Adapting DDA Account Strategies for Greater Financial Inclusion

Posted by Shirley Inscoe, Sr. Analyst at Aite Group on Nov 28, 2016

Financial institutions (FIs) continue to place a greater emphasis on enabling new account-opening growth through online and mobile channels, and expand their product offering to foster financial inclusion and growth. In my recently published study New DDA Strategies: Balancing Risk and Regulators, over 40% of FIs in every category with the exception of the largest FIs already offer some type of second chance account. While only 17% of the largest FIs currently offer second chance accounts, another 17% are planning to do so and 50% are evaluating whether to do so.

As FIs continue to optimize account opening in a faceless environment in order to expand their reach, reduce operating expense, and increase relevancy with digital natives, alignment with the regulatory climate and the use of the most current, accurate, and delineated digital identity data has never been more important.

FIs have used new account screening tools to determine whether applicants had a prior history of account mismanagement or intentionally committed fraud. In our recent research of 69 FI executives in April and May 2016, we found that there are significant differences in account-opening strategies by FI asset size:

  • While 43% of FIs with less than US$1 billion in assets and 56% of FIs with between US$5 billion and US$49.9 billion in assets do not open any accounts for former account abusers, only 8% of FIs US$50 billion or larger employ this strategy. This represents only one FI with over US$50 billion.
  • While only 14% of FIs with less than US$1 billion will open accounts for any applicants unless they are in a fraud database, 45% of FIs with between US$1 billion and US$4.9 billion will do so, and 42% of FIs with US$50 billion or more will do so.

What’s more interesting is that 48% of surveyed FI executives either felt that their fraud screening was not adequate for DDA accounts or were not sure whether it was. Respondents expressed most interest in additional new account fraud screening solutions, such as enhanced identity theft detection (61%), stronger collaboration with other FIs on known fraudsters (58%), and stronger detection of synthetic identities and identity manipulation (52%).

It is logical that the more information FIs have available, the better-quality decisions they can make with regard to opening new accounts and offering tailored account privileges based on past history using both positive and negative data. Many FIs are heeding the advice of the Consumer Financial Protection Bureau by opening accounts for applicants who have not committed fraud in the past and giving the consumer the opportunity to demonstrate his or her desire and ability to manage it properly while establishing constraints to reduce the FI’s risk during the first few months of the relationship. Criteria that can be established to contain risk include not allowing overdrafts on an account, delaying access to mobile remote deposits of checks, limiting the number of insufficient-funds checks allowed on the account, offering a reloadable prepaid card in place of a checking account, and many other options that can limit risk.

Given the recent volatility in our economy, millions of consumers need and are worthy of a second chance with regard to checking accounts or reloadable cards to manage their finances. Providing a second chance can ultimately foster financial inclusion for consumers who desperately need it—a true win-win outcome.

For more information on this topic, watch the American Banker, Early Warning and Aite Group webinar  titled “New DDA Strategies: Balancing Growth, Risk, and Regulators” on demand by clicking the button below:

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 You can also request a white paper on the same topic by clicking  the button below:

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 Source: “New DDA Strategies: Balancing Risk and Regulators,” Aite Group, August 2016.

Topics: Authentication, Identity, Digital Identity Assessment

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