The Brave New World of Online Account Opening

“Do you think that when they asked George Washington for ID that he just whipped out a quarter?”
— Steven Wright

Most banks, especially those that are active consumer lenders, have seen slow maturity of online loan application systems.  The ability to credit score and give an immediate answer on the Web, combined with integrated fulfillment via the call center or branch, has begun to move consumer behavior toward Web-based loan application usage.  Leading institutions report that as many as 50% of consumer loan applications are being submitted via the Web, with a lesser but still impressive number for mortgages.

Now, many banks are starting to eye the opportunity to sell and open more deposit accounts on the Web.  For some, the thought is that niche products (money market, high-rate CDs) can be sold nationally without the need for brick and mortar. ING, NetBank and E*TRADE FINANCIAL have all been very successful with this strategy – ING has raised over $40 billion (uh huh, with a “B”) in deposits in only four years. 

Others see the primary opportunity being sales to Web-savvy customers who would prefer using that channel to open deposit accounts.  Others see it as a cross-sell opportunity for existing customers.

Whatever the motivation, many banks have online deposit account opening on their minds, which puts it front and center for your telepathic, eager to please and willing-to-opine-on-anything-never-mind-the-topic Gonzo homeboys in Scottsdale.  So, let’s take a look at the early entrant vendors in this area and the issues banks will need to address.

The Vendors
What is interesting about many of the vendors in the online account opening space is the different approaches they are taking and the value proposition they want to offer.

The most recognizable name in the online space is probably CashEdge.  CashEdge is touting its workflow engine that is designed to automate the account opening process and has made a splash with some of the early partnerships it has announced with Corillian and Digital Insight.  An early client like Wachovia Bank hasn’t hurt, either.

Another early entrant is Andera, which has focused much of its message on enhanced security.  The company announced an alliance with Digital Resolve, which offers behind the scenes security enhancements through a product called Fraud Analyst.  Fraud Analyst takes the IP address of the online applicant, creates a profile, and compares the profile information against what is entered by the customer – sort of a second level of security.  

A third entrant is MeridianLink, which recently was chosen by Jack Henry as its online account opening solution.  MeridianLink’s angle is the offering of a single package for both loan and deposit opening.  MeridianLink cut its teeth in the loan and credit scoring arena and is adding deposits to the product line.

An interesting combatant is Yodlee, whose strategy is to leverage its account aggregation solutions and layer the account opening and customer identification capabilities on top of that system.  An interesting twist to Yodlee is what it calls Instant Account Verification, which takes a customer’s existing online ID and password and tests it against their bank to identify them.

Finally, and here’s one that isn’t necessarily so obvious, Adobe Systems is trying to parlay its document expertise into a place in the online account opening arena.  Adobe’s angle is to start with an easy document/enrolment solution, called the Intelligent Document Platform, and partner with IBM for middleware integration to back-end systems.

Lots of approaches, lots of angles.  Which will prevail?  Hard to say, since we are at most 10% of the way toward a mature, robust, online deposit opening environment.  It’s very likely that every vendor will make some inroads in the next few years, so banks will need to be aware of the different approaches and strengths of each.

The Issues 
As banks look to add these capabilities to their service offerings, several issues of strategy and delivery will need to be addressed.  Some that we see:

1. While much of the system design is being aimed at getting the new checking account from the new customer, this may not be the early win. There is certainly some appeal to the idea that lots of people will open checking accounts on the Web.  Truth is, though, opening a new checking account is a time-consuming pain even for your trained branch employees, much less a customer on the Web.  There are multiple screens to select a product, enter information, pick checks, pick cards, set up payroll deposit, and on and on.  It takes a mountain of effort just to get the funds transferred (“enter the routing number of the other bank…re-enter to verify….enter the account number…again.   Do you want to close the account at the other bank?”….).  It’s no wonder that even CashEdge, who is promoting the concept, found that fully 80% of the current online applicants drop the effort before finishing. 

   Those banks that have been successful to date avoided most of the checking account work.  ING, for example, cleverly resolved this issue by saying that customers can’t open checking accounts, only MMC’s and CD’s.  That saved much of the fulfillment work and kept them out of most fraud risk. (As we speak, however, word is that ING is contemplating the offering of checking accounts – bad idea). 

   Rather than starting with checking accounts, banks might consider focusing on offerings that require simpler fulfillment – cross-selling a CD or MMC to an existing customer is one thought.  A special money market account aimed at a particular geographic market where the bank has no branches is another.

2. Two-way integration with core systems is a crucial next step.  No matter what the strategy, banks need to develop interfaces that allow existing customer information already on core to pre-fill fields on the Web.  Think about it.  You are all touting that you know your customers.  How does it look when they opt to open a second account with you on line and need to type in all sorts of information they know you already have? Uh unh.  This has to be as easy as possible for customers.
3. While there are lots of good identification/authentication schemes, banks aren’t really comfortable yet.  Most of these systems allow the credit score done during the application process to be used to develop key questions that serve as the identification effort (“You have a loan at Bank X.  What is the balance?”).   As mentioned before, Digital Resolve uses the IP address to further ID the customer.  Yodlee dummies up a sign-on to the existing Internet banking system.  All pretty good, and it might even pass audit muster.  However, most banks remain wary of potential fraud and are often still requiring a visit to a branch and presentation of ID as a final step – another clumsy fulfillment step that can turn customers off.  Banks need to pay close attention to the effectiveness of the online-only ID process and have very open discussions about when ID solutions are good enough to satisfy risk concerns.
4. Online documents and digital signatures will be the catalyst for the big growth.   Right now, most banks have the customer print the deposit account documents, sign them, and mail them in.  Imagine how receptive users will be when the systems combine the opening process with digital signatures and paperless contracts/sig cards.  Admittedly, there is a pretty big hill that has to be climbed before this can happen.  Standards and systems need to mature.  Ops people, auditors, lawyers and regulators all must be swayed and mollified.  Management needs to be comfortable with the risk/reward of this technology.  However, let’s look out of industry for the payoff.  Everybody that has ever sold or purchased on eBay has been bowled over by the ease of the experience.  How much document printing or proof-of-identity was required when you bought the gut remover, the anti-wrinkle cream, and the nose hair trimmer on eBay? (Note: I only mention those three items IN THEORY.)

   The bottom line is this:  when it’s as easy to open an account at your bank as it is to buy something on eBay, stand back.

We’re early in the game here.  Investigate, monitor and try some early forays into the online account opening world.  There’s time to get your share. 
-tr