Banks are working on introducing stringent background checks on customers looking to open accounts via digital banking channels. This is a practice usually followed by lenders while opening credit accounts, but is now being replicated for deposit accounts too, according to three people in the know.
This comes at a time when banks are trying to weed out mule accounts —accounts which receive funds from illegal sources or through fraudulent transactions — from their systems. Reserve Bank of India governor Shaktikanta Das had at a July 3 meeting urged bank chief executives to step up their fight against such accounts.
“Some of the largest banks in the country could be processing around Rs 300-400 crore worth of fraudulent transactions through mule accounts on a monthly basis; for mid-tier banks, the amount could be around Rs 50-100 crore. This is becoming a serious problem for banks as digital payments become more ubiquitous,” a senior banker with a private sector bank said on the condition of anonymity.
A mule account is typically opened through forged documents and used as a pass through for illegal funds to be moved across multiple accounts, eventually to be taken out of the country via cryptocurrency or cashed out through multiple ATM transactions.“Mule accounts are not new to the banking world, but digital banking channels have made account opening that much easier, resulting in massive growth in mule accounts. Now banks are being driven by the regulator and the government to act against such accounts,” said Ankit Ratan, cofounder of Signzy which offers online identity verification service to banks. Now artificial intelligence and external data are being used to do real-time detection of such customers during account opening itself, he said.
The regulatory and government push has prompted banks to increase their scrutiny on accounts opened via their online platforms.
Also Read | ETtech Deep Dive: How RBI and NPCI are working to tackle mule account frauds
One of the people said lenders like IDFC First Bank, IndusInd Bank, HDFC Bank and Axis Bank are working to check applicants trying to open accounts via digital banking channels in real time or on a day-to-day basis.
Responding to ET’s queries, an IndusInd Bank spokesperson said: “(In) all digital onboarding of clients, the bank has implemented uniform and consistent digital on-boarding checks … These include checks against negative lists or fraud databases, digital verification of all KYC data from source, AI-driven identity verification solutions (and) self-funding checks.”
On the basis of these checks, either a fully operational account is provided real time to customers or enhanced diligence or scrutiny is done before the account is made operational, the spokesperson said.
Axis Bank did not comment, while emailed queries to HDFC Bank and IDFC First Bank went unanswered. The RBI did not respond to an email seeking comment.
Startups like Datasutram, Signzy and Mfilterit are looking to help banks deal with this menace. Industry insiders pointed said startups have capabilities to check the applicant’s registered mobile number across multiple databases and see if it has been flagged elsewhere for any fraudulent activity.
“It is almost like lenders check borrowers through alternative data points; it is like doing the same through alternative data points but for deposit account opening,” said the second person quoted anonymously who works with a fintech firm operating in this space.
Tech companies working with banks undertake real-time checks from the datasets of customers trying to open accounts. These datasets, provided by the banks, are then matched to see if the mobile number has been newly registered, or if the same mobile number has been historically used in other popular ecommerce portals or if it has been reported as fraud in any other public databases. In case all the fields get verified properly, the customer is allowed to open the account seamlessly.
In case there is a red flag raised somewhere, the customer will be either asked to use the branch network or limits will be imposed on the account till further scrutiny is completed.
While some systems are in place, they are not full proof. Like the banker quoted in the story said there are too many false positives that are being thrown up by some of these software systems during the course of the proof of concept.
Banks do not want to turn away any customer during the account opening processes, hence they are trying to fine tune the process to ensure that it produces the right results.
Industry insiders said the system will get stronger with more and more data and live use cases with banks. But banks are wary of sharing data and are careful around working with startups on such crucial segments of their business.
This comes at a time when banks are trying to weed out mule accounts —accounts which receive funds from illegal sources or through fraudulent transactions — from their systems. Reserve Bank of India governor Shaktikanta Das had at a July 3 meeting urged bank chief executives to step up their fight against such accounts.
“Some of the largest banks in the country could be processing around Rs 300-400 crore worth of fraudulent transactions through mule accounts on a monthly basis; for mid-tier banks, the amount could be around Rs 50-100 crore. This is becoming a serious problem for banks as digital payments become more ubiquitous,” a senior banker with a private sector bank said on the condition of anonymity.
A mule account is typically opened through forged documents and used as a pass through for illegal funds to be moved across multiple accounts, eventually to be taken out of the country via cryptocurrency or cashed out through multiple ATM transactions.“Mule accounts are not new to the banking world, but digital banking channels have made account opening that much easier, resulting in massive growth in mule accounts. Now banks are being driven by the regulator and the government to act against such accounts,” said Ankit Ratan, cofounder of Signzy which offers online identity verification service to banks. Now artificial intelligence and external data are being used to do real-time detection of such customers during account opening itself, he said.
The regulatory and government push has prompted banks to increase their scrutiny on accounts opened via their online platforms.
Also Read | ETtech Deep Dive: How RBI and NPCI are working to tackle mule account frauds
One of the people said lenders like IDFC First Bank, IndusInd Bank, HDFC Bank and Axis Bank are working to check applicants trying to open accounts via digital banking channels in real time or on a day-to-day basis.
Responding to ET’s queries, an IndusInd Bank spokesperson said: “(In) all digital onboarding of clients, the bank has implemented uniform and consistent digital on-boarding checks … These include checks against negative lists or fraud databases, digital verification of all KYC data from source, AI-driven identity verification solutions (and) self-funding checks.”
On the basis of these checks, either a fully operational account is provided real time to customers or enhanced diligence or scrutiny is done before the account is made operational, the spokesperson said.
Axis Bank did not comment, while emailed queries to HDFC Bank and IDFC First Bank went unanswered. The RBI did not respond to an email seeking comment.
Startups like Datasutram, Signzy and Mfilterit are looking to help banks deal with this menace. Industry insiders pointed said startups have capabilities to check the applicant’s registered mobile number across multiple databases and see if it has been flagged elsewhere for any fraudulent activity.
“It is almost like lenders check borrowers through alternative data points; it is like doing the same through alternative data points but for deposit account opening,” said the second person quoted anonymously who works with a fintech firm operating in this space.
Tech companies working with banks undertake real-time checks from the datasets of customers trying to open accounts. These datasets, provided by the banks, are then matched to see if the mobile number has been newly registered, or if the same mobile number has been historically used in other popular ecommerce portals or if it has been reported as fraud in any other public databases. In case all the fields get verified properly, the customer is allowed to open the account seamlessly.
In case there is a red flag raised somewhere, the customer will be either asked to use the branch network or limits will be imposed on the account till further scrutiny is completed.
While some systems are in place, they are not full proof. Like the banker quoted in the story said there are too many false positives that are being thrown up by some of these software systems during the course of the proof of concept.
Banks do not want to turn away any customer during the account opening processes, hence they are trying to fine tune the process to ensure that it produces the right results.
Industry insiders said the system will get stronger with more and more data and live use cases with banks. But banks are wary of sharing data and are careful around working with startups on such crucial segments of their business.
