One of the biggest obstacles facing innovation in the financial services industry is making it easier for verified and permissioned 3rd parties to access a customer’s DDA (Demand-Deposit-Account).
Services like PayPal try to get customers to connect their DDA’s to help avoid credit card network fees. These companies are relatively successful at this because they simply pass on that fee to the customer.
The currently acceptable process to permission a 3rd party to access a DDA is a multi-day process. The deposit verfication process:
- Give the 3rd party your account and routing numbers (NOT SECURE AT ALL).
- 1-3 days later, the 3rd party puts two deposits into your account (e.g. $0.23 & $0.01). You have to remember to log-on to your bank and look for these deposits.
- Log back into your 3rd party account, enter $0.23 and $0.01, and, finally, your account is verified.
- The 3rd party then debits your account $0.24 (that’s almost a quarter we are talking about). A rather long process, right?
Despite how long this process is, one company that I think does this particularly well is CoinBase.
First, Coinbase does something really simple that not everyone does: they send an email at the time the deposits hit your account. Coinbase has no idea when the deposits actually hit, but they can make an educated guess. Looks like Coinbase sent a reminder email the day after the deposits were ready in my account.
Second, they use instant account verification where available. I was given the option of instantly verifying my account by providing the username and password to my online Chase account.
The API, provided by Yodlee offers instant KYC to all customers who’s bank is integrated with Yodlee’s service, eliminating the need for the user to check their online bank account. I didn’t get the full experience of Yodlee’s instant account verification (Chase is not integrated), but this is a slick solution! Many have argued about its security, but giving out your bank account number is far worse in my opinion.
Coinbase has one of the best customer on boarding processes out there, and instant account verification is a centerpiece of this experience. Getting well-meaning, verified, and permissioned 3rd parties read/write access to DDA’s is a make or break issue facing fintech startups. Coibase is certainly taking advantage of all the knowledge and tech out there to onboard customers effectively, but as an industry we need to open up DDA accounts more.
Next Time: Open Bank Project