By Nick Caley, Vice President Financial Services and Regulatory, ForgeRock
Biometrics, which in security terms means measuring unique physical characteristics for authenticating an individual, are not a new concept. However, the latest technological developments in this field do pose fresh challenges for retail banks.
The potential benefits of biometric authentication, in terms of enhanced customer experiences and improved security, are huge, but while consumers are readily adopting certain early forms of biometrics, the gap in consumer trust around data sharing could prove to be a major barrier to adoption in the future.
Fingerprints have given consumers and banks their first taste of biometrics
Fingerprints have long been considered a reliable and stable form of identification. In fact, Sir Francis Galton proclaimed the benefits of fingerprints as an incomparable validator of identity as early as the 1800s. In recent years, fingerprints have become a mainstream daily authentication option, thanks to Apple’s iPhone and other advances in consumer products. This shift has also been driven by increased regulatory requirements such as those mandated by PSD2, and a sharp rise in fraud, forcing banks to implement stronger authentication.
Research shows that biometrics have quickly become consumers’ preferred authentication method: one survey found that that 85% of banking customers preferred biometrics over passwords. And this is not a trend that is confined to Millennials or typical ‘early adopters’; with 68% of those aged over 71 preferring biometrics.
Biometrics are also becoming a competitive differentiator: research conducted by Visa, released at the start of this year also found that 53% of respondents would switch banks if their current provider didn’t support biometric authentication. The potential for biometrics to improve customers’ experiences, reduce the need to remember multiple passwords (cited as the biggest benefit by 42% of Visa’s respondents) and strengthen the safety of their information, is obviously being felt and appreciated.
The regulatory pressures from PSD2 and Open Banking, which demand that banks apply Strong Customer Authentication (SCA) to their transaction processes, also point to the value of biometrics. Fingerprints and other biometrics methods already provide a strong multi-factor authentication (MFA) solution, a crucial form of SCA. Likewise, PSD2’s drive to open up the financial services market means banks are now increasingly challenged by nimble, digital-first fintechs.
There are also significant internal benefits for banks. Improvements in digital banking authentication have enhanced risk management, and led to greater accuracy, making fraud less likely – effectively addressing SCA concerns. Meanwhile voice biometrics have led to tangible improvements in customer service offerings, realigning them with consumers’ expectations, and reducing costs by taking up less time of call centre staff.
Continuous authentication: trailblazing through a privacy minefield?
Despite this promise, the biometrics revolution is still fledgling, and there is much more to come as the ecosystem around these technologies matures. As well as “multi modal” biometrics, which incorporate multiple biometrics in a single scan and thereby result in an even higher level of security, the dynamic and complex technologies of continuous authentication are coming to the fore.
Continuous authentication involves continually capturing and evaluating behavioural characteristics, contextual clues like GPS and interactions with a device to build a profile to authenticate a user. It has the potential to unlock immense value for banks and their customers, amplifying the benefits outlined above, while extracting more value from legacy systems, reducing friction and improving security. Next-generation technologies such as behavioural biometrics could make the potential of continuous authentication a reality and allow financial institutions to embrace a more dynamic form of authentication and risk profiling.
It could also provide a wealth of data that could benefit both banks and their customers: banks will be able to build more comprehensive customer profiles, leading to a wealth of opportunities and information to personalise their offer as well as streamline and automate KYC and AML processes (“Know your customer” and Anti-money laundering, two current business-critical authentication procedures for banks). For example, it should be easier to capture an individual customer’s intention at critical moments in their daily activities. This opportunity is significantly increased with the roll-out of 5G, as well as the rise of connected devices in our daily lives. Such real-time data-driven insights into the customer’s life provides marketing teams with an ability to offer the most relevant incentives in a true value exchange.
With behavioural biometrics working in the background to protect consumers without introducing unnecessary friction, continuous authentication can deliver greater personalisation, choice, security and convenience. Crucially though, behavioural biometrics will not – and should not – replace valid security prompts designed to authenticate and authorise transactions that require the full confidence of the customer. Therefore, new solutions must augment legacy methods, injecting the right amount of friction where necessary, while still improving user security and experience.
But as we push towards a world of continuous authentication, it comes back to the ever-present question of trust: can banks convince consumers to embrace the value of these new solutions? To reap the rewards of the next revolution in biometrics, banks must lay the foundations of consumer trust now.
Transparency is the foundation of consumer trust
Despite the benefits these technologies can bring, confusion around data collection could stall innovation and limit consumer acceptance. Consumers are rightfully taking a greater interest in their data and, without education, banks’ promises over privacy and personal data may sound inconsistent with their drive to collect the levels of data necessary to enable greater personalisation and continuous authentication.
The lessons we’ve learned from GDPR and PSD2 in terms of how control, convenience and compliance relate to trust provide an instructive starting point when addressing these concerns. Banks need to make consumer consent a central part of their data sharing and management strategy from the get-go..
Transparency is vital to building and retaining consumer trust – as we’ve seen with recent privacy scandals. By putting customers in control now, providing centralised visibility and clearly educating them as to how and what information will be collected by continuous authentication, banks will be able to lay the foundations for consumer trust that will allow them to reap the benefits of the coming biometrics revolution.
UKRSIBBANK, part of BNP Paribas Group, announces a strategic partnership with financial wellbeing startup Dreams, to enhance the digital user experience of its 2 million customers in Ukraine
- The technology powering popular consumer app, Dreams – which has helped 460,000 users save over 440M EUR – will be made available to UKRSIBBANK’s users in Ukraine.
- Through the integration of the Dreams platform within UKRSIBBANK’s own digital tools, customers of the bank can set and achieve money-saving goals, track and improve their financial lives.
Dreams (https://www.getdreams.com/en/b2b/), the Stockholm-born fintech empowering millennials to save and feel better about their money, today announces a strategic partnership with Ukrainian commercial bank UKRSIBBANK, a subsidiary of French international bank BNP Paribas Group.
This partnership follows the announcement earlier this year of Dreams’ first enterprise partnership with banking software provider Silverlake Symmetri, and the recent unveiling of a new department in Stockholm dedicated to the development of Dreams’ B2B partnerships. The announcement marks an expansion of the company’s business model as it consolidates its B2B offering and evolves its services as a provider of white label solutions for financial institutions.
Through the integration within UKRSIBBANK’s own digital tools of the Dreams Platform – which is rooted in scientific principles – customers can set and achieve money-saving goals through clever, automated saving features, in addition to nudges and saving hacks.
The Dreams Platform will be included as part of UKRSIBBANK’s digital banking offering for its 2 million+ customers, and is set to grant millions of potential consumers across Ukraine access to products which will help keep their finances on track and improve their financial lives.
The rise in digital self-help tools has long been anticipated by Dreams and forward-thinking financial institutions. The current global economic uncertainty brought about by the COVID-19 pandemic has also placed significant strains on people’s finances, and the demand for better personal finance tools has only accelerated. The partnership with Dreams is welcomed by UKRSIBBANK which is currently striving to equip its customers with the best possible banking solutions whilst helping them achieve a more sustainable lifestyle.
Dreams is firmly established as an authority in its industry, having launched its consumer-facing app in its native Sweden in 2016 and Norway in 2018 – where it has already achieved a 16% market share of all 20-39 year olds.
Henrik Rosvall, CEO and founder of Dreams, comments: “It’s a true honour to be partnering with UKRSIBBANK and BNP Paribas Group, and we’re incredibly excited to be introducing the Dreams solution to UKRSIBBANK’s customers and the wider Ukrainian market.
“Dreams and UKRSIBBANK can now lead the charge, with BNP Paribas Group’s corporate strategy having shifted in recent years to focus on guiding customers towards responsible consumption and sustainable personal finance management. I’m confident that our mission of helping millennials save more and feel better about their money makes us the ideal partners.
“Our financial wellbeing platform – which is built upon behavioural science and personal finance management principles – will provide the perfect tool for UKRSIBBANK to help its customers make better financial choices and become more sustainable in the way they handle their finances. This partnership will also help UKRSIBBANK safeguard the loyalty of its customers and futureproof its digital banking offering against a growing number of challenger banks and fintechs.”
Konstantin Lezhnin, Head of Retail at UKRSIBBANK BNP Paribas Group, comments: “I believe that banks have a role to improve their customers’ lives. Planning and saving for important life events improves our quality of life by reducing stress levels, and we wish to make our customers feel more confident and in-control of their lives.
“UKRSIBBANK has always applied innovative ways to assist our customers in financial planning, so we are very happy to now be working with Dreams, the best European player in behavioural savings. They have an extremely solid track record in Sweden and Norway based on scientific research, so we are confident that this partnership will work positively for our customers in Ukraine. This also demonstrates our strategy to cooperate with startups and innovative companies that seek ways to expand their operations.”
Three times as many SMEs are satisfied than dissatisfied with COVID-19 support from their bank or building society
- More SMEs are satisfied (38%) than dissatisfied (13%) with their COVID-19 banking support
- Decline in SMEs using personal current accounts for business banking as more seek access to the Government-backed lending scheme
- Fewer SMEs believe nearby branches are important when choosing a bank or building society
- 15% of SMEs use mobile or online banking more often than before the COVID-19 pandemic
- When SMEs do look to switch, low or no charges for business banking remains the most important factor (47%) in selecting a new account
Three times as many SMEs have been satisfied than dissatisfied with the COVID-19 support available from their bank or building society, according to YouGov research commissioned by the Current Account Switch Service.
Overall, four in ten SMEs (38%) were satisfied with the support they received from their business current account provider since the pandemic began. This contrasts with one in ten SMEs (13%) who were dissatisfied. In general, more than half of SMEs (55%) are satisfied with their current business bank account, compared to 8% who are dissatisfied. However, inertia remains a problem as half of SMEs (50%) said they would not look to switch business accounts even if they were dissatisfied with their current bank or building society.
When SMEs do look to switch, low or no charges for business banking remains the most important factor (47%) in selecting a new account. Advanced digital features (35%), good interest rates (34%), and a personal connection through a relationship manager (33%) also mattered.
The SME banking research was conducted both in February and in September 2020. It also reveals that since the start of the pandemic, the proportion of SMEs using business current accounts has increased from 69% in February to 74% in September as firms are required to have a business account to receive access to the Government-backed lending schemes.
However, one in five SMEs (20%) still use a personal current account for their business banking needs, despite the risk that tax liabilities get confused, and calculations are made incorrectly. These businesses are also missing out on a range of business-only banking benefits such as integrated accounting software or invoicing tools offered by different providers.
In addition, the research shows the importance of branches to SMEs has declined over the seven months. When asked in February, more than a fifth of SMEs (22%) said the availability of nearby bank branches was important when selecting their bank or building society, compared to 17% in September. However, the Post Office could be fulfilling the role of branches in some areas.
The declining importance of nearby branches was most noticeable in the North East region where 35% of SMEs believed branches were important in February, falling to 18% in September. The importance of nearby branches also varies between industries. One in ten IT companies (11%) said nearby branches were an important factor compared to nearly three in ten (29%) leisure and hospitality businesses.
While branches are less important, digital banking use has increased for some SMEs. Several firms have started to use online banking for the first time as 15% of SMEs say they use mobile or online banking more often than before the social distancing measures were introduced.
Maha El Dimachki, Chief Payments Officer of Pay.UK, owner and operator of the Current Account Switch Service, said: “Across the country, banks and building societies have been working hard in difficult circumstances to meet customer needs. Thanks to that work, small and medium-sized enterprises are more likely to say they are satisfied than dissatisfied with the support they received from their business account provider since the pandemic started. But lockdown has changed small business behaviour dramatically, in a way that points to significant changes to their banking needs both now and in future.
“It’s encouraging to see many small businesses are generally satisfied with their business bank accounts. However, even when businesses are unhappy with their bank, some don’t consider switching as an option, despite the many benefits available. We’ll continue to raise awareness of the benefits of switching among small businesses to help them get the most from their bank account.”
The Next Evolution in Banking
By Young Pham, Chief Strategy Officer at CI&T
Everything we know about banking is about to change. A new industry around the sharing of financial data is primed to give birth to a host of new consumer services, all thanks to Application Programming Interface (API) technology. Already known for being the safest place for money, there are opportunities for banks to expand that relationship to other aspects of the customer relationship. Banks will no longer simply be just a place to deposit and withdraw your cash, but a one-stop-shop for a range of data-sensitive services.
The passing of GDPR and the Payment Services Directive (PSD2) were the first steps in this process of banks modernising how they handled their customer data. However, incumbent institutions have so far not engaged enthusiastically. Rather, it was only after growing pressure from fintech challengers and government regulation that they were forced to open up and share their data. This should not be treated as a regulatory challenge, but rather a way to grasp the unique opportunities that banks have to reposition themselves as the most trusted resource for their customers.
It is hard to overestimate the breadth of possibilities arising from open banking, should banks choose to take advantage of this evolution. While the public rarely holds bankers in high regard, it still puts a high level of trust in banking institutions. People are more willing to hand over their sensitive data than they would be to almost any other private entity. Furthermore, banks have a unique perspective into their customers’ behaviours, needs and desires. Spending habits, income streams and risk appetites are just a few examples of the data that no other institution can tap in to.
There is certainly appetite to expand offerings. In our recent study of business banking customers, over 68% of respondents indicated that they were open to their financial institution providing digital non-banking services. This includes services such as tax support, managing payroll, or invoicing to help them with their day-to-day businesses.
More banks should consider how open banking can maximise their digital capabilities and create a greater range of services for customers to enjoy. Such offerings could be tailored according to each bank and their particular customer audience. For instance, banks could offer everyday services for most users, such as insurance for individuals or business management tools for business accounts. Alternatively, banks could offer more exclusive and specialised services for high net worth individuals to meet their specific needs, such as art appraisal and investment management.
The idea that a firm can expand its offering into new verticals is hardly new. Many of the world’s largest tech companies, such as Apple and Amazon, already offer diverse products including hardware, software, entertainment and cloud services. They are able to do this thanks to the vast quantities of data they have gathered, which provide invaluable insights into consumer behaviour and demand. Banks are in prime position to follow the example of these top tier tech companies thanks to their monopoly on key financial data.
Disruptors vs incumbents
The business model described above is already being adopted by numerous challenger banks. These firms have led the innovative charge thus far, thanks largely to their agility afforded by their smaller size. Indeed, some fintech banks already provide a range of non-banking services to their customers. Revolut, for instance, offers users several types of travel insurance as well as access to airport lounges as part of its premium service for a monthly subscription.
These offerings are not a sign that the challenger banks are about to topple the large incumbents. Rather, these disruptors have always flagged the gaps in the market that larger institutions have been too slow to fill. It is now up to the established banks to learn from their example.
While challenger banks may have a first-mover advantage for these services, the incumbents have two key advantages: capital and credibility. Firstly, the top banks have enough cash to fund this overhaul of their business models. While the challengers have been able to afford to do so in recent years, they lack the reserves to tide them over during economic downturns such as the current pandemic.
Secondly, even though challenger banks are perceived as more convenient and are less vilified than traditional banks, the public still trusts the latter. Many of these large banks can point to their extended histories and long-term investment success – accolades young challengers simply cannot match. In short, people don’t have to like their bank to trust them with their cash and their data. These two advantages strongly suggest that large banks are better positioned to take advantage of the open banking business model in the long term, despite being slower to adopt and adapt.
All this opportunity is within reach. We already have the technical capabilities for data sharing, and the regulatory framework is not insurmountable. Rather, the key for this evolution of the sector lies in banks’ appetite for risk and willingness to reinvent their business model.
Banks need to take a leap of faith and leave behind the business paradigm to which they’ve become accustomed. They should embrace transparency, run towards regulation and take advantage of opportunities to invest in these areas or collaborate with outside technology firms. Only then will banks be able to make the most of their data assets, creating value for the customer and further strengthening the relationship.
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