The expert view: The new world of identity 2

Customers want a frictionless experience from financial services companies; but security and anti-money laundering measures make this difficult. A panel of industry experts debated possible solutions to this and other challenges.

The Covid-19 pandemic has accelerated digital efforts in financial services. Customer identity verification is one area where there is advantage to be gained, Adam Desmond of Mitek told an audience of financial services business leaders at a Business Reporter virtual roundtable.

The financial services sector has coped very well with the pandemic, delegates agreed. After a few weeks of disruption early on, financial services companies were able to support staff who were working from home, and redirect customers to phone lines and digital channels. However, there is real pressure to maintain progress on digitisation.

A layered approach to identity verification

Many of those at the briefing said that today’s main driver of change is customer demand. Customers expect a low-friction experience, just like they get from e-commerce firms, such as Amazon. Attendees agreed that onboarding customers remains a particular pain point. Artificial intelligence and analytics are likely to smooth this in future, but those at the briefing said these technologies remain limited.

Of course, there are reasons why financial services must be more careful about customer identification. Fraud, cybercrime and money laundering are greater concerns for financial services than for e-commerce. Passwords can be exposed, and documents can be forged or stolen. No single identity verification measure will be enough. And whatever efforts a company makes, there is always the possibility of customer data being exposed through a third-party data breach.

The best solution is to take a layered approach, combining multiple sources to verify identity. This could be a combination of documentary evidence, confirmation on a particular device, and one or more biometric measures. Some attendees said multi-factor authentication had been adopted slowly overall but was now becoming commonplace.

Unfortunately, each added layer of verification adds more friction for the customer. The tension between customer experience and the need to follow Know Your Customer (KYC) requirements and anti-money laundering (AML) regulations will remain a challenge for at least the short-to-medium term.

The era of open identity

One way things could be simplified would be with an interoperable identity framework used for KYC and AML This would save financial services companies from duplicating effort by repeatedly verifying the same people. Approval on one system could grant a customer access to multiple platforms.

However, there might be good reason not to do this. One attendee suggested that being better at preventing fraud or securing data than a rival could be an important competitive advantage. If customers are becoming more concerned about their personal information – and many attendees believed they are – then there is value here. The market leaders may not want to share best practice with the laggards.

This type of ‘open identity’ might well be driven by the spread of Open Banking measures. That could mean, for example, that when buying alcohol at a self-service till in the supermarket, age verification could be handled by checking with the customer’s bank and using the information the customer has agreed to share.

Although Open Banking is expanding, delegates at the briefing agreed that regulators were only playing a small role in driving change. This might be because they are understaffed or underfunded. But whatever the reason, it seems that they are leaving a vacuum. Delegates felt that regulators could take more of a leadership role instead of being stuck as “followers”.

Shifting consumer attitudes

The burden is on businesses to lead the way. Several attendees said that they are seeing signs of a shift in consumer attitudes to personal data. They have been willing, for most of the past two decades, to part with personal data in return for relatively minor bonuses, such as discounts or other rewards. But attitudes are changing. People know their data is valuable. Businesses must get better at offering value in exchange for it.

Younger people appear, at least anecdotally some attended claimed, to be more aware of the value of their data, and more cautious about sharing it. This change could be further accelerated by companies like Apple who are making data privacy a central pillar of their brand. If that proves to be popular with consumers, then other businesses in other sectors could follow suit.

After decades of predictability in financial services, there is now considerable uncertainty. This brings with it considerable opportunity. For example, people once chose a bank in their late teens – often the one that their parents used – and they stayed with that bank for the rest of their lives. Today’s customers are much more likely use multiple companies for different financial services and they are more likely to switch suppliers. And each time they switch, they must be verified. The sector seems to be only just beginning to grapple with the digital tools required to make this happen simply, safely, and securely.


Learn more how companies in financial services fight fraud today from Mitek’s Fraud Trends and Tectonics report.

© Business Reporter 2021

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