The use of biometrics and e-identification is growing as financial services firms see the benefits of these technologies for client onboarding, security, and anti-fraud measures. Such use is far from universal but could see greater adoption on the back of the Financial Action Task Force’s (FATF) digital ID guidance, which is still in draft form.
Banks, particularly retail ones, have started using facial recognition technology as part of the onboarding process in cases where customers are deemed to be low risk. This risk-based approach to know-your-customer (KYC) is not yet permissible in all jurisdictions, however. “Firms are taking a risk-based approach to onboarding customers — that is what a number of countries across the globe are legislating for,” says Rachel Woolley, global anti-money laundering (AML) manager at Fenergo in Dublin. “Still there are some jurisdictions taking the one-by-one approach — go into the branch with your proof of address and your ID document. What we’re starting to see is a shift away from that a little bit where firms have more flexibility in assessing risks and identifying what processes to use to determine whether a potential customer is who they say they are.”
In Europe, challenger banks such as Monzo, N26, Revolut, Atom, Starling, and Monese all use facial recognition for mobile-client onboarding. This process usually entails uploading photo identification through an app along with a selfie or video for comparison. Most banks opt for videos as a “liveness test”, because they want to confirm the applicant is a human, not another image.
“For KYC/AML purposes the main thing is to identify the person,” Woolley explains. “When onboarding, banks can confirm identity of the individual through a liveness test again the passport or ID being provided. When you’re conducting the liveness test — biometric data vs. static data — then you are truly comparing information it makes sense to compare.”
Woolley sees the use of biometrics in KYC/AML starting to develop rapidly, particularly among inherently low-risk clients. “If it’s done in a responsible way to support processes rather than overtake them, the right technology at the right time can alleviate pressure on human resources,” she says.
Security & Anti-Fraud Benefits
Starling, a mobile-only challenger bank based in the U.K., uses fingerprints and facial recognition as an antifraud measure when customers log onto their mobile banking apps or make mobile payments. Voice recognition technology also is used by some financial institutions as a telephone banking security measure.
Incumbent banks such as Royal Bank of Scotland (RBS) and Barclays have also added some biometrics as well. RBS, for example, is trying out a biometric credit card that uses thumbprint technology. Barclays, meanwhile, has teamed with Hitachi to launch the Barclays Biometric Reader which uses infra-red technology to identify a user by scanning their unique finger vein patterns. It is said to be more secure than a fingerprint and removes the need to remember PINs or passwords, helping to eliminate the risk of PIN capture, identity fraud, or sharing of account details. The new reader will be available for corporate and business banking clients who use Barclays.Net and iPortal digital channels in early 2020.
In the crypto and digital currency world, security is vital. Hoyos Integrity‘s digital currency wallet uses fingerprints and facial recognition to prove identity and as a security measure. “When you generate your wallet, you need to biometrically identify yourself,” says Hector Hoyos, chief executive at Hoyos. “If you are tied to a financial institution, we get your drivers’ license or your passport and then do face-matching against them — then we grab your fingerprints.”
Hoyos adds that every single time there is a transaction in that wallet biometric authentication is required. “That’s how we know it’s you and that is also checked against your GPS coordinates and recorded,” he says, adding that U.S. regulators are interested in biometric technology for its AML/KYC, anti-fraud benefits, and customer asset protection.
FATF Guidance Boost
More jurisdictions could allow biometrics for customer onboarding once they consider FATF’s new guidance on digital identity. FATF says digital payments are growing at an estimated 12.7% annually, and are forecast to reach 726 billion transactions annually by 2020.
By 2022, an estimated 60% of world GDP will be digitalized. “For the FATF, the growth in digital financial transactions requires a better understanding of how individuals are being identified and verified in the world of digital financial services. Digital identity (ID) technologies are evolving rapidly, giving rise to a variety of digital ID systems. This guidance is intended to assist governments, regulated entities and other relevant stakeholders [to] determine how digital ID systems can be used to conduct certain elements of customer due diligence (CDD) under FATF Recommendation 10,” the draft guidance states.
FATF also notes how a risk-based approach and the use of robust systems may present a standard, possibly an even lower-risk KYC option. The draft also discusses some of the benefits that a digital ID system may present, including supporting financial inclusion.