American Banker

The below article was originally published June 20, 2019 in American Banker by Paul Davis.

3-minute rule: How small banks are trying to fix online account opening

Many small banks with digital channels are struggling to master the process of signing up customers online.

Several attendees at American Banker’s Digital Banking conference here this week said they were in search of fintech partners that could help them create a smooth, quick sign-up system that sill weeds out fraud.

“There are a lot of people out there starting digital banks,” said Greg Bynum, president of the $306 million-asset Lead Bank in Garden City, Mo. “The goal is to touch customers where they are, then direct them to deposit products. … The issue is onboarding.”

Addressing this challenge is important, especially as nonbanks and other rivals figure out how to hasten the sign-up process. The objective of many companies is to get the time spent opening an account below three minutes, said David Mitchell, president of the core systems provider Nymbus.

Executives at Origin Bank in Choudrant, La., have had discussions with third parties to improve its sign-up process, said Corey LeBlanc, the $4.8 billion-asset bank’s chief digital and innovation officer. While depositors can open accounts in as little as five minutes at Origin, most of the accounts turn out to be fraudulent, he said. Origin, which already uses fintech to offer services such as personal finance tools, believes it can find a partner that can solve its onboarding problem.

LeBlanc said he is particularly interested in technology that would use photo identification, including selfies, to verify new customers are who they say they are.

“We want to continue to have conversations to take our technology to another level,” he said.

Other bankers shared how they are using a blend of protocols and technology to root out fraudulent applications for new accounts.

Surety Bank in DeLand, Fla., which worked with Nymbus to offer digital account opening, requires direct deposit from people looking to open an account, said Ryan James, the $122 million-asset bank’s CEO.

Surety launched a digital account-opening tool recently that attracted “a few hundred users” and about $2 million in deposits, James said. “If you have legitimate direct deposits, then your fraud gets reduced,” he said.

Midwest BankCentre in Lemay, Mo., has also implemented safeguards for Rising Bank, a digital-only bank it debuted in February. Rising Bank, which offers high-yield savings accounts and certificates of deposits, has already reached its first-year target of gathering $100 million in deposits.

When Rising Bank opened, it allowed depositors to transfer funds by manually inputting their account and routing information or by using Quovo, a fintech whose automated service moves money between accounts, said Dale Oberkfell, the digital-only bank’s president. Depositors must provide credentials to use Quovo.

Oberkfell, who is also president and chief financial officer of the $1.9 billion-asset Midwest BankCentre, said his team quickly realized that there was a connection between manual transactions and fraudulent activity. So the bank no longer offers manual input for savings account transactions but requires depositors to use services like Quovo’s.

While initially concerned that the move would curtail overall funds transfers, Oberkfell said that has not happened. Rising Bank still allows manual transactions in connection with CD accounts.

“We found that the bad guys like to operate in the manual world,” Oberkfell said. “We’ve slowed the bad guys down. … You have to meet them right out front.”

Though unlikely that Rising Bank will put manual entry back in place, Oberkfell said he is discussing ways to enhance oversight in a way that would make it possible to allow it.

Those conversations are going on at the conference as community bankers look for innovative ways to meet customers wherever they do business.

“We’ve got great products and services,” LeBlanc said. “We just want to make sure that people sign up for them.”