Onboarding fraud has become a growing concern for banks in recent years, posing a significant risk to their financial integrity and customer trust. As the banking sector continues to evolve, with an increasing emphasis on digital channels, fraudsters have found new avenues to exploit vulnerabilities and commit fraudulent activities. Client onboarding is crucial for financial institutions because it sets the tone for customer relationships, so while implementing security strategies is important to mitigate risks, intrusive measures can create friction and negatively impact the customer experience. Customer onboarding in banking is subject to strict regulations like KYC and AML requirements; these processes can be time-consuming and frustrating for customers, leading to high abandonment rates.

A secure, digital onboarding process has the potential to actually turn into a competitive advantage that attracts new customers. Investments in onboarding can make the journey safer and more enjoyable for the user; financial institutions must streamline the authentication process while improving the overall client experience. Sophisticated fraudulent attempts and attacks are pushing banks to shift priorities from simple transaction-based security models to identity-based systems.

Customer identity can be used in fraud prevention measures such as identity document fraud detection, impersonation checks, document tampering checks, and validating customer identity checks. Forged or altered documents that appear unclear, blurry, or tampered with could be a sign of fraud. Some data vendors are now verifying home ownership and how long prospective customers have owned a property as an additional resource. Inconsistent information provided may indicate fraud, making it crucial to cross-reference all information provided, and if there’s no match, raise an alarm for potential fraud.

Financial institutions can also leverage the power of advanced technology and tools and use machine learning to prevent identity theft and improve the efficiency and accuracy of their onboarding process. These technologies can scrutinise customer actions during onboarding, flagging potential red flags. AI-powered document verification can ensure the authenticity of submitted documents, reducing the risk of fraud.

Data analytics can be used to understand customer behaviour patterns such as transaction history and login locations, defining a standard for normal activity for each customer. If the application is being filled out on a cell phone, financial institutions can ask where the phone is located and does that match with other records, beyond the identity of the person. By setting up alerts for any deviations from these established patterns, banks can proactively detect and prevent potential onboarding fraud.

Establishing clear guidelines for customer onboarding by having well-defined screening policies and processes can deter fraudsters. This can mean implementing robust KYC and AML protocols, clearly defining acceptable forms of identification, setting transaction limits, and outlining escalation procedures for suspicious activity. By having strict guidelines for client onboarding, banks can create a strong first line of defence against fraud.

Education of customers can ensure they understand the established measures for onboarding. Customers should have the importance of providing accurate information and the potential consequences of fraudulent activities highlighted to them during the onboarding process. Having regular communication and feedback mechanisms with the customer is essential in fostering continuous improvement and transparency in digital customer onboarding processes.

Fraud leads to financial losses for organisations; financial institutions need to ensure tighter compliance when onboarding customers and providing them with an ideal customer experience when transacting. A secure and efficient digital onboarding process can serve as a competitive advantage for financial institutions by enhancing both security and user experience. The integration of advanced technologies into the onboarding process and the implementation of robust guidelines will protect against fraud while building customer trust and satisfaction.

To learn about the latest tools and innovations in implementing fraud prevention measures into an efficient client onboarding process as well as the opportunity to connect with industry leaders, attend the Innovatrix 2nd Client Onboarding and Digital Identity Summit for Financial Institutions in Prague, Czech Republic, on September 18–19, 2024.

For more information, visit our website or email us at info@innovatrix.eu for the event agenda.