Millions of bank credentials have been exposed by the recent Coinbase hack, and they’re available on the dark web. Elsewhere, millions of neobank accounts lay dormant, and can act as havens for fraudsters.
[contact-form-7]For financial institutions and merchants, the challenge lies in validating bank accounts, and the holders of those accounts, to make sure that funds don’t disappear into the ether. The data that individuals provide at the time of interacting with those firms, PYMNTS CEO Karen Webster observed, “are the architecture of the bank account and the relationship the consumer has with it — or the fraudster is trying to represent that they have with it” as they try to transact.
John Gordon, CEO of ValidiFI, concurred, saying, “The fraudsters will continue to move and change — and we have to be vigilant about looking for inconsistencies in the data that they provide.” An account may look valid — but it’s not.
Different Use Cases“The very definition of ‘valid’ depends on your use case,” Gordon said, adding, “If you were simply connecting a consumer to their bank account for the purpose of establishing a relationship — like onboarding — a ‘valid’ [account] would be one that’s open and facilitates payments.” But an insurance company about to pay out a large settlement will want connections and verification that runs a lot deeper.
The process of validation, he said, can yield data that’s useful across a number of use cases. Gordon, whose company provides actionable insights to client firms, said that “if you’re going to the point of gathering a consumer’s bank account and routing number — if you’ll pass that to us with name, address, phone and email, I can tell you a lot about that consumer.” Robust account validation creates better consumer experiences rather than existing as just a compliance box to tick.
An individual that offers up their parole office as their address is not a great risk to take on. Conversely, if there are fewer than four consumers attached to an account and the account has been in the ValidiFI network for more than two years, risks tied to transactions drop by 40%.
“You’ve got to look at the accounts in real time,” Gordon said, and ValidiFI’s cross-referenced approach also relies on consortiums, where clients contribute information to protect all stakeholders.
The Impact of 1033The conversation between Webster and Gordon took place as Rule 1033 — known as the open banking rule, set up by the Consumer Financial Protection Bureau (CFPB) — seemed headed for extinction, as the CFPB had filed with a Virginia court to have the rule rescinded. Gordon mused that whatever ultimately happens with the rule is no Armageddon for account validation, because consumers can still make that data available via credentialed data access.
Gordon cautioned that consumers are willing to share a wealth of data with companies, but only if they’re getting, in exchange, the ways and means to complete a transaction or financing event. As many as 40% of individuals, he said, are willing to offer some level of transaction data, depending on the use case.
But getting them to trust that offering more data will be rewarding, or may be necessary, is a work in process, Gordon said.
“We’re seeing a lot of companies,” he said, “who are saying that, ‘Before we can move forward, you need to log into your bank account, and we need 90 days or a year’s worth of transactions’ — and consumers are not willing to go that far at first blush.”
The positive ripple effects of collecting the right data at the right time can be significant, Gordon said, as the data can improve underwriting and risk, which in turn helps broaden access to financial services and products. For lenders, security improves, as Gordon observed that if there are more than four email addresses tied to an account, or a high rate of payments activity, “you need to start to inject friction into that process” especially where real-time payouts are involved.
Improving Credit ScoringThe bank account and payments intelligence can improve credit scoring, Gordon said — an area where processes have been stuck over the last few decades. FICO scores are limited and inflated and only take into account repayment history.
“In order to be able to look at consumers and score them to create your own moat, you’re going to have to bring in data aspects that haven’t been utilized in the past. You’re going to have to look at frequency of change. You’re going to have to look at how people behave in the digital environment versus looking at credit mixes and credit histories,” he said. Lenders have got to assess consumers more comprehensively, “and an incredibly important aspect of that is their bank behavior.”
As he said to Webster, “We have clients that tell us ‘that account’s been ValidiFI’ed’ — and I love that. It means, to them, ‘I’m secure and I can go forward with that account.’”
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