Three Reasons Why Financial Institutions Need to Implement Biometrics in 2019

The financial services industry is at a crossroads. The fraud landscape is continually evolving, challenging companies to implement the highest level of security to protect customers and their sensitive financial data.

At the same time, consumers’ demand for a frictionless user experience is at an all-time high. Fintech companies and financial institutions must achieve the perfect balance of providing the best security available while creating an optimal user experience.

The solution to this problem is not new, but it’s more relevant now as institutions look at ways to overhaul security and streamline the user experience. Thanks to Apple’s adoption of the Touch ID fingerprint reader in 2013 and the company’s more recent launch of Face ID, biometrics have become mainstream and it’s easy to understand why. Biometrics are easy to use and convenient because every human has several unique physical characteristics — such as fingerprints, iris, voice and face — and behavioral characteristics that no one else has. It’s estimated that 2.6 billion people will be using biometric payments by 2023, but companies should not wait until then to integrate biometric technology into their platforms. Below are three reasons why companies should implement biometrics in 2019:

Biometrics Replace Traditional Authentication Methods as New Gold Standard

Traditional methods of authentication, such as knowledge-based authentication (KBA) and SMS-based two-factor authentication, frequently used by financial situations and mobile fintech apps are no longer endorsed by the National Institute of Standards and Technology (NIST). Unfortunately, SMS messages like the access codes consumers receive when logging into an account are too easy to intercept through man-in-the-middle attacks triggered via phone-based malware. Considering not all SMS exchanges are mobile phone-based communication — there is also SMS over VoIP — authentication codes can end up in Skype or WhatsApp, which are also prone to being breached.

Because of the copious amount of high-profile data breaches in recent years (e.g., Equifax and Facebook), KBA authentication is no longer secure. Personally identifiable information (PII) is now readily available for purchase by fraudsters on the dark web and it’s this information that consumers are likely using when creating responses to KBA answers. The fact that these two means of authentication are no longer secure is fueling the growth of an emerging biometric-based authentication market. A recent McKinsey report predicts that identity verification-as-a-service will grow to be worth almost $20 billion by 2022.

Implementing a biometric-based identity verification technology is a way to deter fraudsters by ensuring that a person’s digital identity matches their physical identity by analyzing biometric features captured in a selfie and compared to a government issued ID. Companies are taking it a step further by introducing liveness detection and 3D liveness detection technology to ensure the user is physically present and not being spoofed (using a photo, video or a different substitute for an authorized person’s face). Just requiring the user to take a selfie and perform a liveness check is a strong deterrent to would-be fraudsters since it means sharing their own likeness with the company they’re looking to defraud.

Biometrics Deliver the Seamless User Experience Consumers Demand as Banking Becomes Increasingly Digital

Consumer demand for a simple and streamlined online experience is skyrocketing. In fact, new research shows that 93 percent of consumers prefer using biometrics over passwords, 2FA or KBA when authenticating payments, and companies like Mastercard are doubling-down on biometric authentication in 2019. Biometrics offer the convenience that is highly valued by consumers, and financial institutions that do not provide a seamless user experience can experience significant losses.

A recent study from Javelin Research reported that millennials, the generation most involved in mobile banking efforts, are the quickest to abandon mobile banking if the verification process takes too long (38 percent). Furthermore, of those that abandoned at least one mobile activity, 31 percent responded negatively to the financial institution by sharing the experience with a family or friend, opening an account at another financial institution, filing a complaint or stopping patronage altogether.

Biometric authentication is more reliable than traditional authentication methods and is also faster, easier and more intuitive, which helps create a better onboarding experience for new customers. This results in less abandonment by new users and improved conversion rates for financial institutions.

Biometrics Empower Financial Institutions to Remain Competitive with Challenger Banks

Banks are closing branches at the fastest pace in decades, as they leave less profitable regions and fewer customers use tellers for routine transactions. The number of branches in the U.S. shrank by more than 1,700 in the 12 months ending in June 2017, the biggest decline on record, according to The Wall Street Journal’s analysis of federal data.

In the United States, new entrants make up 19 percent of financial institutions and have grabbed 3.5 percent of banking revenues; and in the United Kingdom, about 63 percent of companies are new entrants and hold 14 percent of revenue, according to an Accenture report.

With increasing competition from challenger banks such as Atom and Monzo, traditional banks who are closing brick and mortar institutions to pursue more digital banking offerings need to move quickly to avoid losing customers. To be able to compete in the digital space, banks must understand the way in which technology and consumer expectations are evolving and shape their IT processes and investments around this. Because of the security, familiarity and convenience biometrics offer, biometrics will be a key factor in helping financial institutions remain competitive among new digital offerings.

Biometrics are revolutionizing the way that consumers interact and live daily, from unlocking a cell phone to verifying a mobile payment. As biometric and liveness technologies continue to evolve, it is imperative that financial institutions embrace these technologies to remain competitive while providing customers with the security and convenience they demand.

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