Digital onboarding: the demise of banking branches threatened by the growth of fraud

Digital onboarding: the demise of banking branches threatened by the growth of fraud
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July 14, 2021

Opening a bank account through a mobile application, dispensing with physical branches and managing all operations from the comfort of home is already a reality for millions of Americans, a leap in efficiency that has translated both into benefits for users as well as security challenges.

The growing adoption of fintech solutions has been accompanied by a diversification of the types of online fraud, ranging from identity theft to phishing, which increased 25.07% in the first four months of this year. 

Meanwhile, the rate of digital fraud attempts in financial services has increased by almost 150% worldwide and 109% in the US. This shows that in the midst of the pandemic, and at a time when 60% of consumers carry out most of their financial operations through 'apps', this sector has been in the focus of attackers, according to figures from the most recent TransUnion report released in June.

Today's banking is changing the way of doing business by reducing the operating costs from luxurious branches and infrastructure, into greater efficiency in operations and more reliability, by ensuring the security of end-to-end transactions in mobile applications.

Neobanks are booming thanks to this growing niche of consumers who "do not want to go to branches or stand in lines, but prefer to carry out their operations through an 'app' on your mobile phone,” as explained by the Spanish entity BBVA.

According to The Global Neobanks Report, released by Business Insider Intelligence, 26 of the main neobanks in the US and the world total 39 million users and operate in a market of US$27,000 million “breaking into the world scene in recent years.”

These neobanks, which are making their way into profitability, offer differentiated experiences to their users as well as low rates, among other benefits. However, strong competition has led them to "implement extravagant features, such as protection against overdrafts and registration incentives."

One click finance

Aware of the advances in security and the ease of use these services provide, users have increasingly turned to digital services to interact with the financial system. In fact, according to the U.S. report Retail Banking Advice Satisfaction, by J.D. Power, last year 31% of new account openings were made through a banking website or a mobile application, while in 2019 that rate was 22%.

This growth contrasts with a drop in account openings in physical branches, which have fallen 10 percentage points and now account for 55% of new openings in the US, where the population increasingly values ​​advice through digital channels as well as the incentives that fintechs provide.


Changes will be permanent

The banking infrastructure was put to the test in 2020 due to the pandemic, which caused an increase in the demand for digital customer service and transactions through virtual platforms, a scenario for which they were not prepared but that now will be the norm.

An investigation by BAI, an independent nonprofit organization that provides information on financial services, found that 52% of customers in the US are using more digital banking applications since the onset of the pandemic.

And although this dependence on digital channels is expected to continue after the pandemic, as 87% of consumers plan to maintain their increased usage, today 38% of consumers still say that "their greatest frustration" with digital banking remains fear of fraud and security concerns. 

Omnipresence requires secure applications

The omnipresence of banking is manifested in the ease of account opening, an operation that involves various challenges in terms of security, since the user verification must be carried out through biometric or voice recognition in a short period of time.

Verifying the identity and age of users, preventing fraud and fighting money laundering is already possible through these cloud-based solutions that have greatly enabled the expansion of fintech services.

Preventor, for example, manages to carry out the onboarding of clients in less than 60 seconds through a series of tools that combine the identification of documents in different jurisdictions, the detection of photos with artificial intelligence and voice recognition.

In this regard, Shai Cohen, Senior Vice President of Global Fraud Solutions at TransUnion, says that “the rate of fraud attempts has increased globally and especially in the financial services industry because scammers understand that this is where transactions of higher value take place,” so this is not the time to“ relax.”

Client experience is still the key

Have you thought about how long you would be willing to wait to open a digital account? It is estimated that the abandonment rate for account opening is up to 40% when processes take more than 10 minutes on a website or more than 5 minutes through mobile, according to figures cited by Columbus Business First.

Taking this outlook into account, Preventor considers that offering optimized experiences will be the differential factor for success, and more so when one takes into account that 72% of millennials and 61% of Gen Z consumers in the US would change their financial services entity for one with greater digital capabilities.

Banks that offer safe, fast solutions and that limit red tape to a minimum are leading this business transformation. The game is changing and customers are now more concerned with factors such as financial services organizations' response to fraud than with the lighting and conveniences a physical branch offers when you can do all your transactions online.

Winning the battle will imply, on the one hand, optimizing KYC (Know Your Customer) procedures, reducing as much as possible the number of clicks that users need to acquire a financial product, as well as advancing in the development of more friendly and secure mobile applications and implement a marketing strategy more adjusted to the changing reality of banking in the 21st century.

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