New crypto currency regulations, self-sovereign identities, and a rise in synthetic identify

By OneSpan team members

The accelerated shift toward digital channels to enable financial and banking transactions throughout the pandemic brought new security challenges and regulations, which banks will continue to face in 2021. Looking ahead, 2021 will be a watershed year where regulations catch up with the financial industry's technology developments.

Here are a few predictions from of our technology, security and compliance experts about where the industry is headed in 2021:

Benoit Grangé, Chief Technology Evangelist, OneSpan

Digital Identity based on Self-sovereign identity leveraging blockchain will emerge. 

"The development of a decentralized or self-sovereign identity will bring a complete evolution to the digital identity space. We'll see the development of digital ID fully under the control of the user securely stored in mobile devices within digital wallet. The complete ecosystem available for both public and private sector will leverage Distributed ledger technology as source of trust. We will also see the development of a standard protocol for issuing, ordering and verifying digital identities. By combining blockchain technology with standardization that can be made by regulators, self-sovereign identities will become the future of what today is a physical identity document."

Banks will invest in roles dedicated to enabling data-driven decision making. 

"We will see a rise in the creation of specific and dedicated roles within banks, such as the chief data officer (CDO), who will be responsible for the execution and delivery of the data-driven strategy within the organization. Chief Data Officers will play a critical role in the next normal that follows, as there's never been such a vital time for CDOs to provide banks with timely and accurate data. These data leaders will help break down data silos in digital transformation teams to secure buy in from the C-suite and the entire organization."

The future of the banking - more AI, machine learning, biometrics and less passwords. 

"A massive transformation is occurring across digital and mobile channels in how banks engage with their customers and use AI. Banks will combine machine learning with biometrics to provide new experiences, such as facial and fingerprint verification instead of passwords. One example we're already seeing is banks leveraging machine learning to detect and read physical passports to allow for ID scanning. Customers use their smartphones to scan a government-issued ID and then take a selfie. The banks then leverage biometric facial comparison technologies with liveness detection to verify that ID is authentic and unaltered, confirming the individual's identity."

Will LaSala, Security Evangelist and Senior Director of Global Security Solutions, OneSpan

Synthetic identity fraud will increase in 2021. 

"In the coming year, synthetic identity fraud will skyrocket, as bad actors continue to use stolen identities to open fake bank accounts. We will see more of this with the next wave of government stimulus. In fact, with more access to sensitive personal data, fraudsters have the power to perpetrate more digital fraud, create fake identities and drive up new and existing account fraud."  

There will be frequent hacks in voice-capturing devices. 

"As more organizations and financial institutions use voice for authentication in 2021, we'll likely see an increase in hacks in voice-capturing devices that have microphones to record users' authentication information. This information will be particularly susceptible to attacks if used by financial institutions, as it may contain sensitive information such as account numbers, social security numbers, or other personal identifiable information."

Banks will start to accept other forms of currency. 

"Because of COVID-19 and the move toward a cashless society, banks will begin to accept other forms of currency like Bitcoin and other cryptocurrencies. COVID-19 brought on a fear of handling cash and a rise in credit card fraud, which prompted banks to begin looking into accepting alternative, safe and secure means of currency."

Michael Magrath, Director Global Regulations & Standards, OneSpan

Digital identities and remote account openings will gain traction worldwide.

"Regulators in Hong Kong, Pakistan, Greece, Macedonia, Mexico and Turkey approved remote bank account openings in 2020 - a clear indicator that even processes rooted in traditional face-to-face meetings in the branch are now going digital and touchless around the globe."

Regulation is on the way for cryptocurrencies.

"As digital banking platforms have experienced massive growth, many governments and industry bodies worldwide have begun to look to Central Bank Digital Currencies (CBDCs) and cryptocurrencies in terms of what they might add to the financial sector. This has resulted in new and refreshed conversations around the possible uses of CBDCs and cryptocurrencies."

Open Banking will grow rapidly throughout the world.

"As third-party providers (TPPs) are allowed to use banking information to help consumers save money, borrow more easily and pay efficiently, banks will increasingly work with TPPs. In the U.S., the Consumer Financial Protection Board (CFPB) issued an Advanced Notice of Proposed Rulemaking on consumer authorized access to financial data, which could be the catalyst for Open Banking in America."

Facial recognition will drive the greatest changes to banking regulations.

"As banks increasingly use facial recognition technology for Identity Verification requirements, they are housing large amounts of consumer biometric data. Standards organizations such as the National Institute of Standards and Technology (NIST) and Fast IDentity Online (FIDO) Alliance and are developing frameworks that could be adopted at the national level and would stipulate how banks protect and store their customers' biometric data."

Frederik Menes, Director Product Security, Security Competence Center, OneSpan

Open Finance: the widening of data as a new revenue stream. 

"We are seeing strong interest in Open Finance, the next step after Open Banking, with the broadening scope of API services. While Open Banking has seen banks create APIs based on debit account data and give access to third-parties, Open Finance extends the scope of shareable data and services.  PSD2 was the ultimate catalyst in the transition to Open Banking, and we are now seeing an industry grow by using data to develop innovative products and services for the customer. Transformative change will see early adopters build on Open Banking success to expand and focus on wider Open Finance opportunities to increase service innovation, revenue generation and user experience.  As the focus on digital banking increases, the next twelve months will see data drive change in the market and increase the availability of APIs to deliver a win/win situation for banks, third parties and the customer. PSD2 remains central to this transformation and while some banks have been slow to open access, many are looking to the positive success on banking sector in London to build their own strategies."

Ralitsa Miteva, Manager of Fraud Detection and Prevention Solutions, OneSpan

Data lies at the heart of effective fraud mitigation. 

"Banks in 2020 were faced with the challenge of having to rapidly develop their digital banking channels while securing those channels against a rising number of fraud attacks. With these time pressures it was easier for them to implement some basic fraud monitoring rather than to ensure they collect and analyze focus on the collection and analysis of data from multiple layers. In fact, most banks today only analyze transactional and biometrics data, rather than tracking all user actions, from session login to logout to connect all related events that could highlight hidden fraudulent activity.  This approach should continue to change in the coming year as we see more banks looking to implement solutions that provide continuous session monitoring. Those banks that harness the power of data from user activity, behavioral data, and contextual information collated from the user device will gain a competitive edge in the detection and control of complex fraud attacks."

Machine learning steps up to support next evolution in data analysis.

"Making use of large data sets, collected from multiple layers makes it difficult for traditional fraud monitoring solutions to cover all exceptions with suitable rules. When combined with traditional rule-based systems, machine learning can deliver more accurate data analysis, reducing false positives and leaving analysts to focus on key fraud alerts. We expect 2021 to be the year when more banks realize the need to utilize machine learning to fight complex fraud and deliver a better user experience. As digital banking evolves and greater focus is placed on adaptive authentication and risk analysis, banks will start to look for technology with incorporated machine learning to support the delivery of more secure, customer focused services."

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