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The Future of Payments: Biometrics Within the Financial Ecosystem

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By Catharina Eklof, CCO, IDEX Biometrics

 

1. Today’s Payment Landscape

Enabled by huge advances in technology, our evolving payments landscape has accelerated on a global scale. Post Covid-19, there was a hastened and unprecedented shift toward digital payments and open banking. Yet, the pandemic spotlighted the need for robust consumer protections and quick adaptation to new technologies. While payments were previously centered around transferring funds, today’s companies are focused on reinventing the customer experience, easing the financial impact of globalisation, and facilitating better online business management.

The demand for alternative payments means increased usage of cards, digital wallets, QR codes, Electronic Transfer of Money (ETF) payments, Real-Time Payments (RTP), and Buy Now, Pay Later (BNPL). Heightened transaction security has also led to the adoption of biometric smart cards. The global biometric smart card market size was valued at USD 74.4 million in 2021, while there are more than 1 billion access and ID cards with a Compound Annual Growth Rate (CAGR) of 10-20%. Additionally, 40 million payment locations are fully enabled for biometrics globally.

Fingerprints and other modes of biometrics have become an unparalleled means of authentication with the rise of contactless payments. Although the payments sector will continue to advance the processing cycle as seamlessly as possible, each solution will present its unique advantages and challenges. Several players are spearheading the adoption of the newly popularised, and scrutinised, method of payment authentication: fingerprint biometrics.

 

2. Decentralised Banking and Identity

Biometrics technology is countering the many security issues facing decentralised finance.

 

Blockchain and Biometrics

Innovation in financial services is driving central banks to closely inspect digital currencies, their viability, and potential evolution. Consumers and businesses alike have embraced blockchain technology, despite growing concerns about sustainability and volatility. As digital currencies are becoming more widely adopted, financial institutions must understand the opportunities blockchain technology will create in terms of security, privacy, and integration with existing payment technologies. Combining blockchain with biometrics could provide solutions with desirable features such as immutability, accountability, and universal access.

Cryptocurrencies, such as Bitcoin and Ethereum, have been scrutinised by investors for years, only recently have national digital currencies been establishing a foothold in the global economy. China is the first country to adopt central bank digital currency (CBDC), with testing trials having launched in four Chinese cities in April 2022. E-Krona is also being prepared for launch in Sweden by 2023, and the Bahamas are trialing the Sand Dollar to access the unbanked parts of their population. The adoption of digital currencies will only encourage further innovation, exploration, and transparency in the payments industry.

 

Safeguarding Digital Assets

Digital currencies may aid with financial inclusion and create a more equitable society; however, the challenges are far and wide. These challenges are centered around security. Early cryptocurrency transfers required storage in ‘hot wallets’. Hot wallets refer to devices such as a laptop or phone, connected to the internet. Though convenient, hot wallets are susceptible to hacking and fraud. Countering this issue, many adopters of crypto today use ‘cold wallets’ – external storage like a hard drive or USB stick.. These devices are safer; however, they are still flawed in countering security threats. By integrating fingerprint biometrics with cold wallets, users can access and control their crypto funds in a highly secure and authenticated way.

The world’s first next-generation Web3 biometric card is already considered for development by IDEX Biometrics and other partners. It includes cold storage, a digital asset wallet, and digital identification — and is EMV compliant. It represents a shift in data ownership as well as the viability of Blockchain.

 

3. Understanding Biometrics Technology

 

Biometrics and SCA

Confirmation of identity utilising traits unique to individuals is proving to be the most dependable method of Strong Customer Authentication (SCA) in financial services. Some institutions opt for facial recognition, while others use voice or fingerprint detection. Each biometric technology has its benefits, disadvantages, and preferred use cases.

 

Consumer Preference

Facial recognition has been especially complicated during and post-Covid, while the friction ridges of our fingerprints remain non-replicable. Moreover, the technology invested in developing secure and accurate fingerprint sensors is unparalleled within the biometrics arena. A recent study by Mastercard and Oxford University states that 77% of participating consumers consider facial recognition a secure system, rising to 93% who consider the use of fingerprints a secure biometric system.

 

Security and Accuracy

• Fingerprint recognition is a secure authentication method that provides quick access to devices. The encoded image of our unique fingerprint ridges cannot be replicated, providing high accuracy. Meanwhile, our fingerprint data can be stored on the sensory chip and not transferred to bank servers, providing high security.

• Facial recognition remains one of the most popular methods of authentication. While its technology is accurate in facial detection, there are significant concerns around security. This technology’s main point of contention is using deepfakes and images to grant access.

• Iris/retina authentication is highly secure, as iris patterns are unique for each individual. However, resistance from users and readability difficulties make this technology less practical.

 

4. Use Cases and Impact

Biometric sensors have a myriad of use cases. From payments to IDs, the use of biometrics enhances the consumer experience by leaps and bounds. With the rise of digital-first and open banking, biometric payments have allowed consumers to pay remotely and independently. The compliance and enrolment process are quick and convenient, and customers can transact without physical presence.

 

Enhanced Digital Healthcare

A patient-centric approach is being adopted across healthcare establishments, including enhanced security in accessing, storing, and relaying information. Integrating fingerprint biometrics in healthcare identification greatly impacts the user experience, providing consumers with greater trust in the organisation, and streamlining the organisation’s storage of data.

 

Secure & Convenient Banking

With biometric smart cards, you become your password. The process creates and saves a model that represents the user exclusively and confirms their identity when they request access or make a transaction. The impact of biometric smart cards is a more secure banking ecosystem. Fingerprints minimise the risk of deepfakes being used to access information fraudulently. It also allows for instant authorisation and forgoes forgetfulness of pin codes and passwords. This can be helpful for those living with Alzheimer’s and dementia.

 

Safe Digital Wallets

Digital wallets are not limited to payments. Users store e-tickets, public transportation cards, boarding passes, and cryptocurrencies. While private keys and passcodes are easily forgotten and stolen, fingerprint biometric authentication in digital wallets enhances security in a frictionless way. Users are also able to forgo the timely process of one-time passwords (OTPs) and multi-factor authentication (MFA).

 

Improved Financial Inclusivity

There are unique challenges to fostering financial inclusion. With biometric smart cards, those with literacy challenges, Alzheimer’s, dementia, impaired vision, and limited access to official documentation can access, store, and use their means of survival. The impact of biometric smart cards is a more financially equitable and included population. While financial inclusion is a multi-faceted issue, biometric smart cards can help solve a considerable proportion of the problem.

 

5. Payment Trends and Biometric Smart Cards

The global biometric smart card market size was valued at USD 74.4 million in 2021, and the growing demand for biometric authentication methods across end-users, including banking, retail, health, gaming, and security, is expected to support the long-term growth of the market. Users’ preference for alternative payment solutions means an increased need for secure and convenient authentication.

As user behaviour changes, so do the standards for user protection. Fingerprint biometrics can provide near-instant authentication of payments and identity, making the consumers’ lives more convenient and providing them with more choices for confirming their identity. With definitive advantages to both users and issuers, biometric payment cards have the potential for exponential growth well-beyond 2022.

With the rise of data privacy concerns, biometric smart cards can securely store fingerprint data in the card’s chip without transferring data to bank servers. The biometric smart card’s highly secure and personal nature is critical for its continued success, as it mitigates concerns associated with facial recognition including fraud and deepfakes. With a more focused approach to financial inclusion, biometric payment cards are prioritised as leading solutions for the financially underserved. There are many opportunities to solve financial inclusion, including using biometrics with EMV cards to help make cards more widely accessible in areas with a high illiteracy rate.

 

Behavioural Trends

Consumers’ day-to-day transactional activities are changing. AliPay in China and Apple Wallet in both Europe and the US are examples of players who have shaped the way young consumers interact with payments. Sixty markets currently have a live RTP infrastructure, meaning that almost three-quarters of the world’s population (around 72%) can use instant payments. While card payments shifted to pass-through digital wallets, POS strongly recovered from the pandemic’s impact in 2021 with a 13% YoY market growth, surpassing 2019’s market size. The upward trajectory of POS and alternative payment solutions are meaningful in the context of biometric smart cards.

 

 

 

Banking

How banks can help customers during the cost of living crisis

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 Lavanya Kaul Head of BFSI, UK & Ireland, LTI Mindtree

 

Surging energy and food prices are significantly driving up household expenditure, which means living standards in the UK will fall to 2.2% this year, according to the Office for Budget Responsibility. This is the biggest drop in any single financial year since the records began in 1956-57.

It’s a tough situation for many consumers who are still struggling with financial hardship following redundancies and pay freezes from the pandemic. According to TSB’s Money Confidence Barometer, 82% of people have experienced an increase in the day-to-day cost of living. This resulted in almost a quarter of them using their savings, while one in five changed their usual spending habits and behaviours.

As the financial situation worsens, consumers are increasingly relying on their banks for help and support. But, while banks can’t control inflation, energy or food prices, they can play a more supportive role by adapting their services to offer stronger customer service, better tools for financial management and be more flexible with loan repayments.

 

Strengthen customer service with intuitive AI solutions

Since the pandemic, consumers have changed the way they bank, using more mobile apps for primary banking rather than going into physical branches. This provided an opportunity for banks to accelerate their investment in digital services including automation and offer customers more support during the cost of living crisis.

Lavanya Kaul

Effective tools include AI-powered chatbots which respond intelligently to customer enquiries to quickly help troubleshoot problems and provide useful advice. But to be successful, you need to ensure you strike the right balance between an efficient and convenient process and creating a personalised experience. Customers need to feel like you understand and care about their problems and are here to help, rather than just fobbing them off with a monosyllabic bot. To avoid this, banks need to embrace intuitive AI solutions to ensure that empathy comes across in all automated interactions with customers. While doing that, messaging is key. In times of stress, we don’t function as well and financial struggles are a huge stressor. The clearer the message and the simpler the instructions, the better.

Financial education, when combined with technology solutions such as open banking, can offer more long-term solutions for people to navigate their finances. This can help put more information into the hands of the consumer to help them grasp their financial situation better. Some banks have cracked this with innovative solutions like HSBC’s Financial fitness score tool that can analyse your money habits and signpost you towards ways to improve your financial health. This may include joining one of the financial education webinars run by the bank or having a ‘financial health check’ with a member of staff.

 

Launch money management features & apps

Introducing money management features and apps to increase the visibility of a customer’s financial situation, empowers them with the information they need to make smarter choices.

TSB offers Spend & Save and Spend & Save Plus current accounts which include a savings pot that enables customers to put extra money aside when they can and an auto-balancer feature that automatically transfers money from the savings pot into their current account if their balance falls below a certain level. This allows them to start building up savings and protects them from unnecessary overdraft charges.

Personal financial management (PFM) apps also help customers get a better understanding of their finances. These connect with a customer’s bank account and enable them to keep a close eye on their spending habits and track upcoming bill payments. An example is Prism, a PFM app which allows customers to manage bill payments by sending them reminders about due dates. It also provides a summary of their income, account balance and monthly expenses at a glance, therefore consolidating all their financial information in one place and saving time on bill payments.

Lloyd’s Banking Group and HSBC launched a subscription management tool for all customers on mobile, allowing them to see and cancel recurring card payments for things like TV subscription services. HSBC says that during the first quarter of the year, it led to customers dumping around 200,000 subscriptions.

 

Introduce payment holidays

While improved customer service and financial management tools are important support tactics, they might not be enough for more vulnerable customers. For example, those who are about to default on mortgage payments or loans due to redundancy or periods of ill health need banks to do more, like offering payment holidays. Banks relaxed the rules for payment holidays during the pandemic, so they should consider doing it again to help more vulnerable customers through the crisis. Customers need to understand that they are not alone when experiencing financial difficulties and that help is available

 

Ride out the crisis together

As inflation reaches a 30-year high, customers are now more reliant than ever on banks for guidance and support. But to provide the right level of service, they need to move away from their traditional ways and behave more like technology companies by embracing automated solutions to create the right products and services for customers. Then layer on top of that the need for more personalised and empathetic customer interactions, as well as consider additional support for more vulnerable customers.

While we don’t know how long the cost of living crisis will last, what we do know is that the pressure on household finances is likely to get worse before it gets better. Therefore, banks need to step up, be the supportive partner and do whatever they can to help customers. After all, the only way we can ride out the crisis is by supporting each other and working together.

 

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Banking

Coreless Banking: How banks can thrive in 2023

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By

Hans Tesselaar, Executive Director of BIAN

 

In recent years, banks have faced immense disruption and struggled to transform with technology. In fact, our research with IBM found that 88% of banking executives are troubled by their bank’s commitments to multi-year projects, interoperability across technology environments and theft of sensitive data. A lack of industry standards is also causing significant problems and hindering the organisation’s ability to bring new services, at the desired speed, to market.

While banks have made significant advancements in recent years, in order to truly embrace digital transformation throughout the industry,and meet the needs of today’s digital first-customer, banks must focus on adopting a coreless banking model.

In 2023, coreless banking approach will enable the delivery of banking services that aren’t longer dependent on legacy systems, and will support the digital-first customer, bringing real transformation to the industry.

Hans Tesselaar

Putting the Customer First

Without the comprehensive digital infrastructure necessary for today’s environment, financial services organisations are unable to bring services to market as quickly and efficiently as they would like – and need. The extensive use of legacy technology within banks meant that the speed at which these established institutions could bring new services to life was often too slow and outdated. This challenge is also complicated by a lack of industry standards, meaning banks continue to be restricted by having to choose partners based on their language and the way they would work alongside their existing ecosystem. This is instead of their functionality and the way they’re able to transform the bank.

To move forward into the ‘digital era’ and continue on the path to true digitisation, banks need to overcome these obstacles surrounding interoperability. Additionally, with today’s digital-first customer in mind, financial institutions need to take advantage of faster and more cost-effective development of services. Failing to provide these services may force customers to take their business elsewhere. One thing is certain, consumers will continue to prioritise organisations that can offer services aligned to both their lifestyle and needs.

Coreless Banking 

The concept of a ‘Coreless Banking’ platform is one that supports banks in modernising the core banking infrastructure.

This empowers banks to select the software vendors needed to obtain the best-of-breed for each application area without worrying about interoperability and being constrained to those service providers that operate within their language. By translating each proprietary message into one standard message model, communication between financial services is, therefore, significantly enhanced, ensuring that each solution can seamlessly connect and exchange data.

With the capacity to be reused and utilised from day one, and the ability to be used by other institutions, Coreless Banking provides these endless opportunities for financial services industries to connect, collaborate and upgrade.

Banking in 2023 and Beyond

Throughout 2023, banks must prioritise their digital transformation journey and adopt a Coreless Banking model. This approach will empower technology leaders to tackle problems head-on knowing they aren’t tied down by the usual restraints caused by outdated legacy systems.

After the last few years, it is impossible to predict what is around the corner, but banks will rest easier knowing their architecture can modernise and change as needed with a Coreless Banking model.

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