Even old-fashioned phishing attacks became effective ways to separate bank customers from their passwords then the tensest days of the pandemic left account-holders with only electronic access to their bank.

With many branch lobbies closed during the early months of the pandemic, banks and credit unions leaned on existing online banking tools, while also accelerating plans to adopt new technology, including platforms for opening accounts online.  

But this digital transformation has also brought opportunities for fraud. 

“When it comes to digital account opening, fraud is one of the biggest considerations,” said Sumant Pustake, senior vice president and corporate development officer at Berkshire Bank. “In theory, bad actors from around the globe can potentially access the system.” 

Fraud prevention measures come with their own risk: friction as customers try to sign up for online financial services in a world where consumers have become accustomed to the ease of doing business online. To find a balance between complying with regulatory requirements to know the customer and creating a frictionless user experience, banks like Berkshire have turned to financial technology partnerships to balance the two. 

 Pandemic Made Customers Vulnerable 

That the pandemic would amplify fraud risks became clear at the outset. The closed branch lobbies and the increased adoption of online banking provided an ideal environment for phishing, said Michael Nicastro, CEO of the New Haven-based regulatory technology firm Continuity. He called these attempts to have bank customers provide account credentials “the simplest methodology based on simple psychology.” 

“Good, old–fashioned phishing was right back again because people were panicked; the guard is down, and people get a little nervous,” Nicastro said. “Their only access to the bank is electronically.” 

Along with phishing, fraudsters used the pandemic for cyberattacks to spread malware and to access account information, Nicastro said. As banks develop and launch more digital tools and platforms that let customers open accounts online without visiting a branch, Nicastro said, fraud prevention will need to be a key consideration beyond the look of the front-end platform. 

“You’re now doing it amidst a pandemic of a real physical virus that has somewhat given birth to a pandemic of a virtual virus of these kinds of attacks on people’s privacy and personal information,” Nicastro said. “Everybody has to be smart about it.” 

Nicastro expects regulators will eventually look at how banks addressed fraud during the pandemic, but not just by examining what technology banks used. He expects examiners to also look at the discussions that happened in C-suites and with boards around the pandemic and its fallout.  

“This [pandemic], if nothing else, exposed that no matter how prepared we think we are, there’s always more preparation that needs to be done,” Nicastro said. 

Technology, though, will be critical to catching where fraud is coming from, Nicastro said. He added that the future could see government and business collaborating on tools, such as those used by the Department of Defense, that could help banks detect fraud. 

Finding Security – Without Friction 

Even as banks and credit unions need to consider compliance and their risk profile when adopting online tools, customer expectations have changed. 

“The pandemic has vastly accelerated the time frame we’ve had in order to really complete this digital transformation,” said Liz Lasher, a vice president of portfolio marketing at FICO. “Where perhaps before it was more of a strategic roadmap, now it’s table stakes for customers and for consumers because you don’t have the same ability to go face–to–face and have those interactions with your banks, with your credit unions, with your financial institutions.” 

Online account opening often involves a second step to verify a customer’s identity. A recent banking survey by FICO showed that 51 percent of U.S. banks had customers visit branches or mail documentation to complete the identification process after starting the process online to open a checking or demand deposit account. The study also found that 70 percent had customers go to another channel, such as email, to complete compliance requirements. 

But another FICO study earlier this year showed that 23 percent of respondents would abandon the account opening process when asked to prove their identity through another channel.  

“Checking accounts and demand deposit accounts are often the gateway to the relationship with the customer,” Lasher said. “But that’s still a tremendous amount of prospects that are being introduced with friction that isn’t ideal from a revenue growth standpoint.” 

Banks and credit unions need to find a way to strike a balance between fraud detection and the customer experience, Lasher said. This balance needs to be consistent from the account opening process throughout the customer’s relationship with the bank, she added. 

A 50-Point Solution 

Pustake, with Berkshire Bank, said in an email that a large number of customers wanted to engage with the bank online, but the legacy process for opening an account was too cumbersome. 

The bank adopted an account opening platform by Narmi, a New York-based fintech, and integrated another tool from Alloy to manage the fraud risk in the decisioning process and streamline the “know your customer” screening with an algorithm in the background.  

“With the new process, we can now securely and automatically decision 100 percent of digital account openings without compromising on customer experience,” Pustake said. 

He added that the account opening process is now taking just over two minutes to complete, which he said is four times faster than industry average and has resulted in all customers funding the account. 

Diane McLauglin

Nikhil Lakhanpal, Narmi’s co-founder, said the platform can access about 50 data sources to verify the customer’s identity, while also looking at the user’s IP address to identify suspicious activity, such as an account being opened from abroad. The platform integrates into the bank’s core processing system, eliminating the need for any manual work.  

With Narmi’s clients seeing two-and-a-half times more new account openings since the pandemic started, Lakhanpal said banks and credit unions using the platform have benefited in being able to meet consumers’ demands. 

“We see a big shift of financial institution leadership teams for the first time putting their digital presence and their digital brand ahead of their physical brand,” Lakhanpal said. “Now they’re finally thinking of digital as an investment rather than an operating expense, and that’s just magical, because they see ROI on it, they see a return, and they’re not scared to double down there.”