Making digital identity a priority to serve NextGen customers
Banks today face an urgent dilemma driven by one of the most sought-after customer segments: millennials.
Digital native consumers want a seamless digital banking experience, while banks want the confidence that online users are who they say they are. Enter the ability to create a verifiable and secure digital identity: one of the most pressing issues related to this problem. To date, financial institutions have attempted to make headway in this space by implementing biometric technology such as fingerprints and voice recognition, along with user behavioral analytics (UBA). Still, many institutions rely on the traditional username-password model that fails to provide enough security for a digital-only experience.
While creating such a new system may appear overwhelming and costly, banks cannot afford to wait. The perceived threat of competition from non-bank players is real and something to take seriously. According to a Viacom Media survey released in 2014, 73 percent of millennials, when given the choice between a new financial offering from their own bank and one of the tech giants, would choose Google, Apple, or another tech leader. It’s highly unlikely the number has dropped in the years since.
Clearly, banks that want to form lifetime relationships with a new generation of customers must match the customer experience and offerings of disruptive direct banks and tech giants—and do so sooner rather than later. Solving for digital identity can go a long way in these efforts.
Fortunately, banks are still very much regarded as the long-trusted storehouses of personal data and therefore well-positioned to work this technological gap in the digital marketplace. If financial services organizations can gather the resources and expertise to implement effective digital identity practices, they will surely reap the rewards for years to come and in more ways than one.
The formation of a secure digital identification system can generate significant cost savings as it creates efficiencies and minimizes the human resources needed for routine tasks. For example, the estimated average cost of an in-person customer service transaction is around $4.25, while mobile transactions reduce that figure to only 10 cents. Where fully digital identity authentications can take place using voice confirmation or biometric scanning, for example, banks can greatly reduce transaction costs.
Additional efficiencies will also allow banks to leverage customer identity data they have already collected but don’t yet use. This type of data is traditionally housed in individual transaction systems and isn’t well integrated across organizational divisions. Creating a digital identity allows banks to intelligently interpret customer data across silos and connect the dots to provide more tailored services and prices: an innovation millennials continuously call for and that tech players such as Amazon have already mastered.
Banks that develop a strong digital identity authentication process also position themselves to take advantage of a broader customer acquisition opportunity: the underbanked. The current lack of digitization and reliance on physical, in-person identity creation excludes millions of potential customers who live in developing markets.
In the financial services sector alone, digitization could bring an additional 1.6 billion customers from these markets into the formal economy—and create $4.2 trillion in new deposits as well as $2.1 trillion in new lines of credit. This presents a particularly attractive opportunity for community banks that rely heavily on local markets to drive business.
Arguably, large tech companies could also jump in and start to develop their own digital identification systems. But as mentioned, banks are uniquely qualified to take advantage of these innovations because they still have the trust of consumers, at least in regard to the data they gather and store.
For centuries, financial institutions such as banks have existed as fundamentally identity-centric institutions, trusted to hold large amounts of personal data for years. They’ve done so relatively without blemish, building another valuable resource in the process: reputations as trusted data sources. Now they can use this laurel to capture new and younger audiences.
An effective digital identity process underpins the building of trust financial institutions must prioritize—now and in the future—to remain relevant. Indeed, it’s time to build that bridge—a word you can’t spell without “ID.”
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If you enjoyed, this article, check out our recent Executive Report: Raising the customer experience bar.