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04 Nov

Biometrics leads the way to overcome financial fraud, but what are the risks? And do you have the right talent?

Card fraud poses a major threat to the finance industry. It has been recently reported that criminals stole more than £1.2 billion through fraud and scams in the UK in 2018 alone(1). These crimes can have a devastating impact on victims. And even if the customer gets their money back from their finance provider, the organised criminal gangs which perpetrate these frauds still profit from the proceeds. This money may go on to fund illicit acts which damage our society – crimes such as terrorism, drug trafficking and people smuggling.

The financial industry is committed to tackling fraud and scams, and the banking industry is proactively using technology in the fight against fraud. In September 2019 we saw the introduction of two-factor authentication, a Strong Customer Authentication (SCA) requirement for most electronic payments made within the European Economic Area (EEA). Under the new rules, customers making certain transactions online will now require a second level of security, such as a passcode sent via text message, or biometrics.

Biometrics is emerging as a formidable solution to support secure payment and banking options. Biometric fingerprint readers have grown in popularity and are now used in many major areas including banking, mobile phone security and as broader security controls.

Biometrics are currently being used to verify people through:

  • Facial Recognition
  • Fingerprints
  • Retinal Scans
  • Signatures
  • Voice Analysis
  • Palm Vein Identification
  • Hand Geometry

These techniques are also available but have not yet been as widely adopted:

  • Brain Waves
  • Walk Style
  • DNA
  • Heartbeat
  • Iris Scan

Using biometrics to verify identity is popular because it is convenient and reliable.

Biometric identification is in the palm of every modern smart phone users’ hands. People can unlock their devices with their face, eyes or fingerprints. But, as a result, this opens people and organisations to cyber risk and the possibility of biometric data being hacked and stolen.

Biometric data security, storage, compliance and regulation are concerns that negatively impact adoption of biometrics by consumers. With increasing numbers of data breaches year by year, people are afraid of what could happen if hackers steal their biometric data. Since a person’s biometrics cannot be changed if stolen, like a password could be, fear of losing biometric data holds back some acceptance of this technology.

The evolution of the payment and banking industries are driven by three key factors: technological innovation, regulation, and consumer adoption. In the case of biometric payment authentication replacing passwords, the technology and regulation is in place to allow for the new era of card-not-present transactions, but research suggests that consumers are not ready to relinquish their dependence on password authentication(2).

Biometrics could play an important role in the fight against financial fraud, with their uniqueness and technology ease, however the financial services industry will need to install consumer confidence by eliminating risks related to data security, usage and storage, as well as defining and implementing regulation compliance. Having the right talent who understand compliance and risk and can work alongside data scientists to drive technology innovation is paramount.

Danos Associates has over 15 years’ experience in the Payment and Fintech sectors internationally covering Compliance, Financial crime, Risk, and Legal. We leverage our knowledge of firms and individuals to help connect individuals to solve technical and regulatory issues and provide succession planning or search to fill team gaps. If you would like to discuss this article or your team, please do get in touch.

Paul Geist
Associate Partner, Compliance

Tel: +44 (0) 20 3908 4806
Email: pgeist@danosassociates.com

Ruaridh Brown-Hovelt

Associate Partner, Head of Risk and Quant Practice

Tel: +44 (0) 20 3889 5757
Email: rbh@danosassociates.com

References:

  • Fraud The Facts 2019
  • Lost in Transaction – Paysafe Group