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Shared data helps balance risk management with financial inclusion, and promote growth.
As credit unions pursue member acquisition objectives, they are enlisting more sophisticated marketing and onboarding techniques, and dealing with added competition from both financial institutions and emerging, non-traditional players. Credit unions also have to deal with rising new account fraud.
A March 2016 Aite Group report, “Application Fraud Rising as Breaches Fan the Flames,” stated that, as a result of data breaches occurring in 2015, 477 million identity records were compromised. Many of these included consumers’ personally identifiable information—exactly the information fraudsters use to open new accounts to enable them to later perpetrate fraud.
Aite Group’s report predicts that U.S. demand deposit account application fraud losses will total $466 million in 2016 and grow to $694 million by 2020. New accounts are opened by thieves to establish a baseline relationship with a financial institution and later commit deposit and/or credit-related fraud against it. The majority of the 88 financial institutions surveyed for the report indicated that application fraud is growing in the online, mobile and call center channels, with online fraud averaging eight times that of the branch fraud rate.
This is alarming since, as a younger generation looks to form their financial relationships, more credit unions will deploy (if they have not already) online and mobile account opening and payment services. As this shift toward digital account acquisitions occurs, credit unions are challenged to manage the added risk. Delivering the optimal customer experience while mitigating fraud risk and determining if an applicant really is who he says he is has become increasingly challenging in digital channels.
Credit unions can use collaborative data from financial institutions, mobile network data, behavioral biometrics, and predictive analytics to improve members’ onboarding experience and mitigate fraud. Behavioral biometrics is a relatively new discipline that is helping financial institutions evaluate how a person is interacting with his or her device to determine if the speed and patterns used in completing the application are generated by a bot or a human.
Also on the minds of credit union leaders is the Consumer Financial Protection Bureau’s desire for U.S. financial institutions to foster greater financial inclusion of the 70 million adults in the United States classified by the Federal Deposit Insurance Corporation as either un- or under-banked. Credit unions are certainly in support of the government’s objective, motivated to open their doors to more consumers, to ensure deserving Americans are not excluded from the U.S. financial system and to, in turn, grow their member bases. Yet, the challenge for many remains finding the balance between doing so and limiting risk exposure.
There is still a misconception that new account screening tools are primarily used to manage risks other than fraud, and potentially decline account offerings to applicants with previous account abuse behavior (such as writing bad checks). In fact, newer screening technologies are helping credit unions better understand if the applicant is who he says he is, screen for fraud, and offer tailored services that meet the needs of certain applicants, such as a second chance checking account.
To make these decisions well, credit unions need to rely on current, accurate and delineated data contributed daily by other financial institutions and maintained among shared database providers, like Early Warning.
Aite Group reports that financial institutions plan to expand their spending on demand deposit account application fraud solutions from $384 million in 2015 to nearly $524 million this year. In turn, credit unions are being presented with improved options to bolster their new account opening processes – for both in-branch and digital onboarding.
Leveraging technology that delivers protection for online account opening allows credit unions to check multiple boxes: They can respond to the CFPB’s concerns and provide wider access to banking services, while dramatically improving their fraud mitigation capabilities.
In today’s environment, credit unions need to view fraud prevention and the customer experience as equal priorities. Additionally, mitigating new account risk should not mean sacrificing growth objectives. Instead, credit unions should consider how their fraud prevention strategies and their acquisition goals align. As authentication improves, criminals will simply adjust and improve their methods. As they hone in on the huge inventory of consumer data at their fingertips, make sure their first avenue for using this data – new account fraud – becomes their last.
Robin Love is VP/product management/identity solutions for Early Warning.
