Consumer demand for more digital products and services is the driving force behind the rapid digital transformation for many financial institutions. This is especially true for account opening, with 37% of consumers, and more than half of millennials, citing digital channels as their preference for opening a new account.
Despite this, application abandonment rates are high. According to the Digital Banking Report, nearly one in five applications is abandoned online, and the rate increases the longer it takes to complete an application. Even more alarming is the abandonment rate for new account opening in the mobile channel with only 8% of applications completed successfully from start to finish on a mobile device. That is an alarming 92% abandonment rate.
This is one of the biggest challenges facing fraud and risk management teams when it comes to securing the online customer journey. As those in charge of digital channels are already attempting to tackle the issue of how to improve customer experience in order to increase digital acquisition, they are then presented with the question asked by fraud and risk management teams, “How do we trust a customer we have never seen before?”
Competing priorities, balancing the need to enable a low friction experience while ensuring digital channels are protected, is not an easy task and requires a whole new way of working. In a recent report, Gartner notes that fraud and risk management leaders must find ways to “enhance the customer journey by reducing the focus on loss prevention and increasing the focus on trust and safety.”
Let’s consider this in the context of online credit card opening. According to a Top 5 card issuer, the average loss per incident of a fraudulent credit card application is US $3,000. On one hand, a fraud leader might say, “We stopped 1,000 fraudulent applications and prevented $3M USD in potential losses due to the fraud controls we implemented.”
On the other hand, a digital product owner, looking at average customer lifetime value of US $3,000, might say, “Those fraud controls added friction to the process thus increasing application abandonment. As a result, we lost 1,000 new customers and $3M USD in potential revenue.”
Fraud is an incredible risk for financial institutions looking to increase digital onboarding. Yet, managing that risk is complicated, and success cannot simply be measured through loss prevention metrics. There are three priorities that fraud and risk management leaders must balance in building a trusted environment for digital account opening, and behavioral biometrics is helping them achieve results.
- How do I manage fraud risk? Yes, the obvious, but fraud risk management is far more broad than just loss prevention. Consider mule accounts. When a fraudulent deposit account is opened to serve as a mule account to move money from other compromised accounts, that comes with both regulatory and reputational risks in addition to the financial impact. Behavioral biometrics helped a large bank in Asia detect hundreds of fraudulent account openings in the first four weeks of deployment, with potential fraud savings estimated at USD $540K.
- How do I banish friction? In the context of risk management, eliminating points of friction in the digital account opening process can be especially challenging. The experience should be centered on treating new customers like an old friend, but that is difficult in cases where no pre-established relationship exists. According to Gartner, implementing technologies such as passive behavioral biometrics and behavior analytics can help financial institutions reduce repeated high-friction challenges. A large digital bank undergoing a massive attack deployed behavioral biometrics and was able to detect 70% more new account fraud without impacting good customers in the process.
- How do I enable increased digital acquisition?This is the ultimate risk and reward question. Fraud and risk management leaders must look for solutions that reduce fraud while also allowing more good applicants to be approved with confidence. In one case, a card issuer leveraging behavioral biometrics was able to reduce false declines gaining an additional USD $1M in otherwise lost annual revenue from genuine customers who had abandoned the application during the high-friction control process.
Do you agree with these three priorities? What is your institution’s top priority for improving the digital account opening process?
Register today for a live discussion with on September 30 with Trace Fooshee, Senior Analyst in Aite Group's Fraud & AML practice, as we tackle the challenges of account opening fraud and offer best practices on how to balance risk mitigation, customer experience and digital acquisition growth.