The idea of ‘frictionless banking’ has been around for some time as a way to provide superior customer experience by offering a convenient and seamless way for customers to access money and services, and to conduct financial transactions.
This approach is familiar in retail where brands talk about a ‘customer-first’ approach and compete to deliver omnichannel experiences. Banks are now embracing the same philosophy as customers demand better digital services and thousands of innovative fintech companies offer alternative banking services that compete with the high-street establishment.
Frictionless banking is focused on providing better, more convenient and seamless access to financial information and services. This means straightforward and hassle-free customer authentication, with passwords, PINs and digital fobs consigned to the past.
A way of achieving this is to make use of biometric verification technology – whether it’s fingerprint sensors, iris scanners or facial-recognition technology – that is now built into many smartphones and tablets computers to authenticate users.
Biometric authentication makes bank transfers, loan applications, bill payments and other transactions faster and more convenient. Customers no longer need to remember passwords or log in using a digital fob or security token. The fact these digital services are accessible via smartphones and tablets also adds to the convenience.
Biometrics technology is also safer than PIN numbers and passwords and less susceptible to fraud and error than more established methods. Transactions become less prone to error due to a reduced dependency on manually entered information, and there is a reduced risk of revealing passwords or other security information.
But a future in which biometrics are all that’s needed to access bank accounts and verify financial transactions may be a while off yet.
New European Union payments regulations have deemed biometrics alone to be too insecure for mobile banking. European banks that now offer biometric security by default in their banking apps are therefore planning a return to passwords, memorable phrases, security questions and card readers.
The changes are part of the Payment Services Directive 2 (PSD2), due to come into force in September 2019. The directive requires two-factor authentication for logging into bank accounts. As a result, a biometric-based method must be supplemented either by information that users know (such as a password) or something they have (e.g. a one-time token sent to a separate digital fob).
PSD2 will also have implications for one-click online checkouts, as the directive requires online transactions above a certain value to also use two-factor authentication.
With the benefits biometrics technology bring over more established authentication methods, they still have a major role play in making banking more seamless and convenient. In fact it has been predicted that there will be 2.6 billion biometric payment users by 2023, driven by a desire for frictionless authentication for payment, a need to reduce payment fraud, regulation and technology standardisation.
And biometric-based authentication is closely aligned with the security and convenience that virtual banks aim to provide for customers.
Most virtual banks are members of various financial services and payments regulatory organisations and subscribe to the rules and regulations these put in place. The cashless approach that virtual banking facilitates also boosts security by removing the risks presented by dealing with physical cash.
The use of biometrics technology can only boost security further. And combined with the lower costs, greater flexibility and efficiency that virtual banking supports, biometric technology will be an integral part of a more frictionless future for financial services.