By Yuelin Li, Chief Strategy Officer at Onfido

Identity is at the heart of the financial services industry. Everything from applying for a credit card to closing an account is underpined by the idea of identity; it serves as the conduit to building trust between banks and consumers, while maintaining security of accounts and transactions.

In every financial interaction, banks must be confident that they can correctly establish a customer’s identity without error. Yet, in an increasingly digital world, this is becoming both difficult and expensive to achieve. Managing digital identities in a way that ticks all the boxes requires compliance with regulatory standards, robust fraud prevention, and a smooth end-user experience.

Let’s get digital

To realise the value of digital identities, it’s important to understand the digital backdrop of financial services. Recently, there has been a significant shift towards bringing financial interactions online-first, which for financial services, can be traced to three defining reasons.

Firstly, digitally-led banks have kept traditional institutions on their toes, forcing them to adapt. These industry disruptors have reported over 40% user growth during the pandemic alone, growing to 29 million users in the US alone. Naturally, to maintain the share of the market that legacy banks have, they must look to review, revise, and enhance the experience they provide.

Adding to that, the Covid-19 pandemic has rapidly accelerated the digital banking movement. Recent research shows that in 2020, 82% of all financial deposits were made digitally, largely due to the closure of physical branches and the safety and convenience of online services.

Finally, the vast competition from non-financial actors has made this market incredibly tight. Fintech and payment providers, as well as the entry of big tech, can now offer frictionless self-service, mobile, and 24/7 banking. This is a good indication the digitisation of the financial services industry is here to stay.

Traditional banks are incompatible with modern life

Despite this confidence and interest in digital banking, banks are falling down when it comes to the identity experience. How many leverage customer identities today is unfit for the digital age; the process is often slow, inconvenient, and at times unsecure. Fundamentally, this prevents them from building customer trust and loyalty in the long-term.

Critically, Gen Z and millennials are aware of this incompatibility. More than a quarter of millennials have never visited a physical bank branch, and this figure is not set to change. As a primary demographic target, financial services, including banks, cannot afford to lose their trust by implementing identity checks that could be found in a physical branch over a decade ago.

For instance, those identity checks conducted in person or via a database check with authentication heavily rely on usernames and passwords, KBAs or call centres, which is not synonymous with modern financial services. These ‘all or nothing’ approaches to data comparability is vastly different to the technology available – and expected – in services today. With one in three customers now opting to open bank accounts digitally, banks must reflect these behaviours if they want to remain relevant.

Reshaping the culture around identity in banking

Forward-thinking banks are adopting a digitally-forward approach to identity that allows for a frictionless onboarding experience. Immutably tying identity documents to a real-life human ensures the validity of an individual’s identity and creates a robust and secure onboarding process. Biometrics are one of the key methods to verify customer identities quickly and accurately. It’s also favoured by customers too with as many as 52% of customers suggesting they would rather use biometric checks when opening a bank account.

Ultimately, banks sare staking their reputation on building digital identities into the onboarding process to:

• Improve the experience for the user: digital identity verification is simply faster, safer, and more accurate than traditional means of identification. It is also particularly useful for time-poor and accessibility challenged customers who cannot always reach a physical bank branch before closing time.
• Acts as a buffer against fraud: unlike database checks, digital identity verification can ensure users are who they say they are, through a combination of biometrics and artificial intelligence (AI) checks, making them extremely difficult to breach.

• Relieve pressure on manual checks: banks that leverage digital identities can verify customers using rapid automated checks that do not require manual input. This allows organisations to provide certainty to their customers that their personal details are safe and secure.

A digital approach to identity verification is not only scalable, but also secure, intuitive and device-agnostic. For those banks that are looking to build trust with their customers, and appeal to the Gen Z / Millennial segment, it demonstrates a commitment to security and convenience in the digital world, and ultimately a better delivery of financial services.