Charlie Roberts, Head of Business Development for the UK, Ireland & EU at IDnow, outlines the need for more effective identity verification in the financial services sector and how it can be achieved.
In 2019, even before COVID-19 struck, the UK fraud prevention service – Cifas - recorded in excess of 223,000 cases on its National Fraud Database, an increase of 18% on the previous year and a 32% rise over the previous five years. And looking ahead, experts predict that by 2021, the damage caused by internet fraud will reach $6 trillion, making cyber fraud one of the world’s fastest growing and most dangerous economic crimes.
Worryingly for the financial services sector, IBM recently revealed that in 2019, it was the most targeted industry for cyber criminals.
It should come as no surprise then, that financial institutions are increasingly being thrust into the spotlight when it comes to digital security and protecting the identities of their customers.
These worrying figures are certainly one driving factor in the UK government’s new Digital Identity Strategy Board, which has developed six principles to strengthen digital identity delivery and policy in the country.
A hybrid approach
We already know the important role technology is playing in the fight against cyber criminality – from biometrics and machine learning to artificial intelligence (AI) – and we recently discussed the significance of supplementing this verification technology with human identification experts. These professionals are able to use their intuition and understanding of human interactions and behaviours to identify when a person is being coerced or dishonest.
Worryingly for the financial services sector, IBM recently revealed that in 2019, it was the most targeted industry for cyber criminals.
However, while these highly skilled and trained identification specialists are playing a vital role in the fight against cyber and identity crime, for some financial institutions, particularly larger banks, they present a barrier.
Bringing the entire verification process inhouse
Working on a SaaS basis, typically, identity software vendors provide financial institutions with the software and technology required for identity verification. However, the final decision on verification rests with the vendor’s algorithms or ident specialists.
However, many banks want to own the entire verification process, from utilising the technology and software to making the ultimate decision on the identity of a person. By handing this level of control over to the bank, institutions can integrate the verification systems within their own infrastructure, enabling the people that know their brand the best to set their own levels of security and determine what is authenticated and what is declined.
Upskilling inhouse teams is critical
While working with a third-party verification specialist is the preferred option for some, for others, the idea of upskilling and training existing compliance teams in identity verification is the priority, empowering the bank to own the process and the risk. In the long term, it will also provide significant cost savings while showcasing a major investment in talent and people, which will undoubtedly help attract and retain customers too.
With the UK seeking to develop a legal framework for digital identity, it is clearly becoming an increasingly important feature on the governmental agenda, not least to ensure that not only can people feel safe online, but also to deliver faster transactions and ultimately add billions to the economy. As such, all eyes will soon be turning to the safeguards the financial sector is putting in place to help protect the online identities of customers.
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Arguably, then, now is the time to invest in a robust identity verification system that will not only provide the advanced technology needed to automate the process, but that can help train and upskill inhouse teams to truly deliver an embedded and hybrid approach to identity verification at a time when it is of paramount importance.
Below Simon Wood, CEO at accredited LEI issuer Ubisecure, discusses with Finance Monthly the significance and function of LEIs, what they are and how they work, but more importantly how the financial sector can work to reduce the risks involved in managing LEIs.
Comprising of 20-character alphanumeric reference codes, LEIs are designed to identify distinct legal entities and provide a free, publicly available, verifiable source of ‘who is who’ (organisation identity) and ‘who owns whom’ (organisation group structures). Crucially, by utilising LEIs, companies of all sizes can identify themselves as a true legal identity and trade globally.
LEIs offer many advantages to the banking industry, ranging from significantly reducing costs in customer onboarding to establishing transparency and enabling trust in transactions. Indeed, McKinsey & Company, along with the Global Legal Entity Identifier Foundation, recently found that LEIs could yield annual savings of over U.S. $150 million within the investment banking industry alone.
Despite these benefits, however, if LEIs are not managed correctly the potential risks could result in harmful ramifications, including non-compliance fines and negatively impacted reputations. With that in mind, it is important that the banking sector not only educates itself on these risks, but that it also acts to deploy tools and strategies to manage LEIs safely and effectively.
The role of LEIs in banking
The value LEIs bring to the banking sector can be categorised in two key ways – by enhancing transaction identification processes, and by simplifying the process of tracing information about a transaction.
LEIs are an ideal mechanism in situations where an identification process is required for payments. At the same time, they allow financial institutions to optimise the efficiency of their systems through automating and augmenting verification methods.
LEIs are an ideal mechanism in situations where an identification process is required for payments. At the same time, they allow financial institutions to optimise the efficiency of their systems through automating and augmenting verification methods.
Where payments need to be routed to the correct entity in a large corporate group, LEIs serve an equally essential function, making all members of the transaction aware of who owns whom via LEI level 2 data. They also allow economic crime and identity fraud to be quickly pinpointed and averted.
It’s therefore unsurprising that the SWIFT Payment Market Practice Group is a key advocate of LEIs, and has formally declared the ‘huge potential’ they offer for improving payment processes.
Moreover, the cost of customer onboarding can also be significantly reduced with LEIs as they standardise one comprehensive identifier for KYC/AML processes. In fact, recent research from McKinsey & Company suggested that by using LEIs to support all stages of the ‘customer management lifecycle’, the banking industry as a whole could save around U.S. $2.4 billion a year.
LEI management considerations
With ISO 20022/SWIFT becoming the global standard for financial transactions, there is a strong push for the inclusion of LEIs in payment messages. Consequently, LEIs are set to play an even more fundamental role within banking over the next year – so it is increasingly vital that they are managed in a secure and efficient way.
This involves ensuring that workflows and systems are able to obtain LEIs as required, and also that they don’t lapse. Ultimately, a host of new risks are introduced when LEIs are missing, incorrect or out-of-date. The implications can be severe, resulting in held-up trade and potential non-compliance fines.
Organisations are required to acquire and uphold LEIs in line with specific regulations – such as MiFID/MiFIR in the EU for example. If this doesn’t happen, then trade will be delayed and transactions frozen until the issue is resolved. For this reason, LEIs should be issued at the earliest stage possible to avoid payment workflow delays and disruption down the line.
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Mitigating the risk
The first step around countering LEI risk is to ensure that the relevant staffers are fully aware of the consequences that come with lack of LEI preparation. With this, its essential that strategies are put in place to provide the necessary education.
In practical terms, employing a robust LEI issuance and management solution can help to reveal the existence and status of all current LEIs within an organisation’s internal and external groups. This also helps to provide an overview of all the LEIs in play within a single view, so financial organisations can easily identify and issue LEIs to anyone with missing identifiers.
By automating the LEI issuing and renewal processes, banks can significantly cut down administrative burdens, while simultaneously guarding themselves against the risk of lapses or fines from regulatory breaches.
As LEI use cases are set to explode, there’s no question that they are the future for driving progress within banking. Yet although the benefits are significant, the industry must also be aware that the potential costs of lapsed, missing or incorrect LEIs are also considerable. To fully reap the rewards, then, implementing systems and processes to manage them effectively is vital.
With a world that increasingly relies on the individuality of society, transformation towards bespoke platforms and mechanisms is inevitable. Here David Orme, Senior Vice President of IDEX Biometrics, discusses the growing benefits of biometrics in the world of money, a world which for consumers is deemed one of the most private and personal to each of us.
Sadly, our relationship with money and purchases is not as personal as it used to be. Gone are the days when people would visit their local banks, queue up at the kiosk and request to withdraw cash from their account via the bank clerk.
Modern technology has positively shaped personal finance in many ways by providing convenience and security through areas such as online banking and payment cards. As a result however, our personal relationships with our money is quickly deteriorating.
After all, we live in a world of personalised experiences. Amazon offers us individual recommendations, Spotify suggests great new songs based on our listening, and Netflix knows what we’ll love to watch. We now expect everything to be unique and tailored to us and our personal preferences. It puts us in control and validates that we are each individuals with our own specific likes and needs; that in a world of 7.6 billion people, we have a voice.
This taps into an innate love of the personal... Something that reflects who we are: from a monogrammed shirt, a personalised number plate, a tailored itinerary for your holiday to simply how you like your coffee.
Yet there are some things in life that have resisted being personalised: credit and debit cards are one such example. They’re all the same. All dull and functional. Generally, the only way to personalise cards currently is to use a PIN with significance such as a birthday, as insecure as that may be.
But as the protagonist from the 60s TV show, The Prisoner, famously shouted “I’m not a number!” None of us are numbers. We are all unique. And what is more unique than our fingerprints?
Biometric intervention
Our society has become increasingly security conscious, in a landscape characterised by the rising skill levels of cyber criminals. With biometric technology already implemented as a security measure in airports, and even on the latest smartphone devices, the idea of fingerprint recognition should not be a foreign concept. Instead, due to it already being a consumer habit, biometric payment cards will be easily adoptable, thus paving the way for a smooth transition.
Traditional methods of authentication such as the Personal Identification Number (PIN) are becoming more and more outdated. Failing to combat fraud, the PIN has seen millions lost to scams ranging from shoulder surfing to lost and stolen, even to opportunist criminals discovering PIN codes written down.
By introducing a biometric payment card, consumers will be far more protected from fraud, which will eventually bring an end to the PIN. By storing a fingerprint sensor directly onto the payment card, as opposed to a central database, there is nobody else in the world that will be able to connect with the card to issue a transaction other than the owners themselves. Thus, creating a far more accurate method of authentication and the ultimate personal relationship between consumers and their cards. With everything else now seemingly moving towards a digital platform, this is the last piece of physical interaction in payments and therefore a much-needed opportunity to build a personal connection and better security to combat fraud head-on.
Specifically, the reference fingerprint can easily be uploaded to the card by the user, at home, and once that is done they can use the card via existing secure payment infrastructures — including both chip and ID and contactless card readers — in the usual way.
Once it is registered and in use, the resolution of the sensor and the quality of image handling is so great that it can recognise prints from wet or dry fingers and knows the difference between the fingerprint and image ‘noise’ (smears, smudging etc.), that is often found alongside fingerprints. The result is a very flexible, durable sensor that provides fast and accurate authentication.
Fingerprint recognition will provide a clearer means to distinguish an individual from everyone else on the planet. This technology will not only assist the financial sector, instead, its benefits will transcend into a range of areas, from bolstering national identification which will help address healthcare and social fraud, assisting financial inclusion and maintaining access to controlled spaces such as government buildings.
How soon is now?
Fortunately, the long-held ambition to add biometrics to cashless transactions has now been achieved. The production and trials of an extremely thin, flexible and durable fingerprint sensor, suitable for use with payment cards, is underway in countries such as Bulgaria, the US, Mexico, Cyprus, Japan, the Middle East and South Africa.
However, we anticipate that each banking customer may deploy as many as 100,000 biometric cards to their account holders by the end of 2018 and that biometric bank card adoption will go into many millions from 2019. Paving the way for payments to become personal once again.
Personal relationships are a key part of life, they offer us a sense of importance and happiness. The time is now for this to extend to our payment cards. Biometric payment cards will create a unique connection, with transactions exclusive to the owner, shunning anyone else on the planet trying to access the sensor. Not only is this integral to creating a personal relationship between the card user and their bank, but the security benefits are therefore more profound as the challenge of forging fingerprints is a far more complex one for criminals
Though biometric technology is already in-place across our society, its potential within payments has yet to be truly discovered. Before this can be achieved, banks need to gain consumer trust and promote the value of biometric technology before its benefits can be realised by us all.
The Biometrics Institute predicts that the development of biometrics over the next five years will shift towards online identity verification, government mobile applications, online payments, e-commerce, and healthcare.
Biometrics has been viewed as a secure method for financial transactions and security in many walks of life, with fingerprints used for clocking in at work or verification for contactless payments, but the institute’s research suggests there are further user cases set to emerge in the coming years.
And, it comes as no surprise for those studying the market closely. The global technology powerhouses, such as Microsoft, Apple and Samsung, are strong proponents of using biometric identification for PC, laptop or mobile access purposes and, as consumers get used to this way of engaging with tech, it naturally paves the way for fingerprints and iris scanning in payments.
The case for businesses and consumers
Various technology companies and card schemes argue it’s a secure way of paying, and with the likes of Apple Pay, Android Pay and Samsung Pay mobile payment solutions already using biometrics as part of their authentication process, there could be calls for more to come.
Companies like Starbucks utilise mobile payment providers like Apple Pay within their apps, meaning with the tap of a thumbprint money can move from bank account to Starbucks account, and subsequently be used at the point of sale. The simplicity of it continues to strike a chord with consumers, as the coffee chain’s latest figures show its Starbucks Mobile Order and Pay service represented 12% of US company-operated transactions in the three months to 1 April 2018.
Then there’s the Amazon Go effect to consider. As the online titan looks set to add more checkout-less physical stores to its inaugural offering in Seattle, enabling frictionless transactions without the need for shoppers to queue or visit a fixed cash desk or till, it will shape consumer expectations.
If this momentum continues and Amazon drives sales through these stores, you can imagine strong arguments from consumers for further installations of this type of technology in convenience retail – and one way of supporting speedy and secure transactions is through use of biometric identity.
Finger, face or eye scanning are all seen by industry analysts as ways to improve the authentication phase of payments for the consumer, while helping tackle growing fraud levels in retail and hospitality, and protecting customer information.
But biometric scanning isn’t fool-proof and can only be part of the identity solution, especially when being used to authenticate higher values purchases, for instance.
This means business considering adopting body-scanning payment methods need to be mindful of the trade-off between security and user-experience – and this requires a fine balance between how many false positives and false negatives are allowed in order to process a payment. Too many false positives pose a security risk but, at the same time, too many false negatives could lead to a legitimate shopper not being able to authenticate a payment, resulting in poor customer experience and possible purchase abandonment.
A balance that provides the right level of convenience but mitigates against the risk of misauthentication will be key to successful biometrics payments solutions.
Choice trumps any individual payment type
At any trade show we attend the clear message is there’s no silver bullet when it comes to retail or payment technology.
Whether it’s mobile payment, buy-now-pay-later schemes, card and cash payment, crypto-currencies – or anything using biometrics in some way – they key for retailers is to know what their customers want and offer the relevant payment options. Businesses need to be sure that having helped navigate a customer to the all-important point of purchase they don’t lose them because they don’t offer the most suitable method of payment.
Therefore, retailers should be investigating biometrics usage as part of their suite of payment options, because the most forward-thinking organisations know they need to provide choice at the checkout.
Mobile support
It is clear mobile is very much at the heart of a lot of the innovation going on in the payment space, playing a fundamental supporting role for many of the new transactional options.
With Deloitte predicting that, by the end of 2023, 90% of adults in developed countries will have a smartphone, it’s obvious why tech companies and innovators in the payments space are targeting that piece of metal that sits in our pockets as a platform for their new solutions.
In the last 18 months the conversation in the financial world may have veered towards crypto-currencies and open banking, but before it becomes clear what impact these or, indeed, biometrics have on the overall landscape, we can be near-on certain that mobile will be central to it all.
As for the evolution of biometrics, fingerprints are already playing a key role in mobile payments processing, but in the future this could be usurped as the most dominant form of biometric payment.
Delving deeper into the Biometrics Institute research it appears facial recognition dominates as the biometric most likely to rise in popularity for businesses over the next few years. That is closely followed by a multimodal – a combination of two or more biometric forms – and then iris.
It’s certainly worth keeping an eye on how this all impacts retail payments in the not-too-distant future.
John Cooke is Founder and MD of Black Pepper Software, an agile software development company specialising in the financial services sector.
Global brand consultancy The Partners recently launched a comprehensive study entitled ‘To Be Or Not To Be’, which reveals what Britishness means for brands post-Brexit.
The Partners surveyed 1,000 consumers across the UK to garner the general public’s perception of British brands, and combined this insight with in-depth interviews with leading marketers to establish the value of British provenance for brands today.
The study found that many brands experience an identity crisis when trying to leverage a modern sense of Britishness. From a lack of clarity about who the target consumer is and their preferences, to a difficulty in identifying a defined set of British attributes, Britishness is becoming an increasingly complex aspect to employ, particularly for British brands positioning themselves as global entities.
Surprisingly, for a country known for its patriotism, the survey showed that just 25% of people consider a brand’s British heritage to be the most important factor in their purchase decision. This compares with 54% of participants rating the quality of product highest, 36% valuing customer service above all else and 29% placing emphasis on the brand’s individual culture and values.
But the survey also revealed a paradox: despite the majority of respondents believing that Britishness is not important when making a purchase, a significant 42% believe that brands should emphasise their Britishness more post-Brexit in order to appeal to a wider range of global consumers.
The Partners encourages brands to take advantage of these contradictions. This apparent ambivalence about the value of Britishness can be seen as an opportunity to redefine the roles that brands play in a world where being ‘British’ is no longer enough to compete in an already saturated market.
The report argues that by balancing the tension between the traditional notion of heritage and the ‘fresh themes’ and modern ingenuity at the heart of Britishness, brands will succeed with new and existing audiences, both in Britain and on a global stage.
This ability to balance the dualism inherent in Britishness is supported by the opinions of the marketers that The Partners surveyed, and is an attributing factor to the success of some of our most-loved British brands. This includes the BBC, which was voted the most admired British brand by 46% of participants in the survey.
The survey revealed that the top five most-admired British brands are:
- BBC
- M&S
- Cadbury
- Boots
- The Post Office
Sam Evans, strategist at The Partners, said: “Brexit has provided a moment for reflection on what Britishness represents. It also provides a choice, a fork in the road where brands can continue to assimilate in a global order of homogeneity or can choose to re-familiarise themselves with the ingredients that make Britishness a potent force. We believe that now, more than ever, it’s time for British brands to reclaim their Britishness. It’s in the interests of brands to build on and develop the positive associations for a new era.”
(Source: The Partners)
