“The currency of the new economy is trust.” — Trust researcher Rachel Botsman, TED 2012
Between years of stepped-up regulatory oversight, low interest rates, identity theft and competition from everything from cryptocurrency to crowdfunding, the historically stable and conservative financial services industry has recently become a cauldron of instability. But banks and other financial institutions do have one asset in their favor that upstart competitors can’t match: customer trust. It may turn out to be their most valuable competitive advantage.
Inside IBM’s ‘Future of Identity Study’
IBM’s new “Future of Identity Study,” which queried nearly 4,000 consumers across the globe, offered some reassuring news for financial services executives. When asked which types of organizations people trust most to protect their biometric data, 48 percent of respondents cited major financial institutions. That dwarfed major healthcare and health insurance providers, which came in second at 29 percent.
One objective of the study was to document changing patterns of trust at a time when cyberbreaches, identity theft and online account hijacking are at an all-time high. The good news is that respondents ranked financial applications as their most-treasured online resources, with banking, investing and budgeting applications comprising the top three types of accounts that people care most about protecting.
The financial services industry seems poised for seismic change. In a recent Accenture survey, bank executives listed their industry as one of the three most-primed sectors for digital disruption, along with high-tech and automotive. In addition, nearly 4 in 5 financial executives fear disruption from data-driven competitors, according to a survey by NewVantage Partners.
When it comes to money, however, customers invest in institutions that they have come to rely upon. Retail banking churn rates are at historic lows of around 15 percent, but those numbers conceal some more troubling trends. Accenture found that nearly half of bank customers are open to switching to an institution they enjoy doing business with, even if it isn’t a conventional bank. That number rises to 70 percent among consumers aged 18 to 34.
Experience Is Job One
Those statistics underlie the importance of customer experience, an area that financial institutions are focusing on with experimental features such as virtual tellers and branches redesigned to resemble coffee shops. However, peace of mind may be at least as important a factor in customer satisfaction as a mocha latte.
The IBM survey found that 70 percent of consumers rank security as their top priority for financial applications, compared to just 16 percent who chose privacy and 14 percent who cited convenience. That indicates that security-focused customer experience efforts can pay big dividends.
Customers also said they’re increasingly willing to use technologies that enhance security. Nearly three-quarters said they would be willing to use more than one password for authentication, and nearly 9 in 10 are open to using biometric security in the future. In fact, the majority of respondents across every age group stated that they would not use a less secure authentication method, even if it saved them a few seconds, and that they would never trade security for convenience.
Most bank websites are already pretty secure, but customers may not understand the hard work that goes into protecting their money. For example, identity theft is a problem that affected 15.4 million U.S. consumers in 2016. Financial institutions can tap into their existing relationships with credit agencies and law enforcement and leverage mobile applications to make it easier for customers to immediately know when their accounts may have been compromised. They can also become a central control point for issuing fraud alerts and locking down at-risk accounts.
Another opportunity is the $31 billion credit card fraud problem. Consumers are frequently inconvenienced by credit transactions that are declined by programmatic fraud detection algorithms. Artificial intelligence is now making major strides in using behavioral analysis and pattern recognition to better detect fraudulent activity, reduce false positives and permit more legitimate transactions to go through.
Biometrics present an opportunity to improve the customer experience on mobile devices. Fingerprint readers, facial recognition and digital personal identification number (PIN) pads are now becoming commonplace on smartphones. Financial institutions should take advantage of these technologies to simplify the process of logging users in to their accounts and smoothly transitioning between, say, a bank account and a stock trading app. The IBM study showed that 44 percent of consumers perceive fingerprint authentication as one of the most secure forms of authentication.
Financial institutions have long been leaders in the adoption of IT, but to this point, most of their efforts have been focused on the back office. These organizations now have unprecedented opportunities to apply technology to address customer concerns about privacy and security.
For more insights about changing views on user authentication and advice about how organizations can adapt, download IBM’s full “Future of Identity Study.”