Digital Identity: Safeguarding FinTech from Fraud 

To be attributed to: Marcel Wendt, CTO and Founder of Digidentity

The digital transformation renaissance is reshaping the finance industry, with the number of neo-bank users already surpassing 39 million, with this predicted to soar to 386 million users by 2028.

Neo-banks heavily rely on digital platforms, making them susceptible to cyberattacks and data breaches. If a neobank’s security measures are breached, whether from phishing scams, malware, less stringent verification processes or third-party integration, consumers’ sensitive financial information could be compromised.

Rigorous digital identity solutions and safeguarding measures can not only reduce the risks of fraud but also establish a stronger level of consumer trust.

Old Scams, New Techniques  

With the rise of more ambitious cons, and malicious bad actors looking to target consumers with phishing scams and malware, the call for better security has never been more prevalent. 

Systems must be developed to help protect consumers. This will not only mitigate the threat from bad actors but also help elevate the trust people have in the company’s ability to protect them. 

Ultimately, users are at the endpoint and there is a responsibility for them to be aware, vigilant and educated to detect risks, but the financial sector needs to be armed with the right tools to protect identities in the first place.   

Fraud now accounts for over 40% of all criminal offences in England and Wales. This figure shows the sheer scale that fraud has in the UK. The reasons for this are varied, but one key solace is that it becomes easier to protect your identity online if you have the right technological know-how.  

It’s therefore more important than ever before to have the strongest identity verification processes in place, to ensure people are who they say they are. Identity verification plays a vital role in safeguarding the integrity of the financial system, protecting customers, and ensuring compliance with regulatory requirements.

Passwords and PINs are quickly becoming outdated with multifactor authentication becoming the most secure form of verification, adding an extra layer of security to the verification process. Strong Consumer Authentication (SCA) should be the only method being used to keep consumers and their data secure.

Biometric verification is also increasingly being adopted due to its accuracy and difficulty to mimic. Some financial institutions analyse user behaviour patterns including transaction history as well, to help verify identity. Deviations from normal behaviour can trigger further verification steps or alerts for potential fraud.

Building a Safer Future for FinTech  

In the UK, there have been provisions to ban cold calls on all financial products and introduce a legislative commitment for the tech sector to protect their customers. This is a step in the right direction, as phishing scams are the most common type of scam in the UK. 

To support this directive, businesses within the financial industry should also consider implementing digital identity protections.

There needs to be a strong emphasis on both the authentication and verification processes within companies, to show that people are not only proving who they are but also systems put in place that are secure enough to consistently confirm that people are authorised to access the information they are requesting.

The evolving technology around Digital Identity Wallets is helping streamline this process for all parties involved, by having a one-stop-shop for identification, verification and authentication all in the same place, this creates a unified process of who the person is and what they can access.  

Security Elevations  

Incorporating features such as biometric verification and multi-factor authentication, alongside capabilities to digitally sign contracts, letters, and agreements with electronic signatures will elevate the security measures companies can deliver. This ensures that transactions like wire transfers, online payments and purchases are authorised by the customers through identity verification. These advanced verification and authentication methods add layers of security, making it more challenging for malicious actors to impersonate legitimate users and conduct fraudulent transactions. 

Yes, the rise of AI brings higher risks of fraud in bad hands, however, the use of AI to verify identity remains part of the solution. 

Within the UK, companies can reach Strong Customer Authentication (SCA), by introducing Multi-Factor Authentication (MFA) and biometrics through a trusted provider such as Digidentity. 

While Two-Factor Authentication mandates two features, MFA can involve more than two, typically incorporating a combination of factors from various categories to enhance security by providing an additional layer of protection.

Technology is evolving but the speed of prioritising and progressing security can’t slow down. The responsibility for protection falls both on the company’s safeguarding and also the consumer’s vigilance. Both parties can’t guarantee foolproof systems. Innovation must be at the company’s foremind and the potential risks at the back of the consumer’s minds, this will create a partnership that will enable evolving safeguarding measures to keep pace in the explosively fast pace of risk mitigation.