By Jenn Markey, VP Product Marketing, Payments & Identity at Entrust
Across the world, consumers are showing varied requirements in what they want from their bank or credit union. And regardless of whether it’s flexibility, security, digital cards or something else entirely, financial institutions are rising to the challenge. But given the rise in new fintech players and neobanks (also known as challenger banks) entering the payment space, as well as cryptocurrencies surging in popularity, how can financial institutions take on the disruption to get a competitive edge and at the same time, overcome any associated challenges?
The rise of digital scams and fraud
Mobile banking grew 50% in the first half of 2020 as consumers embraced the convenience — and necessity — of digital payments. During the same time period, global identity fraud losses reached a whopping $56 billion with financial institutions, businesses and consumers all suffering. And that doesn’t include indirect costs such as damaged reputations or time spent remediating the situation.
Financial institutions have a lot to lose from fraud − not only the direct costs of the fraud itself or non-compliance fines, but also indirect costs like lost customer loyalty. Given the amount of competition in the space right now, today’s consumers have more options for who to do business with than ever before. To avoid these consequences, banks and credit unions will not only need to improve their security offerings, but also communicate with customers on how advanced technology keeps their payments and accounts secure.
The mitigation tools at our disposal
By investing in advanced technologies, financial institutions can capitalise on consumers’ growing interest in digital banking and keep their customer base for years to come. It’s worth considering a security portfolio built on trusted identities, data and payments. These include device reputation checks and digital identity proofing, which provides secure self-service identity verification in seconds from a consumer’s mobile phone. As well, strong customer authentication (SCA) which requires two or more elements categorised as something the consumer knows, possesses, or is, provides additional layers of protection for access. SCA is integral to consumer protection and Open Banking regulations, including the Payments Services Directive 2 (PSD2).
Sensitive customer data is protected at source when shared using tokenization or encryption methods. Tokenisation conceals personally-identifiable information (PII) so it’s only interpretable to authorised systems or users with the correct security key. For example, when someone charges a cup of coffee to their contactless card or mobile wallet, a merchant-specific encrypted token can be provided for that purchase. If the coffee shop suffers a breach, the customer’s payment information (card number and CVV) is unreadable to hackers.
Authentication methods are solutions to ensure users are who they claim they are. Considering 61% of breaches are caused by stolen or compromised credentials, authentication can effectively block the majority of attacks. Authentication tactics like passwordless access, device reputation management, transaction verification and adaptive risk-based authentication help continuously validate users and devices while proactively detecting fraudulent patterns.
Most consumers are aware of security basics such as username and password login, two-factor authentication and fingerprint and facial recognition, but they are still in need of more education on advanced features to come, such as behavioural biometrics and what these types of technologies may entail. Then there are the issues surrounding morals, ethics, privacy and trust, which could be a hindrance to widespread rollout.
Our brave new digital banking world
In these now very testing financial times, with the squeeze on essentials being felt globally, fee structures and flexible payment options can give banks, traditional or neo, an edge. This is because consumers are most likely to consider lower fees and digital solutions, as well as security, when choosing or changing their bank. Consumers are looking for high-quality, low-cost digital banking, so neobanks could add to their current disruption by offering things like fee-free overdraft protection and unlimited foreign exchange.
There is general widespread interest in the digital banking atmosphere according to the Entrust Great Payments Disruption report, with 86% of survey respondents from the U.S. saying they would consider using a branchless online banking service. Additionally, neobanks offer new ways to pay, and 52% of respondents said they would also consider using digital currencies for payments.
Additionally, more digitally issued cards could further fuel the rise of contactless payments. We discovered from the report that respondents listed credit/debit cards with chips (50%) as their most preferred payment method, but contactless credit/debit cards (48%) were a close second. Another 53% of respondents said they had received a digitally issued debit or credit card from their bank or credit union. These cards can be an effective selling point as almost two-thirds of survey respondents said they would prefer to open a bank account digitally. This preference is high across the generations as well – for Gen Z it’s 65%, for Millennials it’s 69% and for Gen X it’s 54%.
Then there are omnichannel touchpoints which are increasingly important when it comes to digital banking today: 88% of respondents in the Entrust report said they prefer to do their banking online in some form − clear evidence that digital banking is the new norm. However, it is still proving to be essential to offer a variety of digital options. This is because 59% of respondents in this survey prefer using the app from their bank or credit union, while 29% prefer their desktop web browser. Some people do still prefer in-person banking, such as at a branch (8%) or an interactive teller machine (3%). Overall, banks need to offer omnichannel, digital-first solutions to resonate with today’s consumers.
Contactless is the past, present and future
Finally, it’s still a bit of a mixed picture when it comes to contact or contactless. Compared to countries like the UK, whose cardholders adopted contactless cards more than ten years ago, contactless cards in the U.S. only recently emerged on a wide scale. While newer to the U.S., contactless cards are quickly picking up steam and meeting consumer demand for more flexible and secure options. In fact, 48% of the survey respondents listed contactless credit or debit cards as their preferred payment method. As well, digital cards in consumer mobile wallets are another form of contactless payments that is gaining traction around the globe.
With all of the above to consider and new and emerging technologies arriving at pace, it is clear these changes to the way consumers want to bank are here to stay, in addition to constantly evolving financial institutions. Not only that, but the Great Payments Disruption is likely to continue for some years to come.