever before. Individuals are simply sharing more of their personal lives online now, and recent high-profile data security breaches have proven that malicious actors are indeed on the lookout for weak points. In addition, a legitimate customer might actually struggle to remember personal details and get locked out of their account.

MANTL has developed a better way to combat identity theft. Our approach validates customer identities using 30 different data sources. Instead of relying on user input, our processes run mostly behind the scenes — and are effective enough to reduce fraud by up to 67 percent. While a fraudster may be able to fool KBA questions, they will struggle to generate synthetic identities sophisticated enough to pass third-party data source verification. And not only does MANTL’s platform reduce instances of fraud, it does so automatically, freeing up compliance and risk management resources for other activities.

Avoid Micro-deposits for Account Verification

Most online banking solutions require customers to verify micro-deposits in order to validate their external accounts. While much has been done to speed up micro-deposit verification, the process involves time-consuming manual entry and can take up to five business days to complete. Five days is a long time to wait by today’s standards, and community banks and credit unions should be wary of locking in any solution that unnecessarily delays new customer onboarding.

Through extensive research of the account opening process, MANTL has found that, on average, every 10 seconds that are added to the application process correlate to a 5 percent increase in application abandonment. In addition, 34 percent of respondents to a recent survey said that the length of an application was a key factor leading to them abandoning the process. Given that more effective alternatives are available, banks should avoid solutions like micro-deposits that add time and complexity to the application process.

As far as alternatives go, a more secure (and much more efficient) option is Instant Account Verification (IAV). IAV allows customers to validate external accounts by verifying their user credentials for external mobile and online banking institutions in a single sign-on connection. The process takes mere seconds, and provides real-time account validation. It also allows customers to check their external account balances immediately, which research has shown encourages higher funding amounts.

If IAV isn’t a viable solution for a particular customer—because they’re not logged into their external account on the device they’re using to apply, for instance—then customers have the option of using a debit card to fund their account. This method asks applicants to enter their card number, expiration date, and CVV security code—nothing more. Once the card is verified, the funding transaction is completed. This process, while faster than manual entry of account and routing numbers, is less seamless than IAV, and MANTL recommends it as a backup rather than as the funding method of choice.

With a thoughtfully-designed and engineered frontend and comprehensive fraud prevention, MANTL can help banks achieve their risk objectives without sacrificing customer experience. Request a demo below to learn how to turn your online account opening process into a best-in-class experience for your customers.