Are Biometrics and Tokens the Key to Seamless and Secure Banking?

Consumers have adapted to utilizing biometrics in their daily transactions. As banks and financial institutions explore broader expansion, keeping customer experience and security in mind is critical.

Biometrics — like fingerprint, facial, and voice recognition, along with dynamic security tokens — may promise a future of seamless and more secure banking experiences. Recent data highlights growing consumer acceptance of biometrics, with 44% of Americans using them instead of passwords.

There certainly are appealing benefits for both banks and consumers. Biometrics can offer convenience and help defend against susceptible passwords given that 75% of people don’t follow password best practices. And 4% often repeat the same weak passwords. There’s also the prevalence of breaches and phishing scams, with the introduction of AI-generated deepfakes increasing the risk of compromise. These factors continue to push more industries towards innovative authentication methods.

So, is the humble password truly facing obsolescence? It’s certainly promising, but there are concerns. “When it comes to finding more secure ways to authenticate customers, banks have to strike a balance between providing top-notch security and providing a convenient user experience,” Quintin Stephen, global business lead and director for the Authentication Division of Giesecke+Devrient (G+D), told The Financial Brand.

As banks and financial services organizations look toward this transformation, the shift requires careful planning, blending a customer-centric approach with security needs. Here are some key factors to consider.

Redefining the Customer Experience

For an increasing number of consumers, using a fingerprint or glancing at a smartphone is common to log into sites and apps and complete transactions. This practice may have helped accelerate general acceptance.

“Mobile devices adding first fingerprint readers and then facial recognition helped advance the use of biometrics for authentication into mobile banking,” Ben Maxim, chief digital strategy and innovation officer at Michigan State University Federal Credit Union and chief operating officer at Reseda Group, told The Financial Brand.

A survey from PYMNTS highlights this shift, with three times as many consumers using their smartphones to access bank accounts over computers. And when it comes to authentication method preferences, biometrics is by far the most preferred, with over half of respondents citing it.

“Mobile devices adding first fingerprint readers and then facial recognition helped advance the use of biometrics for authentication into mobile banking,”
— Ben Maxim, Reseda Group

In terms of the customer experience, there are benefits to shifting away from passwords, Anna Kooi, Wipfli’s Financial Services Practice Leader, told The Financial Brand. Those benefits are focused primarily on simplicity and convenience for customers. “Tokens and biometrics offer a more streamlined and user-friendly experience, providing quick access to accounts and reducing friction during login,” she said. “Say goodbye to forgotten passwords and account lockouts. Biometrics and tokens can enhance customer satisfaction by minimizing these common pain points.”

However, financial institutions need to play a role in educating consumers about shifting technology, including biometrics and passkeys. Passkeys provide a more secure and user-friendly alternative to traditional passwords but offer additional security through encryption. Biometrics and tokens provide high levels of security, but users will likely need ongoing education to highlight safe practices. That’s something banks should take seriously.

“The transition involves educating customers about the advantages of these methods, ensuring a user-friendly interface, and gradually phasing out password reliance to align with evolving technological trends,” David Donovan, executive vice president of Financial Services at Publicis Sapient, told The Financial Brand. “Banks can educate their customers on how to use biometric and token-based systems effectively by providing tutorials, FAQs and support services.”

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Fighting Against Fraud

As up to 73% of consumers now use mobile devices for banking, the incidences of fraud have risen alongside them. Criminals rely on sophisticated tactics to target deposit accounts, digital transfers, and use bots to fraudulently take over accounts. So, banks are fighting a battle to find solutions that mitigate fraud risk and data breaches.

Biometrics and passkeys are less susceptible to theft — and it’s one of the benefits of using them. “The appetite for biometric authentication is strong and will become even more critical as AI accelerates the risk of password-accessed accounts being compromised,” says Stephen.

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There’s also the prospect of combining customer data with predictive analytics, using AI and machine learning to monitor user behavior and quickly flag threats. It’s another line of defense to protect both banks and customers. Biometrics can also aid in Know Your Customer (KYC) and Anti-Money Laundering (AML) regulatory compliance using customer biometric data as continuing verification checks beyond account openings but for various transactions.

However, that doesn’t mean they’re foolproof. Donovan recommends banks not rely on biometrics alone but combine them with tokens-based systems. “Biometric systems can be vulnerable to spoofing attacks, and banks are addressing this by using multi-factor authentication (MFA), combining biometrics with tokens or passwords for added security.”

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Balancing Convivence with Protecting Customer Data

While consumer convenience is critical, security and privacy play a role in transitioning away from passwords. There are privacy concerns around consumer protection and ensuring security measures are robust and sophisticated enough to protect against data breaches, attacks, and threats. However, biometrics aren’t immune from these concerns.

“Biometrics raise privacy questions. Banks must handle biometric data responsibly and transparently,” says Kooi. “Transparency in data handling and clear communication about security measures are paramount for successful adoption.”

So, banks face a crucial task: earning customer trust. Building trust is even more critical with biometric data. Unlike a compromised password, biometric information is permanent. Financial institutions moving away from passwords to biometrics must be aware of potential vulnerabilities and secure consumer data with strong encryption.

“”Biometrics raise privacy questions. Banks must handle biometric data responsibly and transparently.”
— Anna Kooi, Wipfli

“Banks need a method for securing biometric data and a fallback mechanism, like PINs, in place in case biometrics fail. Otherwise, biometrics will become another attack vector like compromised passwords,” says Kooi.

Donovan agrees and notes that it’s also crucial to consider evolving regulatory changes when creating secure and compliant frameworks for biometrics and token-based authentication methods. “The sensitive nature of biometric data necessitates stringent data privacy measures. Banks are implementing advanced encryption and secure storage solutions to protect this data.”

Educating Consumers Remains Essential

“Humans are creatures of habit, and passwords have been part of our lives since long before the digital era,” says Stephen. “Banks will need to plan the customer journey and provide the right support and education to help customers transition toward new forms of authenticating.”

As banks and financial institutions continue to consider the benefits of biometrics and tokens for password replacement, it’s critical to start planning for the transformation. Explaining the why behind biometrics, as well as the security benefits, along with continuing education and support, can help pave the way for more widespread adoption.

A proactive approach that prioritizes security and meets regulatory compliance can help banks take advantage of the benefits of biometrics while assuring consumers they have safe and convenient banking.

Liz Froment is a financial services writer based in Boston. She specializes in banking, lending, and wealth management with an interest in technology. Her work has appeared in Business Insider and The Motley Fool, among others.

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