Improving operational efficiencies and regulatory compliance in the customer onboarding process August, 2012
Introduction The regulatory landscape today It is no secret that financial organizations are facing more regulations than ever before. Most of the current regulatory requirements are driven by a general desire for greater confidence, coupled with the fluctuating nature of the global economy. Regardless of the statute, banks and other institutions that handle money and extend credit have an obligation to know with whom they are dealing before opening accounts or providing services. Increased levels of customer and applicant identity confirmation are, in essence, the basis of many current and evolving regulations. Primary regulations One of the most significant regulations in this regard is the U.S. PATRIOT Act, requiring financial institutions to obtain enough identifying information, including Name, Address, DOB and ID Number to form a reasonable belief about the true identity of the applicant or customer. The Treasury s Office of Foreign Assets Control (OFAC), the group that administers and enforces U.S. economic and trade sanctions against specific foreign countries, individuals, entities, governments, vessels and activities also has identity-checking regulations. The goal of OFAC is to ensure that money is not being funneled into terrorist activities or laundered. To facilitate this, OFAC provides a regularly updated list of names of people and firms whose assets may be frozen or who are otherwise barred from normal banking activities. Lenders must confirm that the name of an applicant cannot be found on that list. More recently, the Federal Trade Commission (FTC) has established Red Flags Rules requiring each financial institution and creditor to develop, implement and maintain up-to-date identity theft prevention programs. This means that just about any company that performs a service and extends credit terms to consumers must have written procedures in place to spot suspicious identity anomalies that may arise, and address the steps they ll take to prevent and mitigate identity theft. Every consumer is unique Information about a consumer s unique financial history is no longer limited by traditional credit relationships. Today s consumer shares their identity and transacts with a wide variety of service providers, such as telecom, e-payments, cable/satellite, e-commerce, and alternate lenders. It is not so difficult to research and validate a person who already has a strong traditional credit history that might include a home mortgage, a car loan and a variety of credit cards. These people tend to move less frequently and their credit activities are easy to track through any of the major credit bureaus. But what about a young person who is just embarking on the world of personal finance? Millions of consumers lack a history with traditional credit information sources, but may have solid relationships with other service providers. For example, a younger consumer may be a steady earner who does not own a home or car, but is extremely likely to have a cell phone plan, cable TV or an Internet service plan with several years of history already; access to this type of information can be invaluable in assessing risk. Another group that can be difficult to assess are consumers who don t have any recent traditional credit activities and have simply paid-off their obligations some time ago, such as car and home loans. Obtaining and validating the requisite information about these consumers can be quite challenging and may require drawing from alternate data resource pools. Clearly, institutions need a way to validate the identity of today s unique and diverse consumers, many of whom lack traditional credit histories. 2
The Challenge For Financial Institutions Failure to comply with the regulations above, as well as other federal and state statutes, exposes financial institutions to the risk of significant fines and penalties, but achieving and maintaining regulatory compliance takes time and is expensive. In lieu of an official source of truth, most companies rely on third party commercial solutions that gather, sort and provide Personally Identifiable Information (PII) for them. But, these solutions can be expensive, upwards of $.50 per validated applicant is fairly typical. And when the PII of an applicant cannot be automatically validated (for instance, Name and SSN elements match, but Address does not,) the applicant is usually put in a queue for manual remediation. These additional screening processes can escalate remediation costs to more than $5.00 per consumer. The manual review process can also create significant consumer friction ( Why are you making this so complicated?, Why is this taking so long? ) which leads to lost opportunities as consumers give up and take their business elsewhere. Financial institutions clearly face a difficult balancing act since each applicant represents an upfront data expense for automated validation of their identity information, those that do not pass the first time need a more extensive review costing lenders even more in time, data, money and critical resources while the complexity of manual remediation can even drive consumers away. And all this occurs against the backdrop of significant regulatory fines and penalties. What is needed is a cost-effective, competitive solution that provides: The data necessary to comply with USAPA, OFAC, FTC Red Flags and more An efficient means to auto-screen applicants A fast and affordable way to access data from many differing sources A tool to help reduce and simplify costly manual reviews While there are a number of companies that gather and sell or provide some of the necessary data, current solutions are piecemeal, expensive and lack a crossindustry view that highlights the market behaviors of today s diverse consumers. But there is one solution that provides everything the other solutions provide and more, at a lower price and with the added benefit of timeliness of data collection. That solution is Comply360 from ID Analytics. The Solution: Comprehensive, Cost-Effective Compliance Comply360 is an identity risk management solution that makes regulatory compliance more efficient by automatically combing through huge amounts of crossindustry data to help clear and remediate identities. It does this by drawing on the vast storehouse of real-time data accessed by the ID Network, helping to support regulatory compliance mandates for USAPA, OFAC, the FTC Red Flag Rules and others. How it works Comply360 relies on the unique and proprietary ID Network, the only real-time, cross-industry compilation of identity data in the nation. ID Network contains information about credit applications, credit transactions, payments, change of address information and demographic data. Contributors include a wide range of industries including financial services, DDA-accounts, retail, auto finance, telecommunications, e-commerce and mortgage lenders, as well as consumers themselves. Even more valuable, the ID Network has information on how, where and when these identity elements are used, and whether or not they were used legitimately. The ID Network is comprised of 1.7 billion applications and events from over 300 million consumers. It supplies the data that allows Comply360 to deliver an accurate, comprehensive, up-to-the minute perspective on the compliance risk of identities for potential customers. By doing this it ultimately reduces the volume of manual reviews needed to comply with government regulations. And because the ID Network gets information more quickly and organizes it better than typical credit bureaus, no other company can offer a solution this comprehensive. 3
Proven performance This unique cross-industry insight combined with ID Analytics award-winning analytical expertise enables Comply360 to clear and remediate identities that other solutions cannot address. This makes Comply360 effective as either a primary clearing tool or as an additional screening tool before placing questionable identities into a manual review queue. When used as a primary solution, Comply360 repeatedly produces autoclear rates that can exceed 90%. When used to screen customers that would typically be sent to manual review by other solutions, clearance rates in excess of 70% have been observed. Comply360 in action Imagine a scenario where a medium-sized lender (50,000 applicants per month) is aiming to increase the number of customers passing automated compliance checks. To reduce costs, the lender must also reduce manual intervention costs. Using an existing solution, the current pass rate is 73%, with a first-pass data cost of $0.53 per record. The average remediation cost for the second-pass review averages $5.25 per case. The lender then employed Comply360 to improve their first-pass clearance rate and their second-pass case remediation rate. Using field-level verification and warning codes provided by Comply360, the lender was able to further define the review population and automated stipulation assignment. The results were a pass rate and case remediation improvement of 22%. That translated to 86% of applicants clearing firstpassed compliance checks with no additional review, reducing direct data costs by over 50%. In this example, the lender saved over $567,000 annually and generated additional savings by automating the stipulation assignment for the remaining review population. Benefits of Comply360 By engaging the power and flexibility of Comply360 to draw upon the comprehensive, data-rich ID Network, lenders reap benefits that other solutions simply cannot offer: Unique insight into differentiated data in new and emerging markets Industry-leading fraud visibility from the largest repository of known frauds Up-to-the-minute updates to ensure data is never outdated Cutting-edge, advanced features driven by decades of analytic expertise Economical, affordable way of meeting extensive compliance requirements Access to the most comprehensive real-time cross-industry database available today What Comply360 provides Comply360 analyzes personally identifiable information (PII) and provides the following: Easy-to-understand grading system: Letter grades are determined by the match strength of the PII to our cross-industry real-time data, risk level, and potential OFAC matches. Every applicant will receive a grade from A F, making it easy to determine level of risk. Identity element verification: Comply360 will identify which PII elements were successfully matched. Element level verification speeds the manual review process by clearly indicating which PII elements need to be verified with the consumer. Specific result codes: Codes that describe specific conditions observed within the identity and provide guidance for remediation activities. Conditions addressed by Comply360 include: - Address matches those on a list of prison addresses, PO box or private mail facilities - Social Security Number has been reported as deceased - PII element(s) are associated with suspected or confirmed fraud - Name possibly matches that on the OFAC list The added advantage of the ID Network Cross industry coverage The comprehensive, differentiated data in the ID Network spans a wide variety of markets, giving Comply360 the power to perform strongly in all sectors 4
Performance data The ID Network gathers performance data from all clients and contains nearly three million reported frauds, highlighting negative experiences associated with an identity Up-to-the-minute visibility The ID Network is fueled by real-time updating of event and performance data, providing timely insights that are always based on the latest data in the marketplace Conclusion It is clear that sound business practices require institutions to make the best efforts to know their customers and comply with regulations. In order for financial institutions to avoid stiff fines and penalties and to create a healthy fiscal foundation, compliance is not only necessary, but desirable. At the same time, core data sources have been reduced and consolidated, making the task of compliance more costly and complicated. The time has come for an effective, efficient, comprehensive and affordable solution to keep the wheels of commerce moving. Comply360 effectively clears and remediates identities, including those with limited credit histories, at a lower price point than any verification solution on the market. Unique, cross-industry data addresses regulatory compliance with USAPA, OFAC, FTC Red Flags Rules and more. For more information about Comply360, or to discuss a portfolio analysis for your organization, please contact us today at 866.248.7344, send us an inquiry for more information to marketinginfo@idanalytics.com. 2012 ID Analytics, Inc. All rights reserved. 5