The future of payments: Biometrics within the financial eco-system
By Catharina Eklof, CCO, IDEX Biometrics
Today’s payment landscape
Enabled by huge advances in technology, our evolving payments landscape has accelerated on a global scale. Post Covid-19, there was a hastened and unprecedented shift toward digital payments and open banking. Yet, the pandemic spotlighted the need for robust consumer protections and quick adaptation to new technologies. While payments were previously centered around transferring funds, today’s companies are focused on reinventing the customer experience, easing the financial impact of globalization, and facilitating better online business management.
The demand for alternative payments means increased usage of cards, digital wallets, QR codes, Electronic Transfer of Money (ETF) payments, Real-Time Payments (RTP), and Buy Now, Pay Later (BNPL). Heightened transaction security has also led to the adoption of biometric smart cards. The global biometric smart card market size was valued at $74.4 million in 2021, while there are more than 1 billion access and ID cards with a Compound Annual Growth Rate (CAGR) of 10-20 percent. Additionally, 40 million payment locations are fully enabled for biometrics globally.
Fingerprints and other modes of biometrics have become an unparalleled means of authentication with the rise of contactless payments. Although the payments sector will continue to advance the processing cycle as seamlessly as possible, each solution will present its unique advantages and challenges. Several players are spearheading the adoption of the newly popularized, and scrutinized, method of payment authentication: fingerprint biometrics.
Decentralized banking and identity
Biometrics technology is countering the many security issues facing decentralized finance.
Blockchain and biometrics
Innovation in financial services is driving central banks to closely inspect digital currencies, their viability, and potential evolution. Consumers and businesses alike have embraced blockchain technology, despite growing concerns about sustainability and volatility. As digital currencies are becoming more widely adopted, financial institutions must understand the opportunities blockchain technology will create in terms of security, privacy, and integration with existing payment technologies. Combining blockchain with biometrics could provide solutions with desirable features such as immutability, accountability, and universal access.
Cryptocurrencies, such as Bitcoin and Ethereum, have been scrutinised by investors for years, only recently have national digital currencies been establishing a foothold in the global economy. China is the first country to adopt central bank digital currency (CBDC), with testing trials having launched in four Chinese cities in April 2022. E-Krona is also being prepared for launch in Sweden by 2023, and the Bahamas is trialing the Sand Dollar to access the unbanked parts of their population. The adoption of digital currencies will only encourage further innovation, exploration, and transparency in the payments industry.
Safeguarding digital assets
Digital currencies may aid with financial inclusion and create a more equitable society; however, the challenges are far and wide. These challenges are centered around security. Early cryptocurrency transfers required storage in ‘hot wallets.’ Hot wallets refer to devices such as a laptop or phone, connected to the internet. Though convenient, hot wallets are susceptible to hacking and fraud. Countering this issue, many adopters of crypto today use ‘cold wallets’ – external storage like a hard drive or USB stick.. These devices are safer; however, they are still flawed in countering security threats. By integrating fingerprint biometrics with cold wallets, users can access and control their crypto funds in a highly secure and authenticated way.
The world’s first next-generation Web3 biometric card is already considered for development by IDEX Biometrics and other partners. It includes cold storage, a digital asset wallet, and digital identification — and is EMV compliant. It represents a shift in data ownership as well as the viability of Blockchain.
Understanding biometrics technology
Biometrics and SCA
Confirmation of identity utilizing traits unique to individuals is proving to be the most dependable method of Strong Customer Authentication (SCA) in financial services. Some institutions opt for facial recognition, while others use voice or fingerprint detection. Each biometric technology has its benefits, disadvantages, and preferred use cases.
Facial recognition has been especially complicated during and post-Covid, while the friction ridges of our fingerprints remain non-replicable. Moreover, the technology invested in developing secure and accurate fingerprint sensors is unparalleled within the biometrics arena. A recent study by Mastercard and Oxford University states that 77 percent of participating consumers consider facial recognition a secure system, rising to 93 percent who consider the use of fingerprints a secure biometric system.
Security and accuracy
Fingerprint recognition is a secure authentication method that provides quick access to devices. The encoded image of our unique fingerprint ridges cannot be replicated, providing high accuracy. Meanwhile, our fingerprint data can be stored on the sensory chip and not transferred to bank servers, providing high security.
Facial recognition remains one of the most popular methods of authentication. While its technology is accurate in facial detection, there are significant concerns around security. This technology’s main point of contention is using deepfakes and images to grant access.
Iris/retina authentication is highly secure, as iris patterns are unique for each individual. However, resistance from users and readability difficulties make this technology less practical.
Use cases and impact
Biometric sensors have a myriad of use cases. From payments to IDs, the use of biometrics enhances the consumer experience by leaps and bounds. With the rise of digital-first and open banking, biometric payments have allowed consumers to pay remotely and independently. The compliance and enrolment process are quick and convenient, and customers can transact without physical presence.
Enhanced digital healthcare
A patient-centric approach is being adopted across healthcare establishments, including enhanced security in accessing, storing, and relaying information. Integrating fingerprint biometrics in healthcare identification greatly impacts the user experience, providing consumers with greater trust in the organization, and streamlining the organization’s storage of data.
Secure & convenient banking
With biometric smart cards, you become your password. The process creates and saves a model that represents the user exclusively and confirms their identity when they request access or make a transaction. The impact of biometric smart cards is a more secure banking ecosystem. Fingerprints minimize the risk of deepfakes being used to access information fraudulently. It also allows for instant authorization and forgoes forgetfulness of PIN codes and passwords. This can be helpful for those living with Alzheimer’s and dementia.
Safe digital wallets
Digital wallets are not limited to payments. Users store e-tickets, public transportation cards, boarding passes, and cryptocurrencies. While private keys and passcodes are easily forgotten and stolen, fingerprint biometric authentication in digital wallets enhances security in a frictionless way. Users are also able to forgo the timely process of one-time passwords (OTPs) and multi-factor authentication (MFA).
Improved financial inclusivity
There are unique challenges to fostering financial inclusion. With biometric smart cards, those with literacy challenges, Alzheimer’s, dementia, impaired vision, and limited access to official documentation can access, store, and use their means of survival. The impact of biometric smart cards is a more financially equitable and included population. While financial inclusion is a multi-faceted issue, biometric smart cards can help solve a considerable proportion of the problem.
Payment trends and biometric smart cards
The global biometric smart card market size was valued at $74.4 million in 2021, and the growing demand for biometric authentication methods across end-users, including banking, retail, health, gaming, and security, is expected to support the long-term growth of the market. Users’ preference for alternative payment solutions means an increased need for secure and convenient authentication.
As user behavior changes, so do the standards for user protection. Fingerprint biometrics can provide near-instant authentication of payments and identity, making the consumers’ lives more convenient and providing them with more choices for confirming their identity. With definitive advantages to both users and issuers, biometric payment cards have the potential for exponential growth well-beyond 2022.
With the rise of data privacy concerns, biometric smart cards can securely store fingerprint data in the card’s chip without transferring data to bank servers. The biometric smart card’s highly secure and personal nature is critical for its continued success, as it mitigates concerns associated with facial recognition including fraud and deepfakes. With a more focused approach to financial inclusion, biometric payment cards are prioritized as leading solutions for the financially underserved. There are many opportunities to solve financial inclusion, including using biometrics with EMV cards to help make cards more widely accessible in areas with a high illiteracy rate.
Consumers’ day-to-day transactional activities are changing. Alipay in China and Apple Wallet in both Europe and the U.S. are examples of players who have shaped the way young consumers interact with payments. Sixty markets currently have a live RTP infrastructure, meaning that almost three-quarters of the world’s population (around 72 percent) can use instant payments. While card payments shifted to pass-through digital wallets, POS strongly recovered from the pandemic’s impact in 2021 with a 13 percent YoY market growth, surpassing 2019’s market size. The upward trajectory of POS and alternative payment solutions are meaningful in the context of biometric smart cards.
About the author
Catharina Eklof has served as IDEX Biometrics Chief Commercial Officer (CCO) since June 2021. Prior to joining IDEX, she was the CCO at Defentry, a cyber safety solutions provider, and established Mastercard’s global strategic merchant programme. With over 20 years of experience in leading business transformation across financial services, retail, travel, and information security, Eklof serves on the board of directors of Avanza Bank Holding AB (Nasdaq Stockholm: AZA).
DISCLAIMER: Biometric Update’s Industry Insights are submitted content. The views expressed in this post are that of the author, and don’t necessarily reflect the views of Biometric Update.
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