While some predicted that “Big Tech” would be the catalyst that transformed consumer behavior in the banking industry, the truth is that banking has already been cruising toward digital transformation – a global pandemic greatly accelerated it. Once physical branches were forced to shutter and consumer concern over physical touch points began to rise, digital banking became the primary consumer resource as mobile banking traffic rose 85% with a 200% jump in new mobile banking registrations in early April.
In addition to traditional mobile banking enrollments skyrocketing, some of the industry’s most popular digital disruptors like PayPal, CashApp and SoFi also took full advantage of the pandemic-induced wave of virtual money management, with CashApp enabling its users to receive their stimulus funds directly through their mobile app.
The pandemic has pushed the “fast forward” button on digital transformation, and now is the time for banks to ride the wave. However, as digital banking emerges as the primary banking method for many Americans and the physical branch takes a back seat to its virtual counterpart, the path to a completely frictionless user experience is still unclear. With financial fraud increasing exponentially and customers expecting a seamless experience as they navigate all financial functions in a remote world, banks need to upscale their services and operations to ensure they do not get left behind the virtual curve.
To truly ride this wave, banks will need to succeed at true digitization of identity and the complete virtual functionality of bank accounts. This requires a “start strong” proactive approach to fraud and security instead of a reactive one.
Developing customer trust
To make full-fledged digital banking transformation happen, it is imperative that a standard level of trust be established between the bank and its customer and vice versa. For example, if a bank’s website or mobile application repeatedly doesn’t recognize a customer or if the customer’s payments are interrupted, the chances of the customer considering this as a reliable digital extension of their bank full time is slim.
New market entrants have to build a greater sense of trust – and from scratch. For the banks that already have loyal customers, the key is to continue to increase security capabilities while reducing authentication hurdles, all wrapped into a premium customer experience.
A foundational component to removing authentication hurdles while increasing security within the digital experience is by including a deeply enhanced digital identity, authentication and authorization capability within a bank’s consumer-facing service that spans all digital touch points, including card transactions performed at merchant sites – historically difficult dots to connect. It is imperative that user authentication, authorization and digital identity serve as major cornerstones of the user experience.
While the identity and authentication paradigm isn’t going to occur overnight, the conversion to a primarily digital way of banking becomes a bigger challenge without them. Not only would this demonstrate to customers that their bank is prioritizing the protection of their digital identity, but it shows how serious these institutions are about creating an optimal experience for the user by making financial interactions easier than ever before.
Communication between banks and their customers, as well as any intermediaries is key during this time. Banks should be fully transparent with their customers on the additional features they have in the works. This will reassure them that they are not on this digital transformation journey alone and the process can move at their pace (even if the pandemic has inadvertently sped the process up).
Creating a seamless, user-first experience
Digital banking and finance offerings are flooding the market. The services that will ultimately reign supreme will be those that offer a superior user experience and are able to tailor their services to consumer’s specific needs. While some new entrants will use flashy graphics and surface techniques to woo users from legacy service providers, some of these new entrants may forego many of the crucial security/fraud prevention features that customers both want and need.
The next wave of digital banking services need to fully cater to the customer experience, being both agile and easy to use if they are going to be fully adopted – no instructions required. This means that the features and functions within these digital banking services must not only be truly adaptive to customer’s needs, but they also must leverage frictionless technologies (such as digital authentication) to virtually emulate the full-service outcomes that customers that frequented physical branches are used to – with no limits. However, there are many banking functions that may not even be worth the hassle to recreate for the virtual world.
Going digital for banks means a whole new frontier for creating a tailor-made banking experience for specific users, and delineation between accounts specifically designed for digital touch only or physical touch only is key. Said differently, a digital account should have tokenized keys that are unknown to the account owner while physical accounts would have the legacy structure that account owners would have their account details in their possession.
This approach would segregate risk and allow banks to be more precise in applying security features that greatly reduce friction while laying the foundation for open banking. This approach has been proven with tokenized transactions and now is the right opportunity to elevate this capability to truly tokenized accounts.
Tackling fraud head-on
Fraud is deception and for banks to strengthen their capabilities they must first limit the capabilities that fraudsters have at their disposal. It is amazing that check fraud continues to lead in many loss reports given the amount of time and resources that banks have applied to this form of fraud. However, a deeper dive into reviewing this activity sheds light on this issue as it represents the comingling of the digital and physical worlds.
With the sophistication of check image interrogation software available, it is surprising that check fraud continues to elude such capabilities; however, account takeover activity tends to open up online access to those images to fraudsters. Conversely, the account and routing numbers being widely available do not lend themselves to a strong, tokenized digital approach.
While we wait for truly delineated account structures, we must acknowledge that 55% of consumers admit they have no plans to update their online banking login information. It is painstakingly clear that the best fraud defenses will need to be a good offense built directly into these digital banking solutions. As banks work to reduce friction they must equally increase customer engagement to ensure users are taking action and utilizing all security tools at their disposal, like behavioral analytics and other digital authentication solutions to better protect transactions. For new enrollments, banks can also take a “start strong” approach to ensure that customers start out on the right foot with the strongest capabilities they have to offer.
For existing customers, they will need a call to action that is more assertive than previous education approaches. A new approach of educating customers on the need for self-selecting stronger security requires more precision and insight that feeds directly into the effectiveness of the user experience while simultaneously establishing brand loyalty.
While CISOs at these financial institutions are becoming more engaged with fraud teams, they will need to consider the customer experience and the proactive measures required to ensure fraud protection is fully integrated into the overall security strategy – and not just an afterthought. This requires strategic planning between the fraud and security teams to ensure that resources are maximized and utilized appropriately.
As scams from mobile payment apps continue to grow in popularity and financial fraud is facing an uptick due to the pandemic, consumers need to know that their banks have them fully protected in the digital realm. Everything from multi-factor authentication and password resets to facial recognition, mobile device fingerprinting and other biometric-based digital identity protection tools will be essential as cyberthreats continue to grow in sophistication and more stringent digital identity and authentication practices are needed.
By taking a direct approach to fraud protection, banks can provide their customers with peace of mind as they rest assured that their data and funds are protected to the highest power regardless of their concerns about going fully digital with their banking.
The pandemic has thrown many components of our everyday lives into a tailspin, but the way in which we bank and handle our finances does not have to be one of them. When it comes to banks and their customers, they need to determine the best ways to collaborate seamlessly. Every customer has the need and right to have easy access to their funds – and digital banking has made this an everyday reality.
As digital banking continues its rise as the primary way of banking (and the physical branches take second place), the banks that have been actively investing in their technology stack over the past few years will not only be well positioned for this genesis – but will thrive in it. The other banks that have neglected their technology infrastructure will find it very difficult to enjoy the digital wave – if they survive it at all.
Amir Nooriala, Chief Strategy Officer of Callsign, helped contribute to this article.