March 27, 2019
3 Top Fintech Trends – And Why Digital Identity is a Must for Them All
Posted October 22, 2018
“Money makes the world go round”
The frequently quoted adage has probably no greater validation than in the impact of the fintech community on global financial commerce. Known as innovators, trailblazers and even visionaries, digital-born fintechs are transforming the world of financial services and further accelerating the pace of change in customer expectations. Let’s face it, before fintechs, the ability to seamlessly work with your bank or deploy capital to the underbanked was a complicated and in many cases impossible matter. However, with the advent of digital mobile-first solutions, fintechs can now expand their reach in a manner almost inconceivable by yesterday’s financial insitiutions. The upside: many more prospective customers and constant touch points with customers through financial apps. The down side: the rise of cybercrime and identity abuse putting increasing pressure on this sector and the services they provide.
Is Digital Identity the Answer?
As it stands now, the numbers aren’t pretty. Last year, 47% of financial institutions—including incumbents and their fintech challengers—faced over $1.4 trillion in losses from cybercrime, money laundering and other financial malfeasance. That’s roughly the equivalent of Australia or Spain’s GDP…staggering!
The fact is, a seamless and secure way to accurately identify the people they serve via digital channels is fundamental to payments, commerce and finance in an increasingly digital economy. But attaining that in a world awash with stolen identity data can be challenging for even the most sophisticated among them.
As these firms rapidly transform core banking functions, including loans, alternative lines of credit, global remittance and more, cyberthieves are leveraging all those stolen identity credentials to hijack customer accounts, apply for fraudulent loans, and make illegal purchases.
At the same time, the following trends threaten to put the importance of accurately assessing identity and fraud risk on a collision course with rising customer expectations for fast, frictionless digital services.
#1 Mobile is Make-or-Break
From making a $5 payment from a mobile phone to instantly gaining access to tens of thousands of dollars in credit through peer-to-peer lending to applying for renters insurance in under two minutes, mobile has become the primary driver for digital financial services.
During Q2, the industry saw 72% growth in mobile transactions year-on-year. And today, 7 in 10 account logins are made on mobile devices—whether it’s traditional high street banks or digital-native rivals.
In emerging economies, mobile has become the key enabler of financial inclusion for underserved populations. And the revolution in open banking led by PSD2 in Europe and NPP in Australia promises amazing new payment and services possibilities via the mobile channel.
But it all comes at a price. Thanks to all that stolen identity data, cyberattacks against mobile financial services firms have grown 60% over the last year, including a 200% increase in fraudulent mobile account login attempts.
Some believe biometrics to be the panacea and while they are certainly part of the solution, they fall short on their own. The point of registration still remains high-risk and if compromised, cybercriminals can add their biometrics to an account they takeover meaning that additional context pertaining to the true digital identity of a user is critical.
Firms are increasingly employing a multi-layered approach to cybersecurity that includes modern, digital identity-based smart authentication technologies. Digital identity tchnologies analyze the complexities of each individual based on their online behaviors and transaction histories through billions of dynamic, online and offline data elements that can’t be lost, stolen or faked.
#2 GAFA is at the Gates
Without a doubt, fintechs continue to put the squeeze on more established FIs by tailoring their application processes to a digital-only, and often mobile-only, consumer base. More times than not, they are a nimble and less expensive alternative to larger banks.
But what happens when GAFA gets into the act? What is GAFA, you ask? It’s the trendy acronym for today’s digital behemoths: Google, Apple, Facebook and Amazon. And for good measure, you can throw China’s Alibaba into the mix, too.
The truth is, GAFAs continuously set the benchmark from which today’s consumer expectations are set by providing the least amount of friction possible in mobile and online transactions. There are those who believe any or all of the GAFAs could decide to disrupt the fintech sector as profoundly as they have others.
Amazon’s already rumored to be working on a free online bank account with 2-percent cash back on Amazon purchases. According to Bain & Company, 65% of Prime members are ready to jump aboard. Apple Pay is expected to have over 200 million users by 2020, representing 50% of the 2020 mobile wallet market. And Alibaba’s Alipay is already the largest payments platform in the world.
Digital identity could help fintechs and other FIs rise to the challenge. By providing the full context for accurate trust decisions at each step in the customer journey, these technologies can help maintain and even enhance the customer experience to GAFA levels, even while boosting security.
According to HBR, this kind of digital cohesiveness can help businesses avoid frustrating customers and limiting their lifetime value, while lowering the chance they’ll defect to competitors.
All Fintech is Global
Opportunities are endless for fintechs offering new lines of credit and providing services across geographies, including both emerging and advanced economies.
Today, more than half of all transactions made through mobile and online payments platforms are cross-border in nature, for instance, reflecting increasing consumer appetite for goods and services beyond their domestic markets.
The problem: Consumer identity data such as national identity numbers or even standards around what constitutes a “home address” can vary wildly by region. And as stolen identity data winds its way around the world, this kind of static identity data becomes unreliable and effectively useless in a digital first world.
Unfortunately, there is no amount of internal data that can make up for these blind spots and even industry consortiums struggle to share any meaningful data in real-time.
To establish true digital identity across borders and geographies requires access to real-time networks with crowdsourced intelligence on tokenized identity and behavioral attributes sourced in real time from companies across numerous industries.
Firms that have deployed such solutions report that not only does this kind of intel boost the odds of blocking fraudsters, but the same technologies dramatically increase customer recognition rates, helping deliver a frictionless customer experience for legitimate users – all without violating privacy.
The Ultimate Balancing Act
Taken together, these trends underscore the careful balancing act fintechs and others will need to strike as this industry continues to go through a seismic level of transformation.
According to Forrester research, 30 percent of businesses will fail to keep up with evolving customer expectations for the digital experience this year, resulting in a net loss of a point of growth. But those that do succeed without sacrificing security could see revenues grow 4% to 8% above the average for their sector.
To that end, a digital identity-based approach to identity verification and assessment can play a central role in aligning cybersecurity with customer demands in a modern, real-time economy.
Yes, money does make the world go round and in a digital world replete with expectations of speed and reduced friction, incessant breaches of identity data, and cybercriminals using it to spoof identities, there are an awful lot of questionable actors trying to get there hands on it. Without a digital identity based approach, it’s effectively a hand out!
To learn more about how a digital identity-based approach to user authentication can help fintechs streamline the customer experience while reducing fraud, read this Kabbage Case Study