Online banking continues to grow, but that’s not to say there aren’t obstacles keeping it from exploding. The banking industry is ramping up the noise about changing rules that make it difficult to open accounts remotely, and Congress has the topic on its agenda.
In fact, the Consumers Bankers Association recently sent a letter to Congress, applauding them for its efforts to tackle the issue with the Making Online Banking Initiation Legal and Easy (MOBILE) Act of 2016. The Act promotes financial inclusion and consumer access to safe and well-regulated financial services and products.
“We applaud Representatives Tipton, Hultgren and Sewell for introducing bipartisan legislation to give consumers the ability to open a new bank account online or through a mobile device,” said CBA’s President and CEO Richard Hunt, in a prepared statement. “In an increasingly digital world, banking must be able to adapt and meet the ever-growing needs and expectations of consumers as they seek to monitor and manage their funds. At CBA, we have a committee dedicated to digital and look forward to seeing how we can help the MOBILE Act gain traction in Congress.”
What’s at issue? It’s hard and expensive for consumers who don’t have a checking account, debit card, or credit card. Furthermore, banks face difficulty implementing verification processes due to inconsistent state laws pertaining to swiping or copying state-issued identification cards. According to the CBA, currently five states prohibit photocopying driver’s licenses, while two states prohibit swiping driver’s licenses. Financial institutions remain committed to complying with federal laws aimed at preventing identity theft, financial fraud, money laundering, and terrorist financing, including the Bank Secrecy Act, its anti-money laundering rules, and Know Your Customer and Customer Identification Programs.
“It’s confusing; the state rules are different. We have people on our staff who deal with compliance. Nothing says you have to have a driver’s license to open an account online. The bottom line is, banks have to be reasonably sure that a person is who they say they are. That’s why banks ask questions about credit history. Knowledge-based verification is an acceptable way to identify a person,” says David Eads, CEO of Gro Solutions. “Banks are confused by the state and federal regulations."
The challenge for banks with remote account opening is the patchwork of federal and state laws and regulations for customer identification, know your customer, fraud, customer verification, and e-signatures, says Peter Dugas, managing director, Center of Regulatory Intelligence Risk, Information Security & Compliance (RISC) Solutions for FIS. “Banks providing financial services in multiple states will need increased due diligence to better spot conflicting regulatory requirements where certain business practices are permitted in one state but restricted in another,” he says. While banks want to reduce the number of branch locations where financial technology can address the evolving needs of consumers, they need to be careful on how they make those decisions and potentially come into conflict with laws like the Community Reinvestment Act (CRA), he adds.
Remote account opening should be an important part of a bank’s broader digital strategy, and a bank should strive to provide secure, flexible and fast access to their various banking services, says Dugas. Banks are collaborating with their vendors to address access to financial services across demographic and geographic lines, including better enabling mobile and online banking where branches are cost prohibitive or customers need to travel great distances.
The folks at CBA explain what the MOBILE Act would do. It would allow consumers to open bank accounts without having to visit a branch, streamlining the process for millions of Americans regardless of the state in which they live. Under this act, a customer simply would need to swipe, scan or copy their government-issued identification card using a mobile device with an internet connection. While making the account opening process easy and digital, the proposed legislation also ensures consumers would continue to be protected under the participating bank’s identity theft and financial fraud policies.
Dugas says that that there has not been significant debate in Congress over the challenges banks face in modernizing financial services and specifically remotely opening accounts, where there is a need for clarification of conflicting laws and regulations. He adds, “I expect Congress to address conflicting state laws for customer identification requirements in the broader debate over reducing regulatory burdens for banks, especially in areas where regulations do not account for changes in technology that can better serve low-income and underbanked or unbanked consumers.”