Making Digital Account Opening Simpler, Safer, and Seamless

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1 Sponsored by: August 2015

2 2 FORWARD This whitepaper, sponsored by ID Analytics, explores the fundamental and irreversible shift to digital account opening, and the challenges facing financial institutions seeking to fulfill consumer expectations for a process that is fast, simple, integrated, and secure. The whitepaper was independently produced by JAVELIN. JAVELIN maintains complete independence in its data collection, findings, and analysis.

3 3 DIGITAL ACCOUNT OPENING HAS NEVER BEEN MORE CRITICAL OR MORE CHALLENGING Bankers who foresee a day when consumers will routinely seek to open checking, loan, and investment accounts in digital channels should rethink their timing. That day is already here, and this irreversible shift is shaping not only the branch of the future but also branch-centric banking. The inescapable truth is that consumers demand omnichannel options and coordination that enables them to open any type of account wherever they choose: in branches, through call centers, online, and increasingly on mobile devices. But what consumers view as a simple choice is far from simple to deliver. Building better digital account opening presents multiple challenges for financial institutions (FIs): The process must be fast and simple. Consumers judge FIs based on the speed and simplicity of digital channels. For new potential customers, the accountopening process will provide a critical first impression of how an FI measures up. The process must be integrated in an omnichannel strategy. Processes, the flow of data, and security measures must be consistent and seamless so that applicants can start in one channel and finish in another. This omnichannel demand will force FIs to think as a coordinated team that balances marketing, user experience, risk assessment, regulatory compliance, and other needs. Consumer Preferences Reach a Tipping Point for Digital Account Opening 2015 GA Javelin LLC

4 4 The process must be secure. Streamlined account-opening processes must balance speed and security by quickly identifying applicants, verifying that they are legitimate, and approving or rejecting applications nearly instantaneously. This takes on added urgency because fraud trends point to a coming surge of newaccount fraud across a range of accounts. The goal is to enable applicants to open and fund an account in one session, regardless of whether the application is initiated online, on a mobile device, or at a branch. FIs must prepare for a customer who might research a product online, start an application on a laptop, smartphone or tablet, initiate a chat session, phone a call center, transmit documents with a mobile camera, and seal the deal in a branch. The application process also enables FIs to strengthen their relationship with applicants on two levels, by improving onboarding that deepens engagement with digital channels, and by presenting timely, personalized crosssale offers that can boost the customer s profitability. In short, digital account opening is an essential component for FIs seeking to empower customers and to stake out a position as the customer s primary FI. Consumers Give Digital Channels the Edge Over Branches for Convenience and Speed 2015 GA Javelin LLC If they were to open a checking account, more than half of consumers said applying online or on a mobile device would have an advantage over applying at a branch on three counts: Most convenient to fit my schedule Quickest application time Best channel for comparing accounts and features

5 5 USE DIGITAL ACCOUNT OPENING TO TARGET YOUR MOST PROFITABLE CUSTOMERS Digital account opening is a critical tool for FIs seeking to attract profitable customers, deepen relationships with existing customers, and secure a position as their customers primary FI. The question facing bankers today is whether their current philosophy, processes, and systems cost them opportunities to win their share of high-value applicants. The coveted Moneyhawks rank atop the list in JAVELIN s holistic consumer segmentation. These digital-first customers are the most wealthy, the most vigilant, the most engaged, the most profitable and the most fickle banking customers. Although they constitute only 13% of U.S. adults, they control 72% of the deposits held by consumers who are likely to switch FIs in the coming year. When opening a checking account, Moneyhawks give the edge to digital channels over branches time and time again. What they value most are the speed of completing an application form, the convenience of digital applications, the fast approvals, and the ability to obtain answers. And in a nod to the growing importance of mobile account opening, 1 in 3 Moneyhawks used the mobile channel rather than branches or online because they perceived it would be speedier, yield faster approvals, be more convenient, and offer greater confidentiality. The Moneyhawks confidence in digital channels represents a double-edged sword. It puts them on the cutting edge of online and mobile banking, where they will define digital services for the majority of consumers. Yet their high expectations make them difficult to please and fuel their fickle nature. Moneyhawks cannot be an FI s sole target for digital account opening not if the aim is to maximize the profitability of serving the 72% of consumers who are Emergents or Traditionalists.

6 6 Emergents: These young, mobile-minded consumers represent 35% of the population but own 45% of the depository, loan, and investment accounts opened in Their future economic clout will make them prime customers for profitable loan and investment products and advisory services for years to come. Online and mobile applications will be the norm for them. Traditionalists: The affluent, online-centric Traditionalists are the largest segment (37%). Because they are financially mature, they accounted for only 18% of the accounts opened in Yet their loyalty and wealth make them important targets for FIs seeking to use digital account opening to deepen existing relationships. They also are crucial for FIs seeking to gain widespread adoption of digital account opening, deeper usage of online services, and mobile banking features such as alerts and mobile deposit. When weighing whether to apply for a checking account at a branch vs. online or mobile channels, Traditionalists have significant misgivings about digital channels ability to: Protect personal data. Preserve confidentiality. Provide answers to questions. Moneyhawks Seek Answers in Self-Service Channels; Traditionalists Want to Ask Questions MONEYHAWKS TRADITIONALISTS Easiest to obtain answers to questions 64% 13% 24% 28% 2% 71% Most convenient to fit my schedule 55% 29% 16% 50% 3% 47% Quickest application time 52% 33% 15% 45% 1% 54% Fastest access to new account/funds 48% 26% 26% 39% 2% 60% Best for comparison of features 46% 25% 29% 46% 1% 53% Fastest approval/rejection notification 46% 32% 22% 38% 1% 61% Convenient for additional documentation 41% 31% 27% 35% 1% 64% Greatest sense of confidentiality 37% 30% 33% 24% 1% 76% Safest for protection of personal data 36% 20% 45% 21% 1% 79% Online Mobile In-Branch 2015 GA Javelin LLC

7 7 COMBAT THE COMING SURGE IN FRAUD One critical challenge is to streamline the digital application experience without exposing an FI to greater fraud losses. This is particularly timely because JAVELIN anticipates a spike in new-account fraud, which victimized 720,000 consumers in the United States in New-account fraud is one of the most damaging types of fraud for FIs and consumers alike. Its impact includes the money lost ($2 billion in 2014), the time FIs and consumers spend to resolve cases (25 hours per victim), and the long-term damage caused to the victims lives and financial vitality. In 2014, fraudulent applications for credit cards, checking, savings, mortgages, car loans, and home equity lines accounted for an increasing share of new-account fraud. Two factors are expected to boost losses at FIs even further: Data breaches have compromised historic amounts of personal data. Data breach notifications in the United States more than tripled in 2014, affecting nearly 62 million consumers, up from 24 million the previous year. As a result, 8.5 million breach victims subsequently suffered from fraud, up from 7.3 million. Breaches enabled fraudsters to harvest Social Security numbers and unprecedented volumes of personally identifiable information they submit on fraudulent applications. The EMV transition is likely to trigger a surge in new-account fraud. The transition to chip-embedded cards to authenticate purchases makes it more difficult for crooks to profit from fake credit and debit cards. This is likely to motivate crooks to rethink how they deploy their resources. Some crooks will turn to card-not-present fraud, which is expected to maintain a steady rate but increase in volume along with the increase in overall digital transactions. Other crooks will take over existing accounts to dupe FIs into issuing cards that can be used to purchase goods.

8 8 And other crooks will stream online to apply to open accounts that will enable them to obtain cards that their local crime rings can swipe at stores. This form of fraud is one of the hardest forms of fraud to pull off, but it also is one of the most profitable, with average losses of $3,200. For example, the number of fraudulent account applicants climbed markedly in the years after EMV was rolled out in Canada and the United Kingdom. New-Account Fraud, by the Numbers (2014) 2015 GA JAVELIN LLC

9 9 JAVELIN RECOMMENDATIONS Win together. Everyone at an FI should agree on the chief goal: Maximize the number of completed, qualified, and desirable applications. That mission starts with philosophical agreement that opening an account is a victory for the FI, not for a specific channel or division such as branches or digital. Achieving that goal will require cooperation and coordination across operations, marketing, risk assessment, compliance, human resources, customer experience, and FI functions. Build an integrated omnichannel process that focuses on consumer choice. Consumers are sending a loud and clear message that they expect account opening to be a quick and easy. By JAVELIN s standard of success, consumers should be able to open and fund an account in a single session using whatever channel they choose. But FIs can also win by ensuring applicants feel the outcome was smooth and seamlessly integrated. Streamline digital account opening to improve onboarding and cross-selling without compromising fraud security. From an operational perspective, digital account opening must promise a better way to: Quickly, consistently, and cost-effectively verify an applicant s identity and the funding account. Stimulate engagement during the application process by streamlining enrollment in online banking, mobile banking, bill payment, financial alerts, personal finance management, and other features that deepen engagement. Immediately evaluate candidates for personalized, targeted cross-selling offers during the application process. Fulfill requirements for regulatory compliance and overall security. Better evaluate and reduce fraud risks. Rely less on personal information to verify identities. FIs must find more effective methods to evaluate the identity of applicants to protect against the misuse of stolen personally identifiable information and the proliferation of malware and

10 10 botnets that generate fraudulent applications. One counter is to limit the use of Social Security numbers for authentication and to incorporate unusual inputs such as property records or data from social media. Another tactic is to integrate authentication tools specific to digital channels, such as device reputation, geolocation, and behaviormetrics. Satisfy the needs of the digital-first consumer. Mobility is rapidly rewiring the way consumers think. Digital-first consumers demand simplicity, anytime convenience, real-time results, immediate decisions, transparency, and timesaving options that supplant conventional methods safely and securely. That means online and mobile account opening must be streamlined, walk applicants through a simple process, make it easy to compare and select products, import data the FI already has gathered in order to eliminate keystrokes and errors, verify an applicant s identity instantaneously, notify customers of the status of their applications, clearly summarize legal disclosures and decisions, and so forth. Target the most profitable customers first. Mobile-minded Moneyhawks are an obvious starting point because they are the most profitable banking customers. But do not lose sight of the Emergents and Traditionalists, who compose 72% of the population. Design online and mobile account opening to satisfy lofty expectations and the demand for speed, convenience, and a broad menu of deposit, loan, and investment products. Mine data to prefill applications and shift the applicants role from inputting data to confirming data. Focus on engagement before cross-selling. Many bankers view the application process as a time to cross-sell products and services aggressively. But it also is a powerful opportunity to initiate onboarding that emphasizes customer engagement with services that encourage habitual interaction, build the customer s sense of financial control, and develop trust and loyalty that lead to future cross-sales. This includes establishing direct deposits, switching bill payee information, spurring the use of debit cards, activating online and mobile banking, and establishing mobile alerts.

11 11 Address the Traditionalists perceived weaknesses of digital account opening. Building confidence in the belief that digital account opening is better than applying at branches will require: Demonstrating that applicants information is secure and confidential. Ensuring that applicants can readily obtain answers to their questions. Enabling applicants to submit documentation without visiting a branch.

12 12 METHODOLOGY Consumer Data The consumer data in this report is based primarily on information collected in a random-sample panel of 3,100 consumers in an August/September 2014 online survey. The margin of sampling error is ±1.76 percentage points at the 95% confidence level. JAVELIN evaluated account opening for nine types of financial products: checking, savings, credit cards, auto loans, certificates of deposit, mortgages, retirement accounts, brokerage accounts, and educational accounts. Moneyhawks Segmentation JAVELIN s retail banking customer segmentation incorporates scores of variables regarding demographics, banking behavior, and attitudes about relationships with FIs. Unlike approaches that use predetermined if/then rules regarding specific behaviors or demographic characteristics, JAVELIN employs sophisticated multivariate tools to develop a holistic segmentation based on multiple dimensions, resulting in homogeneous segments that differ from one another on such diverse criteria as how consumers prefer to interact with their FIs, what products and technologies they use, their needs and attitudes, and their financial value. Fraud Trends JAVELIN s 2014 ID Fraud Survey was conducted among 5,000 U.S. adults 18 and older, from Nov. 11 to Dec. 2, The maximum margin of sampling error is +/ percentage points at the 95% confidence level.

13 13 ABOUT JAVELIN JAVELIN, a Greenwich Associates LLC company, provides strategic insights into customer transactions, increasing sustainable profits and creating efficiencies for financial institutions, government agencies, payments companies, merchants, and other technology providers. JAVELIN s independent insights result from a uniquely rigorous three-dimensional research process that assesses customers, providers, and the transactions ecosystem. Author: Mark Schwanhausser, Director of Omnichannel Financial Services ABOUT ID ANALYTICS, LLC ID Analytics is a leader in consumer risk management with patented analytics, proven expertise and real-time insight into consumer behavior. By combining proprietary data from the ID Network one of the nation s largest networks of cross-industry consumer behavioral data with advanced science, ID Analytics provides in-depth visibility into identity risk and creditworthiness. Every day, many of the largest U.S. companies and critical government agencies rely on ID Analytics to make risk-based decisions that enhance revenue, reduce fraud, drive cost savings and protect consumers. ID Analytics is a wholly-owned subsidiary of LifeLock, Inc. Please visit us at GA Javelin LLC is a Greenwich Associates LLC company. All rights reserved. No portion of these materials may be copied, reproduced, distributed or transmitted, electronically or otherwise, to external parties or publicly without the permission of Greenwich Associates, LLC. GA Javelin may also have rights in certain other marks used in these materials.