How Going Passwordless Enables Digital Banks
Verifying customers’ identities enables financial institutions to comply with stringent data protection regulations such as Anti-Money Laundering (AML), Know-Your-Customer (KYC), and Payment Services Directive 2 (PSD2). It also allows them to secure their networks from fraudulent attacks, filtering the bad guys from legitimate patrons who contribute to their growth and success.
Still, several banks and financial technology (fintech) firms utilize outdated forms of authentication, such as Knowledge-Based Authentication (KBA). It relies on the concept that the information needed for verification is known only by the actual account owner.
Although passwords have been the most ubiquitous form of KBA credentials used to access accounts for several decades now, these have been notorious for creating security risks in digital systems of financial institutions. Once a criminal gains access into someone else’s account using stolen login credentials, they can use it to steal funds or use the money to finance illicit activities like terrorism.
Apart from financial losses, the use of passwords also entails other costs to banks and fintech companies, including reputation damage and customer dissatisfaction. Thus, if they continue to rely on this outdated form of authentication, they are likely to drive away their clientele to other financial organizations that are already ahead in the digital curve.
To avoid such consequences, banking companies that want to go digital with their operations fully must replace their password-reliant authentication systems with passwordless authentication solutions. Most experts agree that using passwordless login is a better alternative to passwords because it can provide customers with a secure experience.
Financial institutions can employ authentication solutions compliant with the FIDO 2.0 standard, which leverages a robust combination of other authentication credentials that are not easily stolen or shared with anyone. FIDO2 authentication credentials bind the device to a relying party server to allow the user to authenticate their identity without using passwords.
To know more about how going passwordless enables digital banks and fintech firms to digitalize their operations fully while strengthening their defenses, see this infographic by authID.