Want to compete with the big banks? It's biometrics or bust
If you’ve seen the latest iPhone, chances are that you’ve noticed its facial recognition abilities unlocking cellular devices.
While most credit unions aren’t utilizing biometric technology right now, that should change as it becomes more prominent.
Biometric technology measures a person's individual physical and behavioral characteristics and uses those measurements as a form of security identification. It’s often seen in mobile devices to unlock an app or the phone itself.
Financial institutions are interested in using biometrics because of the additional layer of security the technology brings. Not only can it reduce fraud, it can also save members or employees time when they log into their accounts.
But the technology can be expensive for institutions, though some credit unions argue that the investment is worth it because of the long-term payoff.
“I certainly think it’s the wave of future since it prevents fraud, account takeovers and can help identify someone clearly,” said John Holt, CEO and president of Nutmeg State Financial Credit Union in Rocky Hill, Conn.
The rise of smartphones and mobile banking has led the way for biometric technology. The number of worldwide smartphone users is expected to hit almost 2.9 billion in 2020, according to Statista. That means more fintech companies have begun looking into biometric capabilities, which could also mean more options for credit unions.
“We have essentially opened up our platform on allowing that integration to occur with our origination capabilities,” said Mike Dionne, managing director of North America for Finastra, a fintech firm. “Our approach is to open up those capabilities whether [through] deposit or loans, so a financial institution can go out and leverage that capability.”
The $457 million-asset Nutmeg State Financial deployed biometric capabilities when Apple made Face ID, a facial recognition technology, available in 2017. The credit union uses biometrics across its mobile app and members prefer using that over manually entering a password, Holt said. About 90 percent of members who use the mobile app utilize the Face ID or thumbprint Touch ID, according to Holt.
And it's not just the younger member base who is taking advantage of this.
“Certainly the younger population is more of the favored group that uses it since that’s what they grew up on, but you’d be surprised that we have our older demographic who is also using it and I’m assuming that their kids are helping them with that," Holt said.
Biometric technology is useful beyond being a member service tool. It can also be used to improve the technology a credit union uses internally, which is what First Tech Federal Credit Union in San Jose, Calif., is looking to test out.
First Tech is currently looking into a computer mouse that can read the veins of someone’s palm when their hand hovers over it. The $12 billion-asset institution plans to test the product out with 1,500 of its employees to gauge employee sentiment and the time-to-cost savings. The technology could save employees time from having to log in and out of their computers manually using traditional passwords.
Management at First Tech believes that biometrics will become more prevalent in as little as 24 months.
“This puts time back in your day, helps credit unions improve employee experience and takes away the agony of remembering passwords because your hand becomes your password,” said Brad Calhoun, chief retail and marketing officer at First Tech.
Still biometrics remain relatively expensive. Depending on how advanced the technology is, a small USB fingerprint scanner can run $50 while a 10 finger scanner can cost $2,500, according to Bayometric, a provider of biometric security systems.
The ability to scale matters as well. If many members have a smartphone with facial or fingerprint capabilities, it may be worth the institution creating software that utilizes the hardware technology.
Though fingerprint recognition tends to be on the lower-side of costs, the long-term stability and security level of fingerprint scanners is relatively low compared to an iris or retina scan, which both can drive up an institution's investment. The same can be said for facial and voice recognition. Both have low accuracy and long-term stability while being moderately expensive.
There are still cyber risks with biometrics, too. Erin Illman, an attorney at Bradley and co-chair of the firm’s cybersecurity and privacy practice group, said that hackers can still cause problems with the additional layer of security.
“If someone is able to hack a system and get in between the security layer between the biometrics and the system that the end-user is accessing, there could still be vulnerabilities there,” Illman noted.
To guard against this, Illman recommends that additional security protocols be implemented such as dual-authentication, multi-factor authentication and even multiple biometric authenticators.
Illman also cautions institutions to be conscientious in disclosing to consumers how personal data will be collected. Illinois has seen a proliferation of legal issues related to the Biometric Privacy Act. The legislation protects consumers against the unlawful collection and storage of personal biometric information. Illinois passed the law in 2008, becoming the first in the United States to safeguard consumer data in the context of biometrics. As a result of this act, consumers sue businesses that collect biometric data.
Still, increasing adoption of biometrics has helped drive the price down. The average selling price of global mobile fingerprint sensor volumes is expected to drop to $2 in 2020, down from as high as $5.5 in 2014, according to Carnegie Research.
Though Dionne concedes that it’s not practical to deploy $5,000 to $10,000 worth of biometric technology per instrument, he notes that within five to seven years that biometric costs will drop dramatically and markets can expect to integrate the technology as close as three years from today.
He even forecasts that the government may become more involved in biometrics.
“Ultimately it makes the banking system more secure,” Dionne said. “I think the government would have reasons to work with financial institutions because it would likely cut down on fraud and I think the demand would drive costs down.”