Across the Financial Services sector, the ability to verify the identity of customers and employees online is fundamental to business operations and security. As the digital world continues to evolve at pace, so do the threats facing financial providers. Meanwhile, users have grown to expect fast access and a streamlined experience across all channels.
Security breaches can cause reputational damage, but implementing an identity solution that doesn’t meet the needs of a customer base can lead to exclusion, high application abandonment rates, and increased pressure on customer support functions.
Digital identity will undoubtedly have a key role to play in the future digital economy, but keeping pace in a rapidly evolving space requires investment in the right resources and expertise, whilst staying on top of the latest changes.
Looking ahead, here are six digital identity trends to watch in financial services, in 2024:
Think reusable identity
Reusable identity, the concept of onboarding once and creating a credential which can then be reused for future authentications across a range of industries and applications, is nothing new, but has taken off in a big way in recent months.
This is partly down to regulatory backing at both a national level in the Digital Identity and Attributes Trust Framework (DIATF), which states it will, “let people use and reuse their digital identities,” and at an EU level, with eIDAS 2.0 requiring all member states to, “issue a digital wallet under a notified eID scheme”. With several reusable identity pilots currently live in the UK, many are hoping 2024 will be the year this vision finally comes to live.
The AI revolution
With technological advances in this exciting field showing no signs of slowing down, it’s no surprise that AI is front of mind for financial institutions. When it comes to digital identity the technology can be harnessed to strengthen verification and fraud prevention capabilities.
Unfortunately, like most forms of innovation, there is also a dark side to AI. There is growing concern that Generative AI in particular can be used by fraudsters to create deepfakes and bolster social engineering attempts. As fear and misinformation coincide with genuine risk one thing is for certain, no business can ignore the myriad of threats and opportunities AI offers.
A new world of KYB and KYE
Alongside innovation in consumer digital identity we are seeing a growing focus on innovation in both corporate client and employee verification, areas in which onboarding typically still relies heavily on paper credentials and manual processes.
As both the demand and expectation for digital access continues to expand across all aspects of our working lives, businesses are recognising that transforming KYB and KYE processes could significantly benefit efficiency, productivity and growth across the board.
The dangers of APP fraud
Many financial providers are identifying Authorised Push Payment (APP) fraud as one of the most prevalent threats they are facing at present, with more than half a billion pounds stolen in the first half of 2023 alone. The challenge is having the right solutions in place to identify that a victim, who can easily pass the account verification steps they have put in place, is actually acting under instruction of a fraudster.
With regulatory changes on the horizon set to enhance consumer protection and shift a greater burden of liability onto financial institutions, there exists a huge incentive to leverage both education and innovation to enhance defences against APP fraud.
New payments regulations
Financial institutions, together with retailers, e-commerce businesses, wallet providers, EMIs and payment gateways will all be impacted to some degree by the PSD3 and the Payment Services Regulation (PSR), which will enforce more extensive Strong Customer Authentication (SCA) regulations to prevent fraud and flag suspicious transactions.
While the UK won’t be formally bound to enforce PSD3, the international nature of the payments industry makes it likely legislation with follow a similar direction. Confirmation of Payee certainly will be enforced in the UK by mid-2024 however, with many pushing for the scope of this legislation to be expanded further. Digital identity will be a driving force in ensuring new payments rules are met without impacting the convenience that modern transactions demand.
The business impact of exclusion
Last, but certainly not least, we are seeing a growing awareness of the impact of exclusion beyond a purely ethical standpoint. Digital verification and authentication procedures have the potential to act as a barrier to adoption if they don’t work for all customers.
For financial institutions, a lack of accessibility could mean inefficiency and delays, customer dissatisfaction, reputation damage and inhibited growth. With frameworks such as the UK DIATF calling explicitly for identity services to be as inclusive as possible, this is not an issue that can be pushed aside.
The road ahead
These trends demonstrate the rapid pace of change in a space faced with emerging threats, regulatory shifts and exciting technological possibilities. Right now, there exists a monumental opportunity for financial institutions, technology enablers, and policymakers to shape the future of digital identity. The challenge is building an ecosystem which is interoperable, inclusive, trusted, and keeps the needs of the end user at heart.
Future Identity Finance, returning to London on 19th March, will bring together the financial institutions, identity services providers and regulators driving innovation in identity and trust across the digital economy.
Uniting providers of all shapes and sizes, from retail/corporate banks to insurers, lenders, asset managers, mutuals, payment gateways and fintechs, the event will be a catalyst for collaboration and progress. Registration is now open.