Banks Target Repeat Checks That Drive Customers Away

A Financial Crimes Enforcement Network (FinCEN)-observed pilot is testing whether completed customer verification work can be documented in standardized records and evaluated by other financial institutions.

The pilot is being coordinated with the U.S. Treasury Department, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. It comes as PYMNTS Intelligence data shows that banks and FinTechs contend with inconsistent verification results, excessive checks and onboarding friction.

Here’s how the current system works. A customer who clears identity verification at one financial institution can still be required to repeat much of the process when opening another account elsewhere. For banks and FinTechs trying to move more customers through digital onboarding, those repeated checks add another layer of cost and friction to a process already producing inconsistent results.

The PYMNTS Intelligence report “When ‘Good Enough’ Isn’t Enough: Digital Identity Verification in the Age of Bots and Agents” found in January that 74.6% of financial services firms said their verification technology produces inconsistent identity results. Customer friction from excessive checks was reported by 56.3%, while 46.5% said different identity platforms produce different results, and 43.7% cited high manual review costs.

According to the report, 76% of financial services firms generate at least three-quarters of their revenue through digital channels, putting identity verification directly into the customer-acquisition process for much of the industry.

Problems during verification can carry through to growth. The report found that 76.1% of financial services firms said know your customer (KYC) and know your business (KYB) processes have prevented them from adding or expanding customers, markets or geographies. Onboarding abandonment caused by friction was cited by 55%, and 49% reported onboarding delays that hurt conversion or time to value.

The pilot, announced by the SOLO Network, is testing whether financial institutions can reduce one source of that repetition by making completed customer verification work reusable.

SOLO said this month in a press release that it launched a FinCEN-observed bank-reliance pilot. The announcement, which likens the effort to a “TSA PreCheck,” said the effort is designed to allow trusted customer verification to move among participating financial institutions rather than requiring customers to restart the process with every new relationship.

Standardizing the Record

Under the model described by SOLO, participating institutions create standardized, auditable verification records documenting the evidence reviewed, work performed and standards applied. A receiving institution can then evaluate that record against its own compliance and risk requirements.

The receiving institution does not automatically accept another institution’s work. Each institution continues to make its own compliance decisions and independently determines whether the verification it receives meets its requirements. Institutions also do not have to conduct verification in the same way to participate; the standardization applies to how completed work is documented and evaluated, per the announcement.

For customers and businesses, the model is intended to reduce repeated verification when they establish relationships with additional financial institutions. SOLO said in the announcement that customers can authorize participating institutions to evaluate verification that has already been performed instead of beginning the identity process again.

The scope is narrower than a new KYC regime. It tests whether verification already completed by one institution can be represented in a form another institution can review and potentially use.

The approach addresses a specific source of onboarding friction reflected in the PYMNTS Intelligence research. Financial services firms are reporting problems not only with whether customers can be verified, but with how many checks are required, how much manual work those checks create, and whether different verification systems produce the same answer.

The SOLO pilot will provide a test of whether reusable records can reduce at least some duplication across banks and FinTechs. The key operational measure will be how often a receiving institution can use prior verification without substantially recreating the work. If standardized records prove usable across participating institutions, verification completed during one onboarding could have value in the next financial relationship.