The future of banking relies on trust

Identity has become a hot commodity, and the battle for the customer, and their data, is on. Tech giants like GAFAM are entering the payments space and threatening to disintermediate banks. Fintech disruptors and challenger banks are stealing market share from those who fail to innovate. In this landscape, one can’t help but wonder whether there is still room for traditional financial institutions.

Many believe that the answer is yes – more than ever. By leveraging trust, which is at the heart of the relationship that they have with their customers, banks are in a prime position to act as an identity federator: a single, secure authentication point for all digital services. But keeping this trust relationship intact in an era where cybercrime and identity theft has become a fact of life is no mean feat. Synthetic identity fraud has become a real issue – over two billion consumer data points were out in the dark web in 2016 – and this number has only been growing.

Banks need a way to know who they’re communicating with – and their customers need the same. They also need to innovate, offer digital services to customers, and not get disintermediated. At the same, customers are demanding convenience and frictionless digital experiences while expecting that their data will be safe.

A simple and secure solution

How can banks step up to the plate and stay relevant by offering their customers everything they want, while keeping a watchful eye on fraud, regulations, and innovations from competitors and newcomers? The answer may lie in the palm of the consumer’s hand. Using the mobile device as a possession factor, coupled with a strong identity scheme is an acknowledged way of ensuring trusted communication. But what if banks could offer much more than just security? What if each customer’s mobile phone could be turned into a convenient, trusted multifactor authenticator they can use both for in-mobile and off-mobile interactions?

This is called converged authentication: the mobile phone becomes a single point of identity verification and transaction authorization for all the channels and experiences a bank wants to offer its customers. Converged authentication saves the customer time and hassle, while also inspiring confidence in the bank, since its brand is now present in each of their digital interactions. The ultimate convenience meets the strongest security – in the palm of the customer’s hand.

Opening up to competition

The North American authentication market is one with immense potential, where convenience is not a nice-to-have but a deal-breaker. Consumers in the US and Canada demand rich services, offered to them at the tips of their fingers in an easy-to-use, secure and accessible manner. Financial and other institutions are seeking innovative, user-friendly methods of authenticating sensitive accounts.

Calling the present a “crucial turning point in the authentication landscape”, IBM Security’s Future of Identity Study found that respondents valued security ahead of convenience, especially when accessing financial accounts. What is more, the emergence of open banking is putting even greater emphasis on security across the globe. Having taken effect in January, the European Union’s revised Payment Services Directive (PSD2) is fostering competition in the financial services space by requiring banks to open their APIs to third-party providers.

Similarly, in the US, the Consumer Financial Protection Bureau (CFPB) has given its endorsement of open banking by outlining principles for “consumer-authorized financial data sharing and aggregation.” Open banking means more choices for consumers, but the increase in the flow of customer data as third-party providers access customer accounts also means more liability for banks. This makes security through customer verification and consent all the more critical.

Authentication as an opportunity

No matter their location, any bank taking a complacent attitude to open banking is at risk of becoming irrelevant. In a world in which banks’ direct competitors are encouraged to capitalize on the same consumer data that has traditionally been banks’ prized possession, forward thinking institutions will build customer-centric experiences that empower users to interact from anywhere, anytime, strengthening their trust with their customers with each interaction. The bank will need to be more than just another service provider; it needs to become the trusted keeper of its customers’ digital assets.

A consumer who feels secure will transact more frequently, be more loyal and be willing to try new services. Authentication processes in this day and age must be designed not only to avoid fraud, but also to instill trust and give consumers more control. Instead of being forced to deal with declined legitimate transactions after the fact, customers should be given the opportunity to authenticate and authorize transactions as they happen. And it is these new services that will boost banks’ bottom line.

The future of banking relies on trust

Financial institutions that can simplify their user experience and win over the millennial market segment are seeing increased customer acquisition, resulting in top- and bottom-line growth. Amid fierce competition from payment cards, digital-only disruptor banks, and Internet giants, traditional banks that fail to innovate will be left behind. Once a bank has its customers’ trust, there is no limit to the new digital services it can offer. Innovation will not only retain existing customers, but also attract new ones. As the banking landscape continues to be disrupted, both by new digital-only banks and by non-bank service providers, this will be more important than ever. Building their application on the right digital security platform enables a bank to innovate faster, which, in turn, results in a competitive edge in the market. When security is assured, financial institutions can focus their time on developing more features to enhance the customer experience.

With the right level of user-friendly security in place, banks can expand their digital service offering into payments, ecommerce, exchange trading, and even insurance management – the potential is unlimited. The more digital services a bank offers, the more customer touchpoints it gains, and the more front-of-mind the bank is to the customer, the stronger the bond of trust between them becomes. Growth is where the trust is.