Today’s consumers’ expectations for their financial interactions are changing. They require a digitally native, seamless, consistent, instantaneous experience with their financial provider right from the get-go. No longer are they willing to wait several days for identity verifications or for microdeposits to clear to start using their account.  

Yet, we know that everyday bad actors are finding new ways to break the system. As more people and businesses enter the digital economy, it’s critical that we keep them secure across all touchpoints with their accounts and beyond. Financial Institutions must protect their customers’ accounts from fraud to ultimately drive primacy, grow deposits and encourage top of wallet behaviors, thus helping them recoup the estimated $450 average cost of acquisition. 

Open banking is the thread connecting the ecosystem to make account opening faster, secure, and more frictionless. 

Here’s a common scenario that financial institutions deal with on a daily basis:  

• ‘John Doe’ opened a new checking account with ‘AcmeBank’ and is ready to fund it with another existing account he has with ‘Partnerbank’  

• How does AcmeBank know that John is the actual owner of the account at Partnerbank? Should Acmebank proceed with posting the ACH file to the Nacha (ACH) network, letting the transaction go through? If John Doe were a bad actor, and Acme bank allowed the payment to go through without doing appropriate checks, John Doe could move that money elsewhere and AcmeBank could get an unauthorized payment return from ‘Partnerbank’, resulting in fraud losses.  

• Similarly, some insurance companies simply ask for account and routing number verification before disbursing funds, not verifying the identity of the receiver. Here, John Doe can impersonate another person, and use his own personal details to re-direct an insurance payout or a payroll disbursement to his account.
   

What is the ecosystem doing about it?
 

New rules and guidelines are being published by Nacha – operator of ACH payments – that introduce additional risk management frameworks for ACH senders, as well as recipients. Ecosystem participants such as merchants, ecommerce platforms, lenders, and insurance providers may be required to include account verification and identity verification, multi-factor authentication, velocity tracking and KYC/KYB improvements. Mastercard is a Nacha Preferred Partner for Compliance and Risk and Fraud Prevention with a focus on account validation. 

In addition to more thorough fraud checks being conducted by originators, receivers now also must participate in fraud monitoring and flagging to reduce risk. In the above example, Acmebank, the receiving financial institution, will also need to perform additional fraud checks.
 

What can you do?
 

Mastercard Open Banking helps financial institutions identify, manage and tackle fraud risk on an ongoing basis.  Examples of our solutions include instant account details verification, device and identity verification. When used in conjunction with other customer fraud solutions, they help secure interactions that consumers have with their financial provider. 

Last year, Mastercard debuted Open Banking Identity Verification for the U.S. market and continues to invest in additional functionality that leverage our extensive fraud and identity networks. Before initiating a transaction, financial institutions can verify a number of factors, including: 

• Confirming account ownership information, including name, address, phone and email, in real-time 
• Validating identity profiles and quantifying identity risk  
• Examining the risk level of user activity patterns and associations to detect fraudulent behavior 
• Verifying device authenticity and capturing signals of device fraud 

Beyond Open Banking Identity Verification, Mastercard offers services to streamline account funding, including:  

• Account Owner Verification: A one-time API request that returns the account owner(s) name, address, email and phone number for a select account. This verifies that the bank account being linked is owned by the person opening a new account and complements KYC risk mitigation in real time. 
• Account Detail Verification: Instantly authenticates and verifies account details, including account and routing numbers, to help mitigate fraud, reduce manual entry errors and maximize confidence in payment transactions. 
• Account Balance Check: Easily determines account balance before moving funds to a new account. This ensures that the amount being moved to the new account is available with an accurate, real-time balance snapshot, and reduces costly NSF returns. 
• Payment Success Indicator: A score that predicts a transaction’s likelihood to settle for a specific consumer “today” and up to nine days in the future.  

Now let’s look the journey again with our solutions: 

• Consumer has opened a new checking account with ‘Acme Bank’ and is ready to fund it using existing bank account at ‘Partnerbank’ 
• Consumer agrees to T&Cs and gives permission through Mastercard’s Connect widget for their bank data to be accessed and shared with Acme bank   
• Consumer selects their Partnerbank account and enters banking login credentials (or biometrics where applicable) 
• Consumer selects funding account and amount 
• Acme bank calls our above APIs in the background to check account and identity details in real-time and proceeds with the processing the payment