CFPB Director Richard Cordray’s recent comments about the methods banks are using to screen consumers and evaluate risk in the checking account space1 has caught the attention of the industry. While we’re all aware of the financial realities of checking account profitability, it’s safe to say that we can expect some regulatory changes that will prompt us to consider the implications and changes to our businesses.
While the CFPB has yet to issue any official guidance on this matter, its influence could have an effect on the usage of ‘crude blacklists’, as Cordray calls them, in the new account opening decision process. Overdraft protection, shadow lines, and deposit rules, while not necessarily transparent to the consumer, are tools traditionally used against fraud and abuse. So how does the industry move forward, continuing to offer compelling products to the U.S. consumer, while maintaining a sustainable business – especially if these tools are no longer accepted?
One way to address this is through ‘compelling products’ design. Both positive and negative data can be used in a responsible manner to offer appropriately designed products or features on existing products. Take the low-fee simple Green Dot product offered through Walmart2 This is a product that was designed around a risk group that might not receive features such as overdraft protection, but still have basic depository needs met. A debt card-only product that relies on the real-time nature of the card networks, as opposed to the ACH system used in the U.S., could also be a viable option for this group.
However your organization chooses to approach this new environment, the need for intelligent decisioning up front is more important than ever. Having the right data in real-time needed to process new accounts in the branch, online, or on a mobile device, will continue to grow in importance as will ensuring a positive, friction-free user experience. From remotely authenticating consumers in a faceless channel, to setting product features that maximize conversions, the competitive marketplace of checking accounts is about to get much more interesting.
Patrick Reemts is Vice President of Credit Risk Solutions at ID Analytics, Inc.
1 Richard Cordray. Consumer Financial Protection Bureau (8 October 2014). Prepared Remarks of CFPB Director Richard retrieved November 10, 2014 Cordray http://www.consumerfinance.gov/newsroom/director-richard-cordray-remarks-at-the-cfpb-forum-on-checking-account-access/
2 Douglas-Gabriel. Washington Post, (September 2014) Walmart teams with Green Dot on Checking Account, retrieved November 6, 2014 from http://www.washingtonpost.com/news/get-there/wp/2014/09/24/wal-mart-teams-with-green-dot-on-checking-account/