Mike Persichini

Mike Persichini

November 27, 2022

Over the past few years, bank account fraud has become one of the largest threats against financial institutions (FIs). Just last year, there’s been over $52B in identity fraud losses affecting 42 million U.S. consumers. And this grew 79% y-o-y. Community banks and credit unions must find a way to balance methods of managing fraudulent activity with attracting new customers. Otherwise, they may be left behind. And the stakes are higher than ever. At the same time FIs are looking at high application abandonment rates.

The issue? 

The main reason is that financial institutions are ending up adding additional friction at account opening as a stop-gap remedy to increasing fraud. Applications for traditional and online banking take too long. In addition, some customers may feel that the onboarding process is too intrusive, especially when an application asks for multiple forms of ID. The overall experience is overwhelming since account opening processes are focused on compliance first and customers second.

But there is a silver lining. 

A financial institution that invests in improving its customer or member experience while upgrading its fraud protection service can gain an edge over the competition.

The new competitive edge for banks and credit unions

If digital transformation allowed banks and credit unions to retain clients and grow in the pandemic, technology also unlocks the ability to level the playing field. Rather than compete directly with big banks and each other by introducing new financial products with thin profit margins, superior customer & member experiences can accelerate growth.

Some financial institutions are already investing heavily in better user experiences. 

According to the 2022 Bank Director report, 63% of FIs have upgraded their payments experience, and 54% have invested in improving their retail account opening. Still, only 30% have updated their digital account opening-meaning many banks and credit unions still require in-person identity verification. 

That said, it’s clear tech budgets are increasing. 81% of respondents said their bank increased technology spend in 2021, with the median increase amounting to 11%.

So why set so much revenue aside for technology and CX? There are a few different reasons:

  • High account opening abandonment rate-sometimes as high as 60%  
  • Shifting regulatory landscape
  • Increasing fraud threats

As a result, fraud spikes and extensive KYC/AML requirements leave smaller FIs with lengthy, high-friction account opening processes. But investing in CX for bank account opening can reduce time spent on account opening without sacrificing security.

For example, crafting a five-minute-or-less onboarding process can reduce abandonment by 25%.

But the right account fraud protection solution has the potential to reduce costs all around—meaning that smaller banks and credit unions can compete not just with each other but with larger banks. 

To really understand how seamless account fraud prevention works, we’ll need to factor in how the technology dovetails with customer experience. 

Designing better financial fraud prevention 

Typically, when looking at banking technology, the main questions revolve around security and staff usability. But to really compete in today’s crowded market, it’s important to choose a bank fraud solution for account onboarding that is not just secure but intuitive for the user.

There are really three main considerations when evaluating member or customer experience. 

1. Frictionless experience

A high-friction experience can be defined as:

  • Requiring extensive manual documentation
  • Long, usually more than 5-minutes
  • Confusing—users don’t know what to expect or what they need
  • Only being completed in person or on certain devices

So when comparing two account fraud solutions, it’s important to consider the time to complete the application, what documents the customer will need, how easy the flow is to follow, and how flexible the program is. For example, when completing an application on their desktop, can the customer use their phone to upload pictures directly into the platform? 

At the same time, the fraud detection platform should be able to verify account information in real-time and compare future transaction patterns to identify potential scammers. 

2. Baked-in compliance

Whether you are onboarding and underwriting individual or commercial customers, KYC, AML, and the Electronic Funds Transfer Act (EFTA) require more from the account opening process than ever.

Account opening and fraud detection solutions should be easy for customers to use. But they should also be created with compliance at their core. The last thing you want is document upload errors, missing IDs, duplicates, and other issues impeding customer onboarding and fraud monitoring. 

Your chosen bank fraud prevention solution should seamlessly link front-end and back-end operations to prevent both onboarding abandonment and vulnerabilities. 

3. Simplified case management

Customer experience optimization shouldn’t stop at onboarding. Every step of the user journey can translate into higher retention rates and more opportunities for upselling.

When put in the context of fraud prevention, we need to look at how easy and effective it is to identify and deal with threats. Machine learning (ML) solutions provide the support small FIs need to efficiently handle case management. This technology can automate decision-making and reduce false positives. This translates into fewer unhappy customers who are unjustly locked out of their accounts due to false flags. 

More than budgeting: Successful implementation

There are budget-friendly, tech-driven bank account fraud prevention solutions. But budgets aren’t everything. Digital transformation efforts can falter if the staff isn’t on-board or if the workflow is too complex. 

According to McKinsey, 70% of digital transformations fail. The leading reasons? Leaders don’t address the skills or capabilities of their organization. If team members don’t understand the technology or see the benefits of a digital shift, adoption is an uphill battle.

For a smoother transition, a successful CX implementation should consider the people behind the technology. 

Include expert-led implementation

The first way to boost adoption within the organization is to work with a solution provider led by experts. Using a fraud prevention application built by seasoned industry leadership means they know the needs and struggles of a FI’s customer support or risk management team.

An expert-led implementation can reduce friction and increase adoption, ensuring that the end customer benefits from a stellar experience and secure fraud prevention program.  

Leverage no-code solutions

Many anti-fraud integrations today require coding knowledge, which means that risk teams are always relying on their engineering or developer teams. But there’s really no reason for a risk management team to know how to code or add customization on their own. 

No-code strategies that leverage AI and ML technology not only automate the process but also make it easier than ever for FIs to manage cases without upskilling. 

Take your customer journey to the next level with Effectiv

Customer experience will be the competitive edge of the next decade for community banks and credit unions. The faster the onboarding process, the more customers your organization can attract and retain.

And faster doesn’t mean less secure.

With Effectiv, FIs can reduce costs while upgrading their fraud detection workflow with our no-code, highly-customized platform. Built by industry experts, our fraud prevention solution simplifies case management, streamlines account opening, and ensures compliance.

But don’t take these claims at face value-read how BHG saved $2 million while getting to market faster using Effectiv.

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