For many years, the concept and use of biometric identification has been the stuff of fantasy, with retina scanners and fingerprint identification only seen in sci-fi movies. Today, however, these once far-fetched ideas are fast becoming realities and financial institutions must be poised to utilise these developments in order to make the most of the potential benefits.
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A Changing Landscape
The smartphone has become the device of choice for connecting the consumer with their financial institution and therefore interaction is more personal and instant than ever before, even replacing our wallets when making payments. Couple this with the growing dissatisfaction with passwords, which despite still being the go-to method of authentication are viewed as flawed and easily penetrable, and there is considerable change ahead.
For financial service providers, this undoubtedly presents opportunities. With more than two thirds of UK consumers feeling that biometric technologies – such as fingerprint and voice recognition – offer a safer, more secure alternative to passwords, engaging with customers on a more personal, increasingly secure level could lead to significant gains in revenue.
As part of my recently released report, Mobile Identity – The Fusion of Financial Services, Mobility and Identity, Telstra conducted a quantitative study of financial institution executives between November 2014 and January 2015. We wanted to determine where the industry is in its transition from traditional security measures to advanced techniques like biometrics and how best to monetise the opportunities.
The research has shown that, globally, customers still trust financial institutions more than other organisation types when it comes to personal information and this is reflected in the industry’s reluctance to adapt to the changing consumer landscape. The results from our sample of 318 executives from a cross section of financial service businesses show that, while financial institutions have under-invested, they are transitioning into a new phase of identity. However, a disconnect remains between where financial institutions are today and the expectations of their Gen X and Y customers.
Across the industry and regions as a whole, Fraud and Risk Management has been the main driver for existing identity systems and processes (43 per cent), followed by Customer Experience (27 per cent) (see Figure 29). Interestingly, though, when it comes to Pure Play Online/Mobile Banks/Neo Banks/FinTechs, Customer Experience was ranked as the main driver (see Figure 30).
Addressing Customer Needs
Moving forward – and reflecting the increasingly tailored experience offered by financial applications on smartphones – customer experience is likely to emerge as the most important driver for investment in identity systems and processes right across the industry, with 87 per cent of respondents predicting that this will become even more important as further developments are made (see Figure 31).
For many institutions, the pursuit of a single customer view and experience has been a strategic – yet elusive – priority. Vertical integration strategies, acquisitions and operationally separated divisions and channel strategies have possibly hindered this pursuit. It is therefore unsurprising that 32 per cent of institutions reported multiple identity strategies with little to no alignment and only 24 per cent reported their institution as having a single enterprise-wide identity strategy (see Figure 32).
This disconnect is particularly acute in the insurance and investment banking parts of the industry with only six and two per cent, respectively, reporting single enterprise-wide identity strategies. The relatively new entrants in the form of Pure Play Online/MobileBank/Neo Banks/FinTechs, perhaps unencumbered by legacy systems, lead the way with 57 per cent reporting a single enterprise-wide identity strategy (see Figure 33).
Adapting the Strategy
When it comes to responsibility for customer identity strategies, it is clear that the Information Technology function leads and drives the way, with 44 percent of respondents suggesting that the initiatives are led by that department (see Figure 34).
This is more so for Investment Banks, Insurers and Wealth Management but less so for Credit Unions, Pure Play Online and Retail Commercial Banks where the line of business was reported as the main functional leader for customer identity strategies (see Figure 35).
A Question of Trust
When it comes to the question of trust in identity providers, financial services executives in all regions and business types clearly view their institutions as being the most trusted (70 per cent), when compared to other providers (see Figure 36). This reflects consumer perceptions but also makes the industry susceptible to complacency in its current authentication systems.
According to Gartner, 60 per cent of all digital identities interacting with enterprises will come from external identity providers by 2020 (up from 10 per cent in 2014). With 16 per cent of institutions already allowing access from third-party identity providers and 48.6 per cent intending to (see Figure 37), caution will need to be exercised on the choice of identity services providers. Our research also identified that consumers have very clear preferences about who they trust to provide these services.
Regardless of whether financial service organisations seek to become consumers of external identity service providers, become external identity providers themselves or both, strong and coherent identity management capability will be critical if they are to maintain their current position of trust in the eyes of consumers.
Reaping the Rewards
The air of complacency that comes from consumers’ and institutions’ shared opinion that financial services organisations are the most trustworthy providers of mobile identity services may also be hindering progress somewhat.
As these services deliver a wide-ranging payload – from the acquisition and retention of Gen X and Y customers and state-of-the-art security measures to improved customer satisfaction and increased levels of trust in protecting personal information – the financial industry should be under no illusion that this needs to change.
The sooner organisations adopt these changes, the sooner they will be able to reap the rewards.
Rocky Scopelliti is Telstra’s global thought leader and industry expert in the banking, finance and insurance industry. His pioneering work and membership on the innovation council of a major bank, has delivered five industry first innovations. He is also a non-executive director on the board of Sydney’s largest credit union.
Rocky has more than twenty years senior management experience in the Information Technology and Financial Services sectors covering product development, strategy and planning, business development, research and strategic marketing.
Over the past seven years, Rocky has authored ten thought leadership research reports covering retail banking, business banking, insurance and wealth management that have become widely acknowledged for their contribution to digital transformation.
Educated in Australia and trained in the USA at Sydney and Stanford Universities, he has a Graduate Diploma in Corporate Management and an MBA. He is also a graduate and member of the Australian Institute of Company Directors (AICD).