David Orme, Senior Vice President at IDEX Biometrics
With cybercriminals becoming ever-more sophisticated, and identity fraud reaching epidemic levels in the UK, the need for strict customer identification procedures has never been greater for banks and financial institutions.
Know Your Customer, or KYC as it is commonly known, is a mandatory framework currently in place to protect financial institutions from fraudulent activities, such as identity fraud and money laundering. KYC, reinforced by the fourth Anti-Money Laundering (AML4) directive , requires banks to verify a customer’s identity before an account can be set up in their name. This due diligence includes obtaining the customer’s name, an official headshot and an official document to confirm their identity, as well as a residential address and date of birth. By following the requirements, banks can be confident the customer is exactly who they say they are and have insight into vital customer information, including any potential risks associated with accepting them as a customer.
Inaccurately identifying customers not only leaves the bank vulnerable to fraudulent activity, but also causes serious regulatory headaches, often resulting in a hefty fine. In fact, according to research, global financial institutions were fined $26 billion for AML sanctions and KYC non-compliance since the 2008 financial crisis.
Whilst the KYC framework is designed to provide banks with accurate identification information, current paper-based forms of identification such as passports, driving licences or birth certificates can be easily forged, and are timely and expensive to gather.
Bringing KYC processes into the digital age
As banks continue to move away from traditional branches and face-to-face meetings to online channels of customer communication, financial institutions are under increasing pressure to find digital alternatives to fulfil the KYC process. Fingerprint biometric authentication, which is being increasingly accepted into today’s payments’ ecosystem, could be the much-needed solution to this problem. By integrating a thin and flexible biometric fingerprint sensor into existing ID and payment cards, identity authentication can be obtained at the touch of a finger. Thanks to such advances in fingerprint biometric technology, and the effective use of enrolment guides, this innovative method of identification can be set-up remotely without the need for consumers to visit a bank branch.
Due to its completely unique nature, the fingerprint is highly accurate and virtually impossible for fraudsters to replicate. When compared with other methods of biometric authentication the characteristics of a fingerprint is far more exclusive to an individual and therefore more effective in accurately identifying customers for this purpose.
Whilst accuracy is vital, the cost of compliance is an issue that is continuing to grow for financial institutions – according to research, the average bank spends £40m a year on KYC compliance. In order to keep up with regulations, banks are forced to employ and train thousands of extra employees to manage this process. Here too fingerprint biometrics can provide the perfect solution. Going through countless identification documents can take up a lot of time for an employee and it is inevitable that errors are made. By obtaining fingerprint biometric data, which is highly accurate and reliable, the need for human approval will be minimal, therefore boosting efficiency and effectively eliminating ‘human error’.
Balancing security with convenience
Fingerprint biometrics to facilitate identity technology is set to become a key enabler for improving not only security surrounding KYC requirements, but also reduce time investment from consumers and businesses alike. Finding multiple pieces of identification, for example, a birth certificate, passport, utility bill can often be challenging for customers to gather. Paper documents such as these can be lost, or hard to access when needed, and can actually become a barrier to financial inclusion.
As 1.1 billion people worldwide are currently without official identification, KYC requirements mean that a huge proportion of people are unable to provide the identity documents needed to comply with these policies. By introducing fingerprint biometrics as a method of identification, individuals in developing countries, where access to formal identification is scarce, or those who have simply misplaced their formal identification, will be able to prove who they are using their fingerprint alone.
There is no denying that as we continue to move toward an increasingly digital age, fraud will continue to grow in both aggressiveness and complexity. The only way for banks and financial institutions to stay ahead and protect consumers from fraudulent activity is to transition from traditional paper-based identification and embrace fingerprint biometrics as a new digital identity.
DISPELLING BIOMETRIC MYTHS AND MISCONCEPTIONS
By Lina Andolf-Orup, Head of Marketing at Fingerprints
Gangsters cutting off enemies’ fingers to access secret locations and spies lifting fingerprints from martini glasses – the imagination of the entertainment world has been running wild ever since biometrics entered the scene.
Couple that with the limitations of some early biometric solutions from fifteen years ago, still anchored in the minds of many consumers, and you have the perfect recipe for an apprehensive and uncertain public.
Thawing lukewarm attitudes with a biometric touch
The biometrics industry has made great strides in the last few years – something particularly true for smartphones. Fingerprint authentication has replaced PINs and passwords as the most popular way to authenticate on mobile, with 70% of shipped smartphones now featuring biometrics.
And it doesn’t end there. Many adjacent markets are now eager to benefit from the secure and convenient authentication solutions that biometrics offer. Take the payments industry, for example, where biometrics payment cards are currently gathering real momentum.
However, some consumers are still uneasy about accepting biometrics. A recent study found that 56% of US and EU consumers are concerned about the switch to biometrics as it’s not enough understood to be trusted.
Although attitudes are shifting for the better, stats like this demonstrate there is still some work to do to disprove common biometric myths and showcase just how smart today’s solutions really are.
Dispel, adopt, repeat
The evolution in consumer biometrics in the last two decades has been phenomenal. And today’s solutions are far more advanced and safe than many may think.
To help bring an end to the myths, let’s expose some of the most common misconceptions around biometrics.
Myth: Biometric data is stored as images in easy-to-hack databases.
A leading myth about biometrics is that when a fingerprint is registered to a device, it is stored as an image of the actual fingerprint. This image can then be stolen and used across applications. In reality, the biometric data is stored as a template in binary code – put simply, encrypted 0s and 1s. Storing a mathematical representation rather than an image makes hacking considerably more challenging. In most consumer applications, this template is also not stored in a cloud-based location, its securely hosted in hardware on the device itself for example in the smartphone, in the payment card. Thus, it stays privately with its owner.
Myth: Fingerprints can be easily replicated to ‘trick’ devices.
The internet is full of articles and videos that claim it is possible to use materials from cello tape to gummy bears to craft fingerprint spoofs and access biometric systems. Although there may have been a time where gummy bear spoofing was the go-to party trick, todays’ consumer biometric authentication solutions have too many technological defences, such as improved image quality and matching algorithms, to simply ‘trick’ devices. Plus, on top this, the criminal needs to have access to the person’s device where this fingerprint is enrolled e.g. smartphone, payment card, before he/she notices and blocks it. This is not scalable nor common, in comparison to gaining access to someone’s PIN code or skimming a contactless card.
Myth: Physical change will prohibit access to my device.
Although our irises don’t change as we age, our fingerprints can and our faces will. Does that mean we have to update our biometric devices every few months to capture these changes? Not quite! Unless there are drastic, sudden changes, the ‘self-learning’ algorithms in modern-day biometric systems are able to keep up with our developing looks.
Who you gonna call? Mythbusters!
These are just some of the common biometric myths and misunderstandings perpetuating in consumer mindsets. Thankfully, though, while we’re working hard to rid the world of the myths, belief in the value of biometrics is only expected to grow. But as solutions expand and diversify, the myth-busting fight will continue.
Fingerprints has been a leader of innovation in biometrics for the last two decades. We’re proud of the expertise and R&D we’ve been able to pour into our biometrics solutions to deliver stronger security and a better user-experience. To learn more about the most common biometric misconceptions and the modern-day technology that allows us to dispel them, download our eBook here.
WHAT EVOLUTIONARY AI MEANS FOR FINANCIAL SERVICES
by Babak Hodjat, VP of Evolutionary AI at Cognizant
Many banks and other financial services institutions (FIs) are beginning to recognise the benefits of AI-driven solutions as a way to get ahead in the market and challenge the competition. Amongst many other benefits, the technology enables organisations to offer hyper-personalised customer experience, dramatically improve internal decision making, and drive operational efficiency. However, many businesses are struggling to move beyond the experimental phase and reach actual AI deployment. It is those organisations that are at risk of being left behind.
The financial world has already been transformed by AI, and this transformation is continuous. A new breed of AI, known as ‘evolutionary AI’ has begun to further accelerate innovation. It is capable of automatically designing itself with little need for explicit programming by humans – innovatively creating complex AI models, and optimising decisions considering multiple scenarios.
This technology is revolutionary for industries across the world, but in particular it is set to transform the financial services sector. Enabling businesses to spot novel strategies that would never have been identified by human data scientists, and, in turn, allowing companies to take full advantage of today’s massive data sets – evolutionary AI will soon be a vital tool in all FIs’ arsenals.
The nuts and bolts of evolutionary AI
Emerging technologies that enable AI algorithms to design themselves are allowing organisations to transcend human limitations. Evolutionary AI operates iteratively. Firstly, it randomly generates a set of potential solutions to form an initial population and assigns a score to each solution based on how well it performs relative to other solutions. In the second round, it retains the solutions that performed best, perhaps only 5% of the total, and recombines their components, sometimes “mutating” them to create a new population. This new population is then tested, and the process begins again. Over multiple generations, the appropriate components of the more successful solutions become increasingly prevalent in the population, and eventually a solution is discovered that yields the best outcomes.
Advantages and use cases
Compared to human design, evolutionary AI can be deployed far more quickly, avoids biases and preconceptions, and typically performs better. Furthermore, the chosen model will evolve and improve over time based on new data.
Evolutionary AI can be applied in a wide variety of areas at FIs. Some examples include designing quantitative trading strategies to maximise returns while minimising risk and loan underwriting. Rather than relying on human analysis, evolutionary AI solutions can quickly analyse all the combinations of relevant variables to create models that more accurately assess the risk of default by a potential borrower.
A recipe for success
In order to reap the benefits of the technology, FIs should focus on the following:
- Responsible AI – Behave in ways that make customers and employees comfortable, i.e. not making decisions that are unethical or exhibit bias. Companies need to monitor them to ensure they continue to act appropriately, as they learn and evolve.
- Viewing AI through a business lens – Having AI projects managed by cross-functional teams with business executives in the lead is a good place to start. Companies also need to look across their organisations to identify opportunities to generate concrete business value from AI — not only in reduced costs but also in boosting revenues by delivering enhanced customer experiences and through improved decision-making.
- Enhance data management – AI applications depend on access to timely and accurate data, which is a challenge for many FIs that have fragmented data architectures with multiple legacy systems. Companies need to identify which types of data are required for each AI project and ensure they can be captured in an appropriate format.
- Approach with speed and caution – AI projects need to be rolled out quickly, while at the same time be rigorously measured, so failures are terminated promptly while successes are moved into production.
The sophistication of AI technology is set to significantly improve over the coming years as it continues to design and test itself. As a result, it will become more critical to the productivity of FIs, and soon businesses will recognise it as a vital tool for consulting on important business decisions. It will not be long before humans and AI are working alongside each other, with robots handling routine tasks, enabling employees to focus on more complex and sensitive activities. Delivering more value together than either could on their own.
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