Strengthening digital identities is critical for reducing fraud, complying with regulatory requirements and establishing trusted relationships with customers. Further, customers expect the identity proofing process to be frictionless and failure to meet this expectation could lead to lost market share to companies with an easier user experience.
However, for a Financial Services institution looking to invest in its customer identity capabilities, it can feel as though there are many moving pieces. This report seeks to demystify the topic of digital identity by outlining the three customer-facing processes that rely most on trusted customers’ identities, explores the cost for Financial Services institutions of not investing in these capabilities, and maps the vendor market and the forces that are shaping this ecosystem. Finally, we close with a set of actions that Financial Services institutions across the U.S. can take today.
1 This report employs numerous specific terms of art, which can be found in the Glossary.
The three customer-facing processes where weakness in identity causes the most significant problems — and where better digital identity solutions can have the biggest impact — are identity proofing and KYC (which occurs at the point of onboarding a new customer), authentication (for example, a customer logging in to their online bank account), and transaction authorization and monitoring.1
The Federal Reserve Bank of Boston has developed a “Fraud Classifier” model [1] that shows clearly how bad actors can inject themselves into the financial system through each of these processes to commit fraud. Depending on the type and channel of fraud, dollar losses may be borne by the financial institution, the consumer, or a merchant. Even when the bank does not take the loss, its reputation may be damaged. To mitigate fraud losses, Financial Services institutions are already sustaining significant operating expenses.