Assessing the Risk of DDA Account Applicants: The First Data® Confidence Score® Advantage

Posted by John Bennett on May 4, 2015

The Importance of Risk Assessment

When a consumer applies for a DDA account at a bank or credit union, the institution typically performs some kind of risk assessment to determine how reliable the consumer is likely to be.

  • Will the applicant bounce checks?
  • Will the applicant commit fraud?
  • Will the account eventually be charged off?

To predict the future, the institution looks at the past. This retrospective analysis is typically performed through an online screening service.

The Costs of Focusing on Negative Data

One popular screening service bases its decisioning primarily on reports of closed accounts from major U.S. banks. The problem with focusing on this negative data is that analysis can be skewed, emphasizing negative events in the consumer’s history while ignoring positive ones. This unbalanced assessment leads to consumer frustration over being denied and institutions longing to open more accounts.

Imagine a consumer who has had four accounts with three institutions over the past decade. During the recession, the consumer suddenly lost her job and, as a result of this temporary hardship, caused her account at one of these institutions to be closed. Since then, the consumer has taken a new job and has proven a reliable customer of a local bank.

A screening service that reports primarily negative information would return a decision on her based on potentially incomplete information weighted heavily by the experience that occurred years ago. It would not consider—and therefore not allow the new institution to consider—this consumer’s more recent years of good habits and financial stability.

This consumer, who would likely be a profitable customer for any bank or credit union, may be repeatedly turned down for accounts, because the account screening services used by many institutions reports primarily negative data.

Consumers, regulators, and stage agencies have recognized this problem. Earlier this year, for example, the New York Attorney General’s office reached an agreement with three institutions that had been turning down low-income applicants based on the negative information in a popular account-screening services database. Under the terms of the new agreement, Capital One, Citibank, and Santander will turn down applicants only if the institutions find indications of fraud in the ChexSystems database, rather than rejecting them for a single negative ChexSystems report of activities such as bouncing checks.

The Consumer Finance Protection Bureau shares the New York Attorney General’s concerns, namely, that relying on ChexSystems was leading banks to reject trustworthy consumers, who then had no choice but to rely on Alternative Financial Services vendors, many of whom charge substantially higher fees than banks. The problem disproportionally affects lower-income, unbanked, and underbanked consumers.

As American Banker recently reported:

One of the areas of focus for the CFPB is to improve the data that is being given to consumer reporting companies to make it more nuanced and avoid a binary “yes or no” response. “This kind of assessment might provide greater access to the banking system,” [Director Richard] Cordray said during the forum [where he discussed this matter last year].

Executive director of the National Consumer Reporting Association Terry Clemans said the work the CFPB is doing, especially as it relates to examining the data that is being collected and reported to consumer reporting companies, “is going to make drastic improvements in the consumer experience and in the consumer reporting industry in general.”

First Data Confidence Score:  A More Comprehensive Alternative 

First Data Confidence Score provides an alternative risk assessment service that considers a broader data set than just bounced checks and closed accounts. As a result, it is able to return more predictive results and help more institutions open more profitable accounts, safely.

First Data Confidence Score provides a robust 1-1000 ranking of each applicant. This response includes both positive and negative information, including an assessment based on information found in TeleCheck®, the nation’s most complete database of financial institution and check-writer information and collections activity. The TeleCheck database includes records from more than 369,000 merchant locations and financial institutions.  Drawing on this database, First Data Confidence Score is able to provide a real-time assessment that is more nuanced than a simple yes/no reporting and more balanced than an assessment that collects only negative information.

This broader, more nuanced perspective on account applicants is valuable not just to consumers but also to financial institutions.

Today institutions are focused on growing deposits. When an institution turns away the deposits of a consumer because of a negatively skewed screening report, the institution loses a valuable customer along with whatever deposits that customer would have brought to the institution.

Institutions interested in growing deposits should consider the First Data Confidence Score as a supplement to or replacement of their current account-screening service. Adding First Data Confidence Score can result in faster deposit growth and an increase in happy customers.  

First Data Confidence Score is available through Dragnet Solutions’ Accelerated Insight real-time account- screening service. Accelerated Insight complements the First Data Confidence Score with its own valuable identity verification and account segmentation services that boost match rates and provide real-time guidance for customer segmentation.

For more information about Accelerated Insight and First Data Confidence Score, please contact us.






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