Use of biometrics in customer onboarding journeys

One thing you should definitely know about biometrics is that they are now used everywhere, from opening a new bank account to opening an app to buy coffee. Perhaps it's time for your bank to get onboard with biometrics?

Biometrics are progressively and increasingly being used by banks and financial services providers as part of their automated KYC (Know Your Customer) onboarding journeys. 

KYC processes are essential to protect financial institutions from fraud, money laundering, and corruption. And, they are a legal requirement with regulation varying from region to region. However, the way compliance processes are executed can be hugely different - ranging from heavily manual tasks completed by compliance teams to slick digital onboarding journeys using new technology, including biometrics.

Whichever method used for customer onboarding, any process will include several steps to assess and verify a customer’s identity, understand their financial activities, and guage the level of risks that might exist around a particular customer when it comes to money laundering. 

Biometrics can make digital onboarding vastly more efficient for financial services companies, and easier for customers to access products. This blog explores 5 things you might want to know about the use of biometrics in KYC compliance.

1. What are biometrics?

It's simple (sort of) - biometrics refers to the measurement and analysis of behaviour and physical characteristics of individuals. Can we make that even easier to understand? It is the unique things about the way people look, act and move that mean it is unmistakably them.

Biometrics might include things like - 

• Fingerprints

• Retina scanning

• Voice recognition

• DNA matching

They are primarily used for identification purposes or access control to different platforms and technology. Like your phone for instance; you have probably used biometrics today to open your homescreen or pay for something in a shop .

Biometric information can be held in databases, of course, but increasingly data is gathered locally and used at the point it's needed (like when you want to open your phone. There is lots of cool technical stuff about cryptographically hashing data, but we'll let you do your own research on that!  The main thing you need to know is biometrics are the bits about a person that are unique to them, which can be used to allow verification and authentication of an ID to take place. 

2. How do banks use biometrics in customer onboarding?

Banks use biometrics for KYC compliance when onboarding new customers, they form part of the series of checks to verify a new customer's ID. Use is increasing because biometrics offer greater security and reliability than many traditional strategies, like physical documents that might be hard to review and possible to fake. 

Biometric data is at risk of being stolen or lost, that's true. But it is easy for individuals to share. This creates convenience during onboarding and can make the process go more smoothly for the consumer.

Many platforms using biometrics to carry out ID checks as part of the digital KYC process will use what's called a "liveness check". The platform will ask the customer to record themselves, that will create matched data, and then the platform will ask them to smile or blink - so the face can't be "faked".

As well as being used at onboarding, biometrics are commonly used for mobile banking, with customers having integrated features on their banking App to complete transactions, and we've already mentioned they can be used to authorise payments when making purchases.

Banks in some countries including Japan, China, and India are also using biometric ATMs to identify customers and authorise withdrawals. Japan has reportedly installed >80,000 biometric ATMs throughout the country, which typically use fingerprint recognition, face scanning, finger vein scanning, or iris scanning. And, this will no doubt be the direction of travel for the rest of the world...

A little less futuristic perhaps, but many banks have introducing biometrics into branches to help customers perform financial transactions, essentially creating more time for staff members or to reduce staffing and make visits more convenient for customers.

3. Ready for the digital economy

The rise in biometrics is an important development for financial services and consumers in terms of convenience in the digital economy. As more and more financial activity takes place online and in the cloud, so compliance processes need to follow suit.

With digital-first and digital-only banks increasing in popularity, biometrics enable customers to onboard remotely and securely. The compliance process is quick and efficient, and the customer can act independently, without the need to produce physical documents or visit a branch. 

The use of biometrics also means banks can build a picture of trust and risk; onboarding individuals while assessing threats and managing the risk of fraud. 

As we move deeper into the digital economy, using biometrics to build a digital identity infrastructure expands the economic possibilities and increases access to products more widely.

4. Benefits and risks

Naturally, using biometrics for KYC brings both benefits and risks. 

On the benefits side - as well as improving efficiency, biometrics increase inclusion. Individuals without conventional proof of identity, like a passport, can still access financial services using their biometric data. This in turn increases financial transparency. Biometrics can also support the inclusion of customers with dementia or other memory-related conditions for example, because they don't need to remember pin codes or login details. 

On the downside, we've already mentioned the threat of data being stolen (and once it's gone, it is nearly impossible to get back. Biometrics can also be a barrier for some people - those who "don't like the idea of it". Consumers can be put off by the thought of sharing their most personal data online. Some feel it encroaches on privacy. Also, there are certain diseases that can cause damage to the iris and fingers, making eye or fingerprint scans impossible. Did you know, that all fingerprints fade as we get older anyway? Factors like this mean their use isn't foolproof, but technology will continue to adapt and become more sophisticated. 

It's definitely worth thinking about the solution chosen to perform biometric checks. You want to ensure the platform is secure and manages risk, rather than creating it. Plus, it's worth thinking about biometrics as one part of a larger onboarding journey, and that means ensuring it can be integrated into a KYC process with other checks.

5. Biometrics are everywhere

The banking sector is increasingly reliant on biometrics but the FinTech sector more broadly is rapidly adopting biometrics for KYC compliance and other digital processes. Biometrics are generally seen as a positive development by many because of the convenience already discussed. 

One of the important things to know about biometrics is that they are used everywhere now anyway - it's not a next generation technology, it's a here and now thing. Biometrics aren't just for the uber new cryptocurrency economy, but for everyday banking.

Many institutions had to hit the accelerator on digital transformation of their customer onboarding journeys following the pandemic. Now is not the time to get left behind again. If individuals are willing to use their thumb to pay for a coffee, it's time to think about harnessing that for KYC.

The future for biometrics

The UK government has plans for a common digital identity that would allow access to services, including financial institutions, which have now been through consultation and are coming to fruition. The argument is that a common digital identity would increase inclusion as well as helping to tackle fraud and other financial crime. 

Digital identity frameworks are in fact now being established throughout the world as we transition further into the digital economy. And that means the use and prevalence of biometrics is likely to soar.

However, concerns about how personal data is used and its ownership, as well as individual privacy online, mean that some scepticism remains. This includes individuals themselves being educated and won over on the topic.

For now, perhaps the best approach is to find a balance between the use of biometrics and digital document verification to complete customer onboarding. Easing the way for the change, creating trust online and still delivering convenience. 

Get in touch

If you want to know more about automating your customer onboarding processes, including how biometrics can be used as part of a workflow of checks, please contact us at PassFort any time - we'd love to hear from you.