SINGAPORE (Oct 14): The rise of digital banks today is a sign of the times, and a promise of greater opportunities for banks that are ready to chart the brave new cyberworld. While digital transformation gives a sense of foreboding to many, it can offer convenience to digital-first customers and reach beyond national borders to serve new types of customers, including the unbanked. These benefits can also help level the playing field for many small and medium-sized enterprises that are looking to seize a competitive advantage over more established players.
Singapore aspires to be Southeast Asia’s financial hub and its plans to roll out digital banking are going at full throttle, with no signs of slowing down. Following the announcement made earlier this year on the issuance of five new digital bank licences, the Monetary Authority of Singapore (MAS) opened up the application process recently to traditional banks and non-bank players. To succeed in their bid, applicants must demonstrate “a path towards profitability”.
Meeting this criterion for growth, on top of complying with MAS’s regulatory framework, will raise the barrier to entry for many aspiring digital banks. The irony is that regulatory obligations are never meant to deter, but rather to promote the overall growth and sustainability of the digital banking ecosystem by steering players in the right direction.
Tackling challenges on security, compliance and growth
Electronic Know Your Customer (eKYC) is the online process of verifying the identity of a user while assessing the possibility of any risks or illegal intentions during each virtual transaction. While regulators see eKYC as an instrument to help secure the banking ecosystem, fintech players often look at it as a catalyst for growing the customer pool in the digital economy.
eKYC solutions have tremendous potential to help businesses tap the massive unbanked market in Southeast Asia, which currently makes up 53% of the region’s population. These are customers who have no access to a brick-and-mortar bank. As seen in the rise of mobile payments in Southeast Asia, all the engagements that these customers will have with banks — from transactions to communication — will be done virtually, mostly via mobile devices.
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This opens up the opportunity for financial service providers to expand their business overseas with the ability to onboard customers from around the world while meeting regional regulatory requirements. The same opportunity is also extended to businesses, which can now easily expand their digital footprint, knowing that they can verify customers in an efficient and secure manner.
Today’s eKYC technologies can match live photos with ID documents (for example, driver’s licences, passports and ID cards) originating from different countries, taking into account varying formats, languages or even ID types that exist in different regions.
In addition, real-time certified liveness detection takes the eKYC process to the next level, whether it is for initial customer onboarding or ongoing user authentication.
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Singapore’s Info-Communications Media Development Authority has already listed liveness detection as one of the necessary measures in its new cybersecurity guide for telecommunications companies.
Certified liveness detection allows service providers to determine the user’s physical presence, eventually thwarting fraudsters’ attempts to impersonate users using photos or videos with the intention of acquiring someone else’s privileges or access rights. This has become an essential ingredient in the identity proofing process (and for ongoing user authentication) to prevent advanced spoofing attacks, including the use of deepfake technologies.
There is certainly a business case for integrating this technology into digital banking platforms to protect against emerging threats. A seamless sign-up experience can turn the transition to digital banking into an almost effortless step that is less confounding for customers and in turn grow the overall customer base for the industry.
Elevating the customer experience and security with biometrics
Aside from security, which is a given, user experience should be a top-of-mind consideration for digital banks. Today’s digital-savvy, mobile-first consumers expect to transact at their convenience, often in real time and in a secure digital environment.
With current eKYC solutions, users can expect a seamless and secure identity verification experience during their online onboarding process — all they are required to do is to take a photo of their ID document and a selfie to validate their identity. This adds a layer of security, as ID documents could be stolen or misused, potentially leading to breaches.
However, identity verification does not just stop at the onboarding process. Digital banks need to reliably authenticate users throughout the different stages in their transaction to ensure that the user is really on the other side of the virtual process.
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Current legacy processes, such as the SMS-based two-factor authentication (2FA), are still vulnerable — as we have seen in the Reddit hack in 2018, which leveraged vulnerabilities in SMS-based 2FA. Separately, today’s customers do not want to go through the hassle of extra verification steps or carry around extra devices when transacting via token-based 2FA with their banks.
At the forefront of authentication technologies, biometric-based authentication takes only seconds to perform and is significantly more secure and reliable than traditional forms of remote authentication, such as SMS-based 2FA, knowledge-based authentication and the traditional username and password paradigm. Many financial institutions are coming to the realisation that having this technology as part of their eKYC strategy is a key step to meeting customer expectations and regulatory demands.
The future of banking has been discussed in many contexts, and digital banking is certain to remain a part of that future. To ensure sustained growth, players in Singapore need to keep abreast of technologies and solutions for fighting fraud, meeting compliance mandates, ensuring compatibility across different markets and delivering a seamless digital banking experience to customers.
In the inevitable digital future, financial institutions have little choice but to evolve. However, the rewards of adopting biometric-based identity verification and authentication far outweigh the costs in terms of security, identity assurance and the customer experience. E Frederic Ho is vice-president, Asia-Pacific, at Jumio Corp, an AI-powered identity verification and authentication solutions provider.
