Physical verification back with a ‘bank’ as frauds bite hard

Synopsis
Large banks are introducing physical checks and mandatory branch or home visits by relationship managers for customers seeking to open bank accounts online, to prevent identity theft and mule account openings, multiple bankers told ET.
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Large banks are introducing physical checks and mandatory branch or home visits by relationship managers for customers seeking to open bank accounts online, to prevent identity theft and mule account openings, multiple bankers told ET.
This is a U turn of sorts for banks that were digitising almost every service possible, simplifying operations into a single-click. But the challenge of mule accounts and fraud attacks are forcing them to introduce physical checks into their digital onboarding processes.
Lenders such as ICICI Bank, HDFC Bank, State Bank of India, Bank of India and Bank of Baroda have halted their end-to-end digital onboarding systems. Instead, they have started asking customers to approach the nearest branch for document submission or for physical verification of the applications and also sending bank officials to the customers, according to three bankers in the know.
Also Read: Financial fraudsters turning business accounts into mules for illicit fund transfers
The tightening of processes could also be related to the Reserve Bank of India imposing fines on banks for not following stringent KYC (Know Your Customer) protocols when onboarding customers, the bankers added.
ICICI Bank has even stopped its insta-account opening service altogether, said two bankers in the know. Only salary accounts are created through a digital process, for the rest the bank undertakes account opening via an assisted process where the branch executive visits the customer to open the account digitally, they added.
Emailed queries to ICICI Bank, Bank of Baroda, Bank of India and State Bank of India went unanswered.
“Last year there was a sudden attack of mule accounts on these large banks, resulting in a lot of fraudulent fund transfers taking place, that made these banks tighten their online-account onboarding services,” said one of the bankers quoted in the story.
Responding to ET’s queries an HDFC Bank spokesperson said that the bank is onboarding customers digitally and has no plans to stop digital onboarding of customers but is investing heavily to make digital onboarding more robust, intuitive, with enhanced security features.
“As a part of ongoing enhancement of the (digital) onboarding journey, we have transitioned to an integrated assisted digital model. This combines the convenience of technology with personalised guidance to help us deliver a more tailored onboarding experience, to assist customers choose the right products,” the spokesperson said.
On the defensive
A founder of a fraud detection startup explained that banks have gone on the defensive after a series of mule accounts were opened via digital banking channels through forged identity documents.
“Branches have been instructed to open accounts for customers in their locality only. For others who reside outside a given radius, banks would facilitate them to open accounts in branches in those localities only,” said the second banker with a private sector lender.
Interestingly, banks have traditionally opened savings and current accounts as a business target, and it was with regard to credit accounts where more stringent checks were imposed. But the rise of frauds around digital banking has made it important to have similar checks on savings account openings as well.
“The refinements in our onboarding journey, including a greater emphasis on assisted digital flows, forms a part of our proactive risk-management efforts and reinforce our commitment to offering customers a safe and trustworthy onboarding experience,” an HDFC Bank spokesperson said.
A banker with a public sector bank said customers are often hesitant to share documentary evidence of their salaries and income certificates for savings accounts, which makes it difficult to monitor such accounts.
“We have found cases where a digital account got blocked because of sudden large credit or high-volume transactions. Ultimately, the customer must approach the branch with required documents to unblock the account, this creates additional hassle, hence it's better the customer approaches the branch at the very beginning,” said the banker with a government-owned bank.
The founder of the fraud detection startup quoted earlier said that banks often ask for income documents from the customer to ensure that the customer is not a mule.
Grow profitably
The RBI has passed clear instructions to the banks and their auditors that they are treating the issue of mule accounts very seriously and will penalise banks if they cannot freeze such accounts in time.
“While digitisation is important for new customer onboarding, the challenge of dealing with frauds has made it very difficult for us to open accounts completely digitally, hence these additional checks,” said one of the bankers quoted above.
However, most large banks continue to show growth in digitally-opened accounts in their investor presentations given the onboarding journey of the customer starts digitally. Industry insiders pointed out that while the complete digital end-to-end processes have been stopped, the customer is still acquired digitally.
The third banker mentioned in the story said that in many cases digital accounts have been found to show limited transactions, the target from the top management is to get profitable accounts and build deep engagements. Hence physical meetings always help in such cases.
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