By Ray Birch
ST. PETERSBURG, Fla.—Provisions in the Regulatory Relief Act allowing more states to accept scanned drivers licenses for ID purposes for online enrollment are a solid step forward in the digital transformation of financial institutions, according to several sources.
One expert even told CUToday.info that the new rules might lead to some large credit unions launching digital-only subsidiaries. But one other person cautions that it may be banks that benefit first.
As CUToday.info reported, one small, largely unpublicized, section of the Regulatory Relief Act 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.
Laws Start to Catch Up
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.
Brian Scott
“First of all, this is an example of statutes finally starting to catch up to what’s happening in the real world. It’s a change that has been needed for years now, so good to finally see it come to fruition,” said Brian Scott, SVP of sales and solutions consulting at PSCU. “I do think that it’s a good thing for consumers as well as financial institutions and I do believe it will have a positive impact on online account openings.”
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.
“It’s about time that a lot of our laws catch up to what’s happening in the real world and things like this hopefully continue to not prevent business,” said Scott. “For example, a lot of regulation today prevents or makes it harder to do business in the digital space, and hopefully laws like this make it easier and easier.”
More Use of Kiosks?
Scott believes it will lead more credit unions and banks to offer account opening via kiosks.
“People can go into a branch and just use a kiosk to enroll at the credit union or open up a new account,” said Scott. “It’s the same concept as going to a grocery store kiosk to renew my driver’s license as opposed to waiting in line at the DMV. This makes it easier to open accounts.”
Scott believes it’s a development could lead to more non-traditional players entering the financial services space, including a new brand of credit unions.
“There are a lot of technologies moving us toward FIs—including credit unions—saying I could become completely digital,” he observed, saying the new regulation could sway large financial players that serve consumers across multiple states to consider digital-only service. “I could make my whole business model online.
“Take a big credit union that is large enough to open an online only credit union under a different name and brand. It would be digital only and be a subsidiary of the larger credit union but run totally separately,” continued Scott. “I see this happening as it gets easier to bank digitally. In this case you might view this credit union subsidiary as a non-traditional financial services player, which is interesting.”
Lou Grilli
Initial Spike in Fraud?
Scott said that opening more accounts online will at first lead to a spike in fraud, which banks and credit unions are experiencing already as more crooks are creating false identities due the massive amount of sensitive personal information available on the Dark Web.
But he insists that while fraud would continue to spike, it would only do so for a short period before technology secures the channel—better than in-branch security today.
“With some newer AI technologies will come about because of this, we may eventually see this type of fraud go down after an initial spike, just because of the learning curve,” said Scott. “It’s easier for fraudsters to go online today to open an account, where they don’t have to be physically present. But technology will catch up quickly. I think most of this technology is available today, such as AI, but it’s all about understanding what sorts of things need to be present online to fight account opening fraud. Longer term, I think the online channels will become the most secure.”
Banks May Benefit First
Lou Grilli, director of payments strategy at Trellance, said that in the states benefitting from the new regulation it may be the banks that are the real winners.
“Given that credit unions are much more conservative than banks, I see banks in those states adopting mobile onboarding even faster than credit unions,” he said. “Bottom line, large or more progressive credit unions in those states that couldn’t previously offer the ability to present identity digitally rather than in-person will adopt the technology fairly quickly—not a tidal wave, but more like a flowing stream.”