Improving online account opening – What a new national standard means for mobile banking

Recently, President Trump signed into law Senate bill 2155, more commonly known as the “Regulatory Relief Act”, which rolled-back many of the federal regulations placed on financial institutions after the 2008 financial crisis. Amidst much media coverage about this new law and its impact, one short section has been largely overlooked, but which will make online banking and account opening dramatically easier and more accessible for millions of consumers. 

Tucked within the law is a new national standard that allows financial institutions to accept a scanned copy or digital image of a person’s driver’s license or state-issued ID card for customer identity verification purposes. Also known as the MOBILE Act – which stands for Making Online Banking Initiation Legal and Easy – the new identity verification standard was first suggested in the House of Representatives in 2017 and later incorporated into the text of the Regulatory Relief Act. Though seemingly just a simple clarification, the new standard will have an outsized impact because it fixes what had been a significant problem in some states, and will help drive a tremendous leap forward in digital transformation for many financial institutions.  

Kalle Marsal

Federal Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations require financial institutions to verify the identities of all new customers in an effort to prevent not only money laundering but also terrorism financing. In most states a bank, credit union or other financial services institution can accept a scanned, photocopied or digital image of a person’s driver’s license or state-issued ID to meet AML and KYC requirements. However, a handful of states including Colorado, Kansas, Tennessee, Mississippi, Oregon and Illinois had laws on their books prohibiting either the use of scanned images of IDs, or the scanning of the encoded information on IDs. 

The laws prohibiting making scanned copies of IDs made it extremely difficult (if not impossible) for regional banks and credit unions operating in those states to offer online account opening. Whenever a consumer started a new account enrollment process online or in the mobile channel, they were forced out of the digital channel and asked to visit a branch to show their ID in person. In some rural areas, or in areas where banks have been closing branch locations, this can be a particularly onerous burden to place on consumers as there may not be a branch location nearby. Ultimately, many would-be customers end up abandoning the digital process completely and either seek alternative financial services providers or simply do without. Indeed, an estimated 67 million people in the U.S. are considered unbanked or underbanked, and many of the top 100 unbanked areas in the U.S. (cities, towns or census designated places with more than 250 households) are in small, rural towns.

The new national standard for identity verification not only helps consumers gain greater access to financial services, it also helps banks on their path to digital transformation. With the ability to provide a seamless, entirely digital onboarding process, regional banks, credit unions and other financial services institutions in those states will be able to not only tap into the unbanked/underbanked market, they will also be able to better attract other demographics of new customers including digital-first millennials. Equally important, by enticing more new customers to enroll through the digital channel rather than in-branch, financial institutions can improve efficiency and dramatically reduce their operating costs. Research from Bain & Company shows that on average, a branch visit costs a financial institution approximately $4, compared to a cost of about 10 cents to complete the same transaction via mobile. New customers can simply use their smartphone camera to scan their ID and take a selfie. Almost instantaneously, machine learning algorithms are able to determine the authenticity of the ID and apply biometric facial comparison to the selfie for strong identity assurance. 

The new identity verification standard included in the Regulatory Relief Act may be a unique example of something that is very rare indeed today: a common-sense standard that is widely supported by consumers, financial institutions, industry groups and a bipartisan group of legislators alike, and one that benefits us all.