The Selfie as Mobile Banking's Fraud Fighter

It might be the digital age, but it still can take days, if not weeks, for banks to onboard new customers.

That needs fixing.

It might be the age of stricter Know Your Customer compliance standards, but new customers are still having their identity verified by going to a branch.

That also needs fixing.

Although branches remain the primary place where sales are made, the manual requirements made of digital applicants could ultimately hamper banks' ability to woo prospects.

"Financial institutions have reported to have taken weeks to onboard new clients and expect it go up in the future," Celent analysts Arin Ray and Neil Katkov wrote in a recent report. "Some are concerned that a prolonged and cumbersome onboarding process could become a competitive disadvantage."

But this process need not be so unwieldy.

Onfido, a U.K. company that formed in 2012, is one of the latest tech companies with ambitions to sell technology to U.S. banks to quicken the hello process via the smartphone.

"We want to help banks onboard more users," said Husayn Kassai, chief executive and co-founder of Onfido. "At the same time, [we want] to help them reduce fraud."

The startup, among other things, vets identity by using facial recognition technology to compare selfies and images of consumers' ID documents submitted during the sign-up process as well as verify the authenticity of the documents within seconds.

Onfido counts Monzo (formerly known as Mondo) in the U.K. and an undisclosed bank in the U.S. among its clients. And last month it raised an undisclosed amount of funding from Salesforce Ventures, Talis Capital, as well as two former Microsoft executives to expand its product for financial services companies.

Onfido's planned expansion in the industry represents part of a trend in which tech companies such as Mitek, Jumio and Bottomline Technologies' Andera are aiming to help banks onboard new customers digitally.

Rather than perform what many analysts and techies consider security theater – where a branch employee looks at a person and compares his or her image against a physical ID – tech providers like Onfido are relying on the smartphone's camera to collect the ID documents, automatically fact-check them and populate the data into an application.

Tech that recognizes the patterns and characters in identity documents and facial features is more accurate than a human assessing whether someone is an impersonator or not, Kassai said.

"For every fraud document we identify, we're able to use the fraudulent patterns or anomalies we've spotted to trigger alerts the next time they appear on a document," Kassai said. "For each check we process, our software gets better at identity, more sophisticated levels of fraud and more minute fraudulent patterns or anomalies."

To be sure, there will likely never be a cure-all for fraud committed by customers in or employees, regardless of the channel. However, the need to improve the account acquisition process is obvious. Consumers, especially millennials, have come to expect to accomplish any chore within a few clicks.

"Consumers have short attention spans," said Mike Senechal, chief product officer at Zenbanx.

"The more work they do ... the higher the drop-off," he said.

Zenbanx, which offers a mobile-first product in the U.S. and Canada, is among the firms already using the camera to aid customer acquisition. Similar to Onfido, the onboarding technology used by Zenbanx – in this case, supplied by Jumio – scans ID documents to assess the likelihood that someone is who he says he is.

However, in some instances, Zenbanx still has to vet documents manually on the back end.

That manual work highlights a problem here to stay: false positives.

"It's the nature of identity," said Julie Conroy, a research director at Aite Group. "There's so many elements of that change. You have addresses that change. You have phone numbers that change. You even have names that change."

Still, using the camera to onboard customers should be part of the banking mix, especially for banks that hope to increase their originations through the mobile channel, Conroy said.

As Conroy sees it, mobile imaging and verification technology can improve the user experience by eliminating keystrokes, and at the same time, help prevent fraud. The software can also create operational efficiencies for the bank.

Conroy recalled a recent conversation with a large bank that has 350 full-time employees who review application exceptions for fraud. The bank is implementing software to automate some of the tasks and is expecting to cut the number of people dedicated to this review in half, she said.