Pitfalls of Opening Accounts Over the Web

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Question:

We are a small three branch bank. Our CEO is pressuring the staff to open new checking/savings accounts online at our website. I have been to numerous banking seminars, and from what I understand, banks that currently are opening up new accounts on their websites are suffering substantial losses. What can we do to prevent this from happening at our institution in the event we decide to open new accounts on the Web? And can we restrict the opening of new accounts to residents of our state only?

Answer:

You can certainly limit the applications to those in your designated area, which can be smaller than the state if you like. Consider that deposits lead to loans, and for CRA, you want loans in your area. This may or may not be an issue and it depends on the strategic plan pertaining to growth, that your bank has.

You should consider providing the information over the Web and actually consummating the account opening via the mail. This may aide in your address verification and it adds a layer, albeit thin, of security to the process. A thorough review of the applicant's credit report may be in order. Obviously the more you do, the more costs you have.

Consider too, that unless you have a real kick-butt product or rate, many of the best customers bank where they do because of locations or an existing relationship. When you get requests from elsewhere, red flags go up.

First published on BankersOnline.com 1/5/04