Accepting New Accounts over the Web

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Question:

During one of our recent exams, it was suggested by the examiners that we open accounts online (which surprised us); they would like us to phase out our brokered deposits and felt we could replace these deposits by opening accounts online. I have been trying to gather some information on what is involved in opening accounts online, in particular the risks involved; how to handle CIP, how to handle disclosures and how to obtain the initial deposit. I put out a question on Banker Threads, but did not receive much information. Can you direct me to any information that would help?Also, our president would like me to do a comparison to Free Checking - the pros and cons vs online accounts. While I have not experienced opening accounts online, I have been at a bank (some years ago) that offered free checking and we had a good experience. Few losses, customers really liked not having to worry about a maintenance fee, and the average balance tended to be around $3,000. I was wondering if you could direct me to any other sources that might be able to provide information or statistics on free checking?

Answer:

I see the biggest hurdle on accepting new accounts (meaning new customers) over the web is the CIP and BSA risk. You'd have to use nondocumentary means to identify your customer and likely enhance your account monitoring for those accounts for a 6 or 12 month period. That would help mitigate BSA issues.

As to disclosures, E-SIGN is the controlling factor. I'd recommend talking to a vendor to see what they can offer. They may be able to also explain what other bankers have done. That initial deposit may be mailed or wired in. I have seen both. I recently did a webinar on E-SIGN and emphasized that many bankers take a checklist approach to E-SIGN compliance instead of focusing on the fact that these documents and processes require security and controls as their purpose is to support your contract. That means you want it admissible in court. That has to be a focus of your process so look carefully at vendors who will truly support your efforts.

Opening accounts for existing customers still requires E-SIGN compliance, but CIP and enhanced monitoring won't be at the same risk level.

I don't know where you'd find statistics on free checking. Peer information would be helpful but these are the kinds of studies the FRB does on occasion, but I've not seen anything like that. Perhaps you design a product and calculate your required returns. If it is combined with online activities you can significantly lower handling and maintenance costs. Keeping your minimum balance higher generally attracts the customer who won't be overdrafting periodicially and when they use internet banking, you'll have less face time.

First published on BankersOnline.com 4/25/11