Digital identity in financial services: The fintech effect

digital identity event

Traditional banks have faced challenges in moving to the forefront of embracing digital identity. Without legacy systems slowing down innovation and delaying the implementation of new tools, fintech challengers and neo-banks have been able to offer powerful ways to authenticate customers.

As Manuela Sedvartaite, Innovation Manager at Santander, explains, “As a large corporation bank, we work on maximizing digital journeys where possible. We understand the operational efficiencies and lower costs digital brings, we think about the customer first and understand that for them it’s a better experience. But we can’t always make it work. Sometimes new systems cannot be relied on, which is a serious risk from a compliance perspective.”

While there is a clear need to ensure identity theft and fraud risks are protected against, failing to embrace the benefits of remote, digital identity verification can also be damaging to customer adoption and retention rates.

Now more than ever, customers expect seamless experiences when dealing with their banks. Waiting days for a letter with access codes to open an account or start banking online is no longer acceptable when digital document verification and face recognition can reduce this process to minutes.

Russ Cohn, General Manager, International at OCR Labs, notes, “Banks understand the need for operational efficiency, cost reduction and more importantly the ‘Amazon effect’ on user experience, which has created very high customer expectations. Some friction is necessary, but this can’t be too tedious or traditional banks with lose customers to challengers, who can provide the experiences they are used to.”

A Rapid shift

A combination of new technology, growing numbers of digital native banking customers and COVID restrictions moving banking online, have contributed to the rise of remote identity verification.

Data from Juniper Research forecasts that banking and financial service firms will account for close to 62% of digital identity verification spend by 2026. According to a KPMG study, 67% of banking leaders report to having already invested in biometrics technology, indicating the drive to incorporate innovative solutions into banking operations.

With facial recognition, mobile document checks, voice recognition and live know-your-customer video chats, there are countless methods for banks to offer enhanced security and convenience. But in the face of legacy systems and regulatory mandates, the inconvenience of in-person identity verification, remains a part of the customer journey for incumbent banks.

Russ Cohn explains the need for regulation to catch up to innovation, “Regulators and the industry need to work together to ensure there is a trusted framework. Once you align those bodies around the same goal of customer protection and safety, we will start to see progress.”

There’s no sign that the convenience driven, hyper-connected consumer of today will change anytime soon, leaving conventional banks needing to adapt. Smartphones will play a central role in this future, with face identification systems and fingerprint biometrics now being commonplace. Even simply taking a picture of a physical ID and sending it to their bank to verify is a major advantage for customers who want a seamless banking process.

Diverse clients

Not all customers will demand cutting-edge remote identification verification solutions. Some will still value the human touch that traditional banking offers, while others will have accessibility reasons for needing in-person service. As one example, people who stammer may face challenges when dealing with voice recognition tools and be unable to use certain services seamlessly.

Andrew Trimmer, Head of Technology, at alternative financial provider, Simply Asset Finance, notes that their customers have not always responded positively to the concept of ‘fintech’. “We had to step away from the word ‘fintech’ and become ‘technology with a handshake’, Andrew explains, “This is our way of saying we will always have people there to guide customers through their use of technology. We have to reduce risk by putting in place technologies to mitigate AML threats, but how we use technology is driven by you, the customer.”

By offering customers a range of remote verification tools, financial institutions can help ensure that as many people are included in identity innovations. Older people, too, who may not possess the skills required to use digital devices will also need in-person banking verification services to remain fully included in banking.

In other cases, technology can be used to enable inclusion, opening greater access to financial services. Felipe Martinez, CIO, at Revolut EU notes, “Technology is now more available and affordable, which is very important. Being able to provide an affordable, simple way for those who are underserved or excluded from financial services to identify themselves, from a place and using a channel of their choice, can only be good for the sector.”

Industry-wide Collaboration

When considering the impact of technology in financial services, it is easy to compare digital progress at incumbent banks and neo-banks. But if digital identity is to be adopted across the financial sector, then collaboration could be the key ingredient.

Felipe Martinez explains that Fintechs such as Revolut are seen as being the fast-moving drivers of digital-first financial services, while traditional banks are portrayed as the opposite. Felipe argues that in fact, “The best results come from collaboration.” He explains, “Traditional banks have legacy processes, systems, and mindsets but they also have a lot of wisdom, data and the value of their vast experiences and millions of customers and transactions. Banks partnered with fintechs, and with regulators shaping the rules is what will drive progress.”

Of course, collaboration is often much easier said than done, when considering the competing interests, across the financial sector. Manuela Sedvartaite, notes “We say we need more banks to come on board to provide an identity service, but banks see each other as competitors. The question is how do you get competitive parties aligned?”

If challenging questions surrounding liability, interoperability and competition can be answered, then we may start to see greater overall adoption of digital identity within financial services. Ultimately as countless banking activities, including making bank transfers, accessing internet banking or setting up a new payee, require verification, making processes as seamless as possible will ultimately improve the customer experience.


Written by Finbarr Toesland, Editorial Contributor, VC Innovations

The quotes included with this article are taken from ‘The Fintech Effect’ panel discussion, which took place at the Future Identity festival on November 15th – available on demand very soon!