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The Business Case for Biometrics in Finance - 2nd edition

By: Jeremy Flye
Published: August 2008

The Business Case for Biometrics in Finance

At first glance it may seem self-evident that banks should incorporate biometric technology because of the added security and convenience it offers over existing identification and authentication methods.

However, until now, continuing doubts about the reliability of these technologies for rolling out to large populations and the lack of standardisation and interoperability, not to mention the cost of upgrading legacy systems and existing infrastructure, have prohibited this.

Despite these drawbacks, banks around the world are now implementing programmes incorporating biometrics. In addition, the number of retailer schemes using biometrics for authenticating customers for payments is increasing.

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Biometric technology offers several advantages over existing methods of identification and authentication. It replaces the need for individuals to carry with them a great number of cards and tokens for different purposes. Unlike PIN numbers and passwords, biometrics cannot be transferred and are less easy to copy and steal. When used in combination with a smart card and PIN number, biometrics can provide three factors of  authentication – ‘what you have’ (typically a card or token), ‘what you know’ (typically a PIN number or password) and ‘who you are’ (provided by the biometric).

Despite the many challenges facing biometrics development, this market is now developing apace and several large deployments to massive sections of populations are taking place, or are about to take place. These include the application of biometrics in identity card and document programmes, passprts and other travel documentation, and the management and delivery of services in health, education and transport. In addition, biometrics is emerging as a valuable technology for corporate security in the commercial sector, for establishing the identity of employees as well as customers. And while the financial services industry is a late adopter of this technology, a number of projects are now springing up around the world that are developing biometrics for the delivery of financial services.

To purchase this report, or to request a report summary or list of case studies, call Jeannie on +44 (0) 207 563 5640 or email info@vrlfinancialnews.com

 

Biometrics is the technology of analysing unique human characteristics for the purpose of confirming the identity of an individual. The ‘concept’ of biometrics includes the analysis of external or internal characteristics, such as features of the hand, face or voice, biological or behavioural data such as handwriting. The technology usually operates by means of a reader or scanning device that captures the features and converts them into digital data for storing in a database, or on a token such as a smart card. When the individual represents him/herself to confirm his/her identity, the same features are scanned again and the new data is compared to the record held on the database or token.

A wide range of different biometric technologies now exist for the purpose of identity checking. The choice of technology selected depends upon the purpose and environment in which it is used. Applications for biometric technology include identity documents, border control, physical and logical access control, authorisation for access to services (for example, for financial transactions) and checking individuals against databases (for example, of criminals).

Biometric technology offers several advantages over existing methods of identification and authentication. It replaces the need for individuals to carry with them a great number of cards and tokens for different purposes. Unlike PIN numbers and passwords, biometrics cannot be transferred and are less easy to copy and steal. When used in combination with a smart card and PIN number, biometrics can provide three factors of  authentication – ‘what you have’ (typically a card or token), ‘what you know’ (typically a PIN number or password) and ‘who you are’ (provided by the biometric).

At first glance, it may seem self-evident that banks should incorporate biometric technology because of the added security and convenience it offers over existing identification and authentication methods. However, until now, continuing doubts about the reliability of these technologies for rolling out to large populations and the lack of standardisation and interoperability, not to mention the cost of upgrading legacy systems and existing infrastructure, have prohibited this. But now is the time for banks to keep a closer eye on the development of the biometrics market for the following reasons:

  • the technology now appears to have reached a sufficient level of robustness
  • increasing standardisation can now be expected to lower the cost of market entry and increase economies of scale; and
  • large government roll-outs of biometrics are taking place to large populations, including identity cards, travel documents and health care services, and more are planned. These programmes will further stimulate market developments.

However, the implementation of biometrics incurs a significant number of challenges, including:

  • the registration of biometrics is only as secure as its weakest link, and is vulnerable to weaknesses in operational processes, such as poor-quality identity documents submitted as proof of identity, or coercion of insiders. Also, biometrics can only prove a person’s identity from the point of registration, and not before;
  • the registration of individuals can be costly, involving a labour-intensive process;
  • the physical characteristics of individuals change over time – some biometrics are more susceptible to physical change than others, and need updating more frequently;
  • biometrics included in identity documents may increase their value to fraudsters if compromised, because of the extra security they promise;
  • serious objections have been raised to the deployment of biometrics by the privacy lobby; and
  • large-scale government programmes take a long time to plan and implement. If banks want to learn from these programmes first, then opportunities for biometrics may be too long-term to consider.

Despite these drawbacks, banks around the world are now implementing programmes incorporating biometrics. In addition, the number of retailer schemes using biometrics for authenticating customers for payments is increasing. For these reasons, it is now time for banks to review the case for investing in this technology.

 

1. Introduction
Description of biometric technology
Applications of biometric technology
Advantages over existing existing methods of identification and authentication
Reasons why financial institutions should now be following the market more closely
Challenges to implementing biometrics

2.Market development
The development of th ebiometrics market
Market size and growth by region
Market size and growth by market sector
Market growth and size by technology

3. Current status of biometric technology
How biometric technology works
What biometric technology is used for
Types of biometric technologies and trends
The challenges of comparing biometric technologies
Description of major technologies

4. Suppliers
The market structure today
Drivers of future market growth
How market growth will impact suppliers
Products and services
Emerging leaders

5. Standards and legislation
The requirement for standardisation
Biometrics standards issues
Financial services

The requirement for legislation
The US
The UK
Europe (Schengen)
Asia

6. Key players and programmes: Governments
Government applications
Relevance to the financial services sector
US government
UK government
Europe
South Africa
Other governments

7. Key players and programmes: Travel
ICAO (International Civil Aviation Organisation)
The US
The UK

Europe
Around the world

8. Key players and programmes: Financial services and transactions
The US
The UK
Europe
Asia
South America
Africa
International payment schemes

9. Case studies
Nationwide, UK
Midcounties Co-operative, UK
ATMs at Japanese banks
Banco Azteca, Mexico
ING Direct, Canada
ABN AMRO
Opportunity International Bank Malawi Ltd, Malawi
Bank Hapoalim, Israel

10. Opportunities and challenges for finance
Ever-increasing connectivity
Identity theft
Electronic crime
Card fraud
Employee fraud
Opportunities for process effiencies
New markets

11. Conclusions: Establishing the business case for biometrics in finance
Will biometric technologies help to address key strategic pressures?
Non-return on investment factors to be considered
Return on investment

Appendix BSI standards for biometrics

 

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Retail Banking Products:

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Retail Banker International
Banking and Payments Asia

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Retail Banking and Cards Forum, September 2010, Bahrain (TBC)  
Retail Banking/Payments Innovation, Kuala Lumpur, 11-12 May 2010

Roundtables:

Retail Banking/Payments Asia Roundtable, detailed subject matter TBC, Hosted by Titien Ahmad, VRL Asia-Pacific, and Hugh Fasken, Editor, Retail Banker International, August 2010

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