Faster funds availability for customers
It’s not a challenge that will dissipate anytime soon: banks’ never-ending efforts to balance security and convenience. If we focus in on convenience, it really boils down to consumers’ lifestyle needs and demands for banking services. Initially, we might think that their expectations are met with new, shiny self-service options and mobile app capabilities. But in reality, what consumers truly need is more immediate access to their funds.
According to the 2016 Assets & Opportunity Scorecard published by the Corporation for Enterprise Development, 44% of U.S. households are currently “liquid asset poor,” or have less than three months of savings to pay for basic necessities at the poverty line should they lose their source of income. According to the FDIC’s 2013 National Survey of Unbanked and Underbanked Households, 9.5 million households, representing 25 million Americans, are unbanked. These individuals in particular are forced to use check cashing services and other online programs to receive faster access to their funds.
Countless others who do have bank accounts are also regularly paying high fees for these services. For example, if an hourly employee is paid by check and visits the bank after 2 p.m. on Friday, he or she may not have full access to those funds over the weekend. National Payroll week’s 2015 Getting Paid in America survey revealed that for nearly 67% of respondents, it would be very or somewhat difficult to meet current financial obligations if their paychecks were delayed a week. For this population in particular, convenience is about ensuring that money movement can be as close as possible to instantaneous so they have the money they need to pay bills and take care of their families.
Updating Fraud Solutions
So where do banks start? The idea of overhauling operations to accommodate a faster payments environment seems daunting for many institutions, especially when there’s so much development regarding plans to bring real-time payments to the U.S. It is important for banks to understand that facilitating real-time payments is not the hard part; rather, ensuring that money is being moved for the correct person is the truly complex part.
Moving funds securely and quickly requires more expedient fraud and risk management systems. Most programs in use today simply are not built to support real-time payments. While card networks include fraud-related logic capable of declining a credit card at the point of sale, most tools in the Automated Clearing House (ACH) and check world operate overnight. Updating fraud solutions to ones that act in real-time should be banks’ first and most critical step to delivering faster funds availability.
When assessing updated fraud prevention techniques, the primary consideration should be verifying consumers, not just individual transactions. Banks must obtain the data management capabilities and make decisions based on a holistic picture of each customer. Thwarting fraud is less about the transaction and more about applying technology to immediately understand whether behavior is common or normal for a given user.
Achieving this requires the convergence of identity, authentication and authorization. The risk money movement entails is in identifying that the right person is transacting. Banks should leverage continuous authentication processes to both reduce customer friction and improve the accuracy of risk decisions to facilitate safer, faster payments. Accuracy in identification and authentication will increasingly rely on collaboration; there is simply no way for a single financial institution to gain a total, complete financial picture of a consumer. With an industry-wide, collective goal of preventing fraud and delivering faster payments, we all do better when collaboration creates simple, fast access to a broad view of identity and transaction activity.
Now is the time for banks to begin building a new risk management foundation. They should employ innovative authentication techniques, including behavioral biometrics that observe and analyze how users are interacting within mobile applications and other digital payment mechanisms. These are the solutions that will empower banks to confidently answer the “is this behavior normal?” question by instantly understanding whether users are familiar with the application, follow distinct fluency patterns and can quickly provide required information. This technology can even determine where the user is located and how they hold a device. Such a level of insight is crucial for banks to know on the spot whether the user is a robot versus a human and whether they are interacting with the right, authorized person.
“We reduce risk by not letting customers do too much…” This is not an uncommon strategy for bankers today. Many began applying this mindset to their mobile remote deposit capture offerings, reducing risk by setting extremely low deposit limits. This approach has expanded now to include person-to-person (P2P) services. For instance, in many cases, a limit of $1,500 or $2,500 simply is not enough to make a rent payment to your landlord. With the right fraud and risk mitigation tools in place, banks will gain comfort in their ability to raise those thresholds – or possibly even eliminate them if a customer has the funds available – and avoid limiting the customer experience.
Bank executives should be motivated by the opportunity to positively impact both consumers and businesses that are affected when access to funds is delayed. No one wants to have the difficult conversation in which an employee must relay to a customer that a hold has been placed on his or her money; that message can go away entirely if the bank can deliver full and immediate funds. In addition to better serving current customers, also consider the under- and currently unbanked consumers your institution can help by delivering immediate funds availability. You can even grow your customer base by empowering these individuals to eliminate their use of check cashing services.