Balancing user experience and security: the banking dilemma

In the fight against identity fraud in banking, Henry Patishman from Regula emphasises how robust ID verification can enhance security to prevent financial losses while maintaining a positive user experience.

Traditional banks are currently undergoing various stages of digital transformation. During this process, they recognise that even the initial phase, which involves remote sign-ups for bank accounts known as digital onboarding, can be enhanced through different approaches. Another insight is that process automation alone does not guarantee identity fraud protection; multiple robust security measures are required. But what exactly are these measures?

The rapid digitisation of the Financial Services sector has led to an increase in identity fraud, as fraudsters take advantage of the poor processes and technologies required for reliable identification. A recent identity verification report conducted by Regula, a global developer of forensic devices and identity verification solutions, together with Sapio Research, has revealed that every fourth bank reported experiencing over 100 identity fraud incidents in the past year. Additionally, the Banking sector was the most severely impacted by the cost of identity fraud: last year, the median financial burden was over USD 310,000.

Both the Banking and Fintech sectors consider ID verification (IDV) solutions, particularly digital document verification, as valuable tools for combating fraud and minimising legal risks. They also anticipate that this technology will improve customer experience by digitising onboarding processes and maintaining a competitive edge against neobanks and other fintechs.

Before deciding on an IDV solution for your business, it's crucial to address a key question: What is the level of fraud risk in your business?

In the past year, surveyed organisations encountered various forms of fraudulent activity. The most prevalent was the use of fake or modified physical documents. For fintech companies, 46% reported being affected, while banks faced an even higher frequency, with 54% dealing with document forgery. Another concerning trend is the rise of AI-generated identity fraud, such as deepfakes, which include manipulated and convincing media. Shockingly, 37% of organisations experienced deepfake voice fraud, and 29% fell victim to deepfake videos. Additionally, nearly half of the banking organisations (49%) encountered synthetic fraud, where criminals combine real and fake ID information to create artificial identities.

Identity fraud has significant costs for businesses. When surveyed about the primary expenses associated with identity fraud, over one-third of respondents mentioned the loss of existing and potential clients (34%).

It's clear that the word ‘security’ in this context should be emphasised with capital letters.

When businesses are less susceptible to sophisticated forms of identity fraud, such as deepfakes, they may choose to prioritise user experience during remote onboarding. This approach allows customers to verify their identity when accessing services quickly and conveniently. Although the security provided by the IDV solution would remain robust, some advanced ID verification technologies, biometrics and expertise in document security features may not be fully utilised in this scenario.

However, there are situations when both customer security and satisfaction are prioritised. That is the case with the largest bank in Switzerland and the world’s largest private bank: previously, they used to run real-time video interviews to verify new customers. Then, they challenged us to create a completely new customer experience for remote account opening and access to banking products, while ensuring the highest level of security.

Now, customers can complete the enrolment process through a fully automated and secure system: it takes less than five minutes, granting customers immediate access to their newly created bank account.

To ensure a maximum level of security for the bank, Regula has incorporated the following key elements into the IDV process: (1) requiring customers to provide only biometric passports for verification, and (2) implementing server-side RFID chip authentication.

Biometric passports are highly secure due to their RFID (radio frequency identification) chips. These chips encode crucial personal and biometric details like name, gender, photo, and signature, making counterfeiting extremely challenging.

Server-side authentication is necessary because even though mobile device verification using NFC technology is available, there is still a risk of fraudsters intercepting and modifying verification results on the same device. This undermines the reliability of client-side verification. An IDV solution installed on a server ensures the trustworthiness of the RFID chip and its data, leaving no room for fraudsters to evade detection in this ‘zero trust to mobile’ environment.

Another robust security measure can be enabling comprehensive liveness checks, which go beyond customer verification and extend to physical document security. These checks identify dynamic security features that are only visible when documents are in motion, making them extremely difficult to counterfeit. Organisations looking for a maximum level of security should refrain from accepting scanned copies of documents.

Some might argue that this approach could impact user experience. Requiring physical documents for identity confirmation may present challenges compared to services that accept scanned copies. However, in situations where the failure of IDV could lead to significant financial and reputational losses, especially for a global leader like the world's largest private bank, prioritising security becomes a crucial element in delivering a positive user experience, even if it may initially appear less convenient.

About Henry Patishman

As Executive VP of Identity Verification Solutions, Henry Patishman is responsible for driving Regula’s strategic initiatives across different industries in the cutting-edge field of identity verification and biometrics. Henry has a broad view and extensive experience across the entire breadth of the IT industry, particularly in digital transformation, security, and data storage. He has held senior global positions with multiple global tech companies, such as ABBYY and ACA Pacific. Henry graduated from Deakin University in Victoria, Australia with two degrees: Bachelor of Commerce and Bachelor of Science.

About Regula

With 30+ years of experience in forensic research and the largest library of document templates in the world, we create breakthrough technologies in document and biometric verification. Our hardware and software solutions allow over 1,000 organisations and 80 border control authorities globally to provide service without compromising safety, security, or speed.

Regula was named a Representative Vendor in the Gartner® report ‘Market Guide for Identity Proofing and Affirmation’ in 2022.