Biometrics is slowly becoming an integral part of our daily lives with the advent of fingerprint-sensitive smartphones and laptops and is spreading to other places we hardly considered before. The primary aim of biometrics is to identify an individual in a 100% accurate way that cannot be stolen or compromised.
While fingerprint biometrics is widespread, newer forms of biometrics such as retinal scan, face recognition, capillary mapping, and more are emerging with the advances in technology.
Biometrics in the Finance Sector
Biometrics provide a superior way for identity authentication, where the ability to establish the identities of the customer is fundamental to maintaining customer trust and confidentiality of transactions.
The cumbersome process of entering long and complicated passwords for every transaction along with the risk of compromising the security of the customer’s account has paved the way for accepting Biometrics as a method of identification to authorise transactions.
In the past, maintaining records of documents and paperwork was the only way of managing identity and was used by several institutions like governments and banks. Today, thanks to the advent of Aadhar cards, it’s much easier to identify the entire profile of an individual.
The first identity access management systems in enterprises as we know them did not even come to the forefront until the early 2000s. But with the establishment of central identity in the form of a unique number designation, proving the identity of the customer is now more a fluid concept than a piece of card.
Why is there a Need for Novel Methods of Customer Identity Management?
In today’s hyper-connected era, consumer demands are fast-changing as they increasingly expect a seamless, secure and hassle-free experience with trust and speed as the premise. Biometrics can quickly address this need by making lives easier and simplifying the customer authentication process across all platforms.
Besides, this technology can also thwart fraudulent activities with the ability to circumvent conventional means of authentication like passwords, pin, device IDs, etc. Mobile biometric authentication protects against ID theft, account takeovers and multiple accounts by verifying customers at the point of log-ins, payments and digital onboarding.
Moreover, biometrics can also be a game-changer in terms of leading the next wave of financial inclusion slowly making its mark among the unbanked population. Around 1.7bn people are unbanked according to the World Bank, down from 2.5bn in 2011. Technological innovation in fintech can be duly credited for making the progress of moving almost a billion people into the financial system.
However, 50 per cent of adults globally remain excluded from financial services with a large proportion lacking the necessary ID documentation to gain access. Biometrics can be leveraged to help bridge the gaps, just like how mass-market adoption of smartphones played a pivotal role in providing access to the financial system in emerging markets.
Benefits of Biometrics for NBFCs
Biometrics authentication technology has been put into practice by the UIDAI for the citizen identification program of Aadhar with a perspective of creating a unique identity for each individual. It has raised the bar of micro-financing services in India with the following benefits:
Biometric devices such as financial terminals and POS aid in providing micro-credit or micro-loans to people living in remote villages. It helps financial services reach the grassroots level as people no longer have to travel to receive the benefits of micro-finance services provided by NBFCs.
Besides, there is a vast improvement in the customer experience leading to the acquisition of new customers and sales of more products or services. Customers feel more engaged with the brand due to the less time spent on proving your identity.
There are chances of utilising multi-modal biometrics to combine real-time data from several accounts and platforms. As opposed to the conventional mode of authentication, this is not a challenge in the case of biometrics as they can be employed with ease of interoperability. It can facilitate transaction facilities for multiple accounts under a single roof.
Ease of Transaction
Biometrics enable a quick process of logging into accounts and making transactions without the hassles of recollecting passwords or PINs. Also, instead of submitting multiple documents to process a loan, KYC can be undertaken with a single point of identification through biometrics. As a result, financial transactions are made easier and secure than ever before.
Safety and Reduction in Customer Fraud
Biometrics verifies individuals based on who they are, i.e. the inherent characteristics, also known as modalities that are based on intrinsic physical or behavioural traits. These modalities are non-transferrable, not guessable and also provide a very high level of protection against fraud. Data breaches are hard to occur while using biometrics for establishing customer identity leading to greater security and confidentiality of customer information.
It is also helpful to reduce customer fraud in loan applications. Especially incidences of duplicate loan applications are greatly reduced with the use of biometrics as one cannot bypass the system to provide false information for any financial activities related to loan or credit servicing.
Are there any disadvantages?
With all its various benefits, biometrics is still in the nascent stage and has certain risks associated with it. While the average customer can recover from a stolen password or pin, it’s unclear how one can recover from a compromised biometric if it arises. Also, there is a dearth of regulation and legislation for the use of biometrics like many emerging technologies. There is also a need to educate consumers and to manage privacy and other security concerns with regards to how biometric data is stored, used, and secured.
Biometrics – A New Normal?
Despite its potential disadvantages, biometrics offer a value proposition for financial institutions to enhance customer service and deliver unparalleled levels of personalisation. As data security and stewardship have become a growing concern, consumers are becoming more selective of whom to entrust their confidential information to. And for now, it is those businesses that adopt biometric authentication as a security measure to identify individuals who will have a competitive edge in terms of trust, speed, financial inclusion, and customer satisfaction.
More than anything, biometric authentication has an unmatched opportunity to simplify customer identification across form factors and platforms. Looking ahead, biometrics is sure to thrive for years to come from smartphones to other applications far beyond.
Contact us at Finezza to assess where analytics can drive value for your company. We help lending firms leverage analytics to underwrite more loan applicants and identify the risk profile of borrowers that traditional underwriting methods may not detect or comply with regulations.