A new report released by the American Bankers Association and leading management consultancy, Oliver Wyman, today provides a framework for bankers to improve their customer identity management to protect their customers and the broader financial industry from fraud.
The Growing Significance of Trusted Digital Identities in U.S. Financial Services outlines the evolving landscape of digital identity and provides actions banks can take. It identifies three customer-facing areas where digital identity solutions can have the biggest impact to mitigate fraud: identity proofing and KYC, authentication, and transaction authorization and monitoring.
“Implementing digital identity solutions can greatly reduce fraud and improve operational efficiency, but getting started can be complex,” said Brooke Ybarra, head of ABA’s Office of Innovation. “This new report is a valuable resource for banks as they dive into this critically important space.”
Three key identity processes in the banking customer journey are outlined in the report: first, at the point of onboarding, banks verify a customer’s identity and issue digital credentials; after that, there is frequent authentication to recognize legitimate returning customers in order to permit access; finally, transaction authorization is used to decide whether to permit individual transactions initiated by the customer.
Weakness in any of these areas can result in identity fraud and other fraudulent activity. The report outlines how developing stronger customer identity will help banks reduce fraud losses, enable regulatory compliance, reduce operating expenses and improve customer experience.
The report also provides context around the broad set of vendors and other solutions available to help meet the identity-related needs of financial institutions. Considering each of the key identity processes, it examines the use cases the vendors enable; the steps in the process they support; the capabilities and solutions they deploy; and the trends that may impact this part of the process and the vendors that support it.
In addition, the report explains the forces that are shaping the digital identity landscape in the U.S. including the government, the private sector and evolutions in the underlying technology itself.
“One of the aspects that makes digital identity such a complex topic is the influence of government and quasi-government organizations on the market,” said Ybarra. “A number of forces are shaping the landscape, and this paper helps banks identify those influences in order to design a solution that will remain relevant over time.”
To help banks achieve stronger digital identity processes, the report also provides tangible actions that financial institutions can take:
- Establish a digital identity leadership as a focal point of perspectives across the bank’s team made up of key executives at the bank;
- Benchmark the bank against peers and industry best practices;
- Conduct a root cause analysis to identify weaknesses that need to be addressed and understand the bank’s true cost of fraud;
- Map the bank’s current identity-related vendors;
- Understand the bank’s core banking system provider’s product and solution roadmap related to customer identity; and
- Evaluate vendors in the context of the likely developments in the broader digital identity ecosystem;
- Engage with industry groups focused on digital identity developments.
“In 5 years, the digital methods by which banks open new accounts and onboard customers, the way they authenticate returning customers for account access, and the way they authorize financial transactions will all be dramatically better than today. Methods will be highly secure but still low-friction for users. These changes will deal a body blow to synthetic identity fraud and account takeover fraud, reducing financial losses and consumer frustration,” said Alina Lantsberg, Partner and Americas Retail and Business Banking Head at Oliver Wyman.
The report is the third in a series from ABA’s Office of Innovation, which provides strategic guidance on trends impacting banking and the technologies needed for banks to stay competitive, as well as advocacy on policies to allow banks to continue innovating in today’s rapidly evolving market. Previous reports covered digital lending and cryptocurrency.
To read the entire report, click here: https://www.aba.com/news-research/research-analysis/The-Growing-Significance-of-Trusted-Digital-Identities-in-US-Financial-Services.
