Financial institutions turn to modular identity frameworks for compliance, security, and business agility

As identity management underpins business continuity, regulatory compliance, and operational security, Matthias Reinwarth from KuppingerCole shares why we cannot view it just as a background function.

As financial institutions face growing cyber threats, mounting regulatory pressure, and rapidly evolving business models, modern identity management is emerging as a strategic priority. KuppingerCole Analysts AG’s Identity Fabric framework is gaining traction as a practical reference architecture for building secure, scalable, and regulatory-aligned identity ecosystems in the financial sector.

The framework supports a shift away from static, infrastructure-bound systems toward an adaptive model in which identity is managed as a continuously evolving service portfolio. This reflects a broader industry shift: identity is no longer a back-office utility, but a central enabler of regulatory compliance, fraud prevention, and digital service delivery.

A scalable identity architecture for complex financial environments

The Identity Fabric is a layered architecture designed to manage a broad spectrum of identity types - including employees, customers, partners, devices, service accounts, and automated agents - across business units and technical domains. It delivers core IAM capabilities such as lifecycle automation, access governance, and policy enforcement through a modular structure that scales across the enterprise.

For financial institutions, this enables identity services to be tailored to specific operational needs - spanning internal platforms, customer-facing channels, and partner ecosystems - without compromising architectural coherence or regulatory alignment.

In highly regulated environments like banking, this modularity is critical. Regulatory scrutiny, operational complexity, and multichannel service models require identity solutions that can address diverse use cases without creating silos. The Identity Fabric supports this by enabling CIAM, workforce IAM, and privileged access management to be developed independently - yet governed through a unified architectural model.

Unlike traditional IAM architectures, the Identity Fabric is designed for continuous, granular service delivery. Powered by modern toolchains, it enables capabilities to evolve incrementally - mirroring SaaS-like delivery models rather than static IT projects. Identity services are managed as an internal portfolio, with defined ownership, accountability, and service-level expectations.

Operationalising compliance and enhancing fraud resilience

Identity governance in the financial sector is shaped by a growing body of regulation, including KYC, AML, PSD2, DORA, and GDPR. The Identity Fabric, aligned with the KuppingerCole IAM Reference Architecture, translates these regulatory requirements into actionable identity capabilities - enabling institutions to enforce compliance consistently and at scale.

A key advantage of the Identity Fabric for financial organisations is the integration of Fraud Reduction Intelligence Platforms (FRIPs) which incorporate identity verification, credential intelligence, behavioural biometrics, device analytics, and bot detection to evaluate transaction risk in real time. By embedding these capabilities into access orchestration workflows, institutions can strengthen defences against account takeover, synthetic identities, and insider threats. Risk-based authentication becomes dynamic and context-aware - adapting to behavioural patterns and transaction attributes as they unfold.

The framework also supports critical compliance tasks such as sanctions and watchlist screening. Banks must routinely check customer data against lists maintained by OFAC, the United Nations, and the European Union. The Identity Fabric streamlines these checks by integrating identity proofing, periodic re-verification, and access controls into a unified governance process - ensuring consistent enforcement, auditability, and alignment with regulatory expectations.

Modular IAM use cases in financial services

The Identity Fabric is in active use across financial services, insurance, healthcare, and the public sector. Its modular, capability-driven architecture enables institutions to modernise IAM without disrupting core systems or introducing fragmented solutions.

A European insurance provider, for instance, is aligning its IAM and Identity Governance and Administration (IGA) initiatives with the Identity Fabric to strengthen partner access, streamline onboarding, and enhance audit readiness. The framework’s two-tier design - combining a strategic identity services layer with operational sub-architectures for each identity type - enables targeted capability delivery while preserving architectural consistency.

This modular structure allows institutions to implement identity services tailored to the needs of specific user groups. For example, self-service CIAM with federated login supports customer engagement; workforce IAM includes role-based access, enforcement of Separation of Duties (SoD) controls, and regular access reviews; and non-human identities - such as APIs, bots, and service accounts - are managed through secrets provisioning and automated lifecycle policies.

The framework also supports dynamic, context-aware authorisation - an emerging requirement in distributed environments. Machine learning models further enhance fraud resilience by ingesting identity data and behavioural signals to identify threats proactively.

By delineating identity types and aligning them with appropriate governance models, the Identity Fabric helps institutions avoid one-size-fits-all approaches and disjointed toolchains - delivering mature, business-aligned identity services within a unified architectural framework.

Navigating legacy constraints and organisational barriers

Implementing the Identity Fabric in financial institutions often means confronting deeply entrenched IAM systems and fragmented governance structures. Legacy platforms are tightly embedded in core banking environments, making integration or replacement both technically and operationally challenging. According to a recent KuppingerCole poll, 71% of respondents cited a lack of internal accountability as the primary obstacle to IAM modernisation, followed by technical debt and limited resources.

A phased, capability-based implementation approach has proven effective in overcoming these constraints. The process begins with a baseline assessment, followed by modelling the target architecture, identifying maturity gaps, and assigning remediation steps with defined ownership. Visual tools such as heat maps and capability scattergrams help prioritise investments by aligning identity maturity with business urgency. This structured planning method ensures strategic alignment, supports transparent budget decisions, and establishes a defensible roadmap for incremental delivery.

The road ahead: adaptive IAM as a pillar of financial sector resilience

As embedded finance, real-time payments, and Open Banking reshape the financial landscape, robust and adaptable identity systems have become essential. Identity management is no longer a background function - it now underpins business continuity, regulatory compliance, and operational security. The Identity Fabric offers a scalable and future-ready architecture to meet these evolving demands.

Deployment strategies, governance models, and real-world use cases will be discussed at the upcoming Identity Fabric Impact Day 2025 in Frankfurt, where identity professionals and financial stakeholders will share practical insights from current implementations.

As financial institutions move toward open, real-time, and intelligence-driven ecosystems, the ability to manage identity as a strategic capability - rather than a static function - will increasingly differentiate those able to meet regulatory, operational, and customer expectations. The Identity Fabric framework offers a path forward: modular, scalable, and built for continuous evolution.

About author

Having spent his entire professional life in Identity and Access Management, Matthias joined KuppingerCole in 2014. In his role as Director of the Practice IAM, he works on maintaining KuppingerCole's leading position in all facets of digital identity and access to resources. He is a regular speaker at KuppingerCole events and webinars and hosts the weekly KuppingerCole Analysts video podcast, Analyst Chat.

 

 

About KuppingerCole Analysts

KuppingerCole Analysts specialises in the strategic management of digital identities, privileges, authentication, and access control, as well as cybersecurity and business resilience through regular Research, Events, and Advisory services.