The Digital Account Opening Balancing Act

By Craig Pawling, VP, Product, Account Opening

When discussing digital account opening, the concept of friction is inevitably front and center. That was certainly the case last week when I spoke with two experts on this topic, Bob Meara, Senior Analyst, Retail & Corporate Banking, Celent, and Mark Moroz, EVP, Head of Operations and Payments, Live Oak Bank. One of my takeaways from our webinar, Seven Habits of Highly Effective Customer Acquisition, was that when it comes to friction, flexibility is key to balancing risk with customer experience — and the right approach may look very different from one financial institution to another. Today’s technology solutions and rich data sources can help you balance these considerations, enabling you to create a unique DAO process that makes sense for your bank or credit union.  

We should recognize that expectations for friction in the digital world are very different from those in a traditional branch environment. In the physical domain, I understand that to open an account, I need to get dressed, drive to a branch, and spend time meeting with an employee, and I need to be prepared to hand over credentials that verify my identity. The paradigm shifts dramatically when opening an account online. I can literally be anywhere — I’m likely to be on my phone, perhaps on the couch, or even at a traffic light — and my expectations for a simple and speedy process are dramatically higher.

When it comes to friction, Bob suggested that banks and credit unions should challenge historical practices. KYC processes have historically introduced significant friction, and leveraging knowledge-based authentication like mother’s maiden name remains commonplace. “Too many institutions seem content perpetuating legacy KYC mechanisms, rather than seeing digital as an invitation to reimagine them,” he said. However, there are newer, effective alternatives that provide a better customer experience.

For example, Live Oak Bank, a digital-only institution, leverages rich telecom data available through Apiture’s Account Opening solution and its identity verification partner, Alloy. By tapping into this data, Live Oak can quickly gain a high degree of confidence that applicants are who they say they are. Telecom data can raise flags, such as when the address provided by an applicant doesn’t match what’s on the customer’s mobile phone bill. Now that we are 20+ years past the widespread adoption of mobile phones, telecom data is a rich source of data against which we can glean results with deep historical significance.

In this scenario, Live Oak’s DAO process — which is typically only four steps, and only two for existing customers — has the flexibility to add questions to further vet an applicant. The bank may request a driver’s license, Mark said, noting that introducing friction at this stage is helpful to identify bad actors.

Inevitably, friction may result in an abandoned application, but this is not always a bad outcome, he said. As the DAO process seeks additional information, bad actors very often drop out as they recognize that the financial institution suspects fraud.

There will no doubt continue to be debate about the appropriate amount of friction to introduce during account opening, such as whether to require an applicant to fund a new account. The most successful DAO approaches allow you to determine what you want to gather during the application process and give you the flexibility to ask for more if and only if it is warranted.

Listen to the complete webinar for more about the DAO balancing act, including best practices from Celent’s research and how Live Oak Bank has evolved its process over time. Or contact us for more information.


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