Building the case for biometrics in lending

The term may still sound rather futuristic, but biometrics – the study of distinctive and measurable characteristics to label an individual – is already reshaping our world. These characteristics, known as biometric identifiers, range from fingerprints and veins through to iris, retina and voice. It just has to be something unique to the individual.

For the past few years, biometric authentication has perhaps been most widely associated with mobile phones. Android launched the first fingerprint touch sensor in 2014. Its application in mobile devices is now extending beyond simply opening the device to safeguarding the applications within them. But mobile is certainly not the sole use case and we are seeing biometrics swiftly taking hold in the financial services world.

In March 2019, the UK’s first biometric payment card trials were successfully conducted by Royal Bank of Scotland (RBS) and NatWest. RBS began its trial with customers in Scotland, with a card provided by Gemalto that uses Fingerprints’ T-shape sensor module and software platform for payments. The major driver, according to RBS, is the opportunity to ‘scrap the payment cap’ by verifying transactions above £30 using fingerprint instead of PIN code. Fast, simple and secure.

It should be mentioned, however, that the UK is pretty late to the party. According to a Text Road Publication Report from way back in 2012, 52% of the banks which had started adopting biometric technologies were located in Asia. For nearly a decade, Asian banks have been busy leveraging biometrics for purposes such as authenticating a customer while onboarding, transaction processing, and logging customers to secured networks.

An eye on the future

Biometric authentication is also central to the delayed Strong Customer Authentication (SCA) plans, an important part of PSD2 that aims to dramatically reduce fraud and make online payments more secure by building in additional authentications.

In order to verify identity, SCA will require payment service providers (PSPs) to provide two out of three of ‘something you know’ (e.g. password or PIN), ‘something you have’ (two-factor authentication via mobile phone, smart card etc), or ‘something you are’ (fingerprint or facial recognition). Despite the much-publicised delays to SCA implementation, PSPs are being urged to ensure their systems are compliant and customer-centric.

In terms of lending, it will be interesting to see what emerges in a new decade. The consensus is that banks and other lenders can better identify and authenticate individuals through the use of technology and unique biological characteristics.

The burgeoning Lending-as-a-Service (LaaS) sector and its providers are already harnessing the latest developments in biometrics and artificial intelligence, specifically machine learning, to drive faster, more reliable authentication and therefore bolster lending speed and efficiency.

Biometric authentication plays a key role in smarter onboarding, with the top LaaS providers enabling data capture using facial ID, which confirms identity and lowers fraud risks whilst still preserving a short and easy-to-use loan application. Customer onboarding is a crucial step in the customer’s journey with a financial institution, firmly shaping their experience and impression of that institution – so expect the use of biometrics to ramp up in 2020.