Biometrics in Banking, Finance and Securities

A Market Scoping Project Proposal

1 The Global Biometrics Sector
2 Banking Sector Biometrics
3 The Bank Customer Set - Their Business Potential re Biometrics
4 The Bank Customer Set - Their Business Positioning re Biometrics
5 Output
Appendices

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1 The Global Biometrics Sector

Biometrics technology is used to perform verification or identification by

     • fingerprint
     • hand geometry
     • face
     • retina
     • iris
     • voice
     • static and dynamic signature

The technology has been under development for many years and found its initial implementation in

     • physical access to high security military establishments

followed by a wide range of schemes applying biometrics to

     • welfare benefit claimant recognition/identification
     • government sector ID schemes

The technology base is diverse, in that not only are various different biometrics under development, but a large number of competitors offer different algorithmic solutions for each biometric process, so that whilst only one or two companies have achieved implementation of retina, iris or face recognition technology, some 20 companies offer fingerprint solutions.

There is a keen ambition for this generic biometric technology to migrate into the commercial banking sector.

Major initiatives to harness biometrics in banking applications are already in place or under development including

Biometric Technology Developments in the Banking Sector

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2 Banking Sector Biometrics

The banking applications market for biometrics is in terms of

     • the potential for delivering evolutionary, developmental, or
        revolutionary new generation banking IT services to the global
        commercial banking sector

     • demand for systems integration in delivering biometrics enabled
        banking IT systems

     • the market potential for advanced biometric technology, including
        1:many matching algorithms capable of offering unique identity and
        1:1 fingerprint, voice, face and iris technologies for recognition

This proposal therefore sets out a working project to identify the global banking sector's demand for biometric enabled banking systems in order to evaluate market potential and business opportunity. The proposal is to work with a number of banks, telcos, commercial service providers and biometric solutions suppliers in order to test demand hypotheses for biometric enabled banking systems according to criteria of

     • the strength of the banks' business case measured against the banks'
        business objectives priorities for biometric enabled banking systems

     • the real competitive price/performance of biometric technology in
        meeting the banks' business objectives compared to other solution
        technologies as well as between competing biometric technologies

     • the value chain likely to develop to deliver biometric enabled banking
        systems, and suppliers' optimal positioning relative to competitors and
        collaborators in that value chain to derive worthwhile business sales
        revenues and profit margins

In evaluating this business opportunity from the perspective of market demand pull rather than technology push, it is recognised that sustainable profitable demand will only be generated by the leverage biometric banking systems achieve in the bank's own business.

Our proposal therefore sets out what banking business service is potentially enabled by application of biometrics technology and why such service differentials may yield commercial benefit to the banks.

The market potential is set out under three categories of

     • evolution of existing banking and payment systems to incorporate
        biometric capability

     • development/extension of existing banking and payment systems
        concepts into wider consumer markets through biometrics

     • revolutionary change to new generation banking and payment systems
        through competitive launch of biometric banking and payment systems,
        potentially by new entrants to the banking sector

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3 The Bank Customer Set
- Their Business Potential re Biometrics

The new and/or enhanced banking and payment services which could be marketed on the basis of biometric enablement include

Potential biometric enabled commercial banking market growth
and development

The set of potential competitive market positions which biometrics may open to banks and in some cases to non bank competitors is analysed in the above table. The aim of the research project is to scope banks' and non banks' likely response to these new product market possibilities by interactive interview, and by analysis of the determining factors likely to influence banks' and non banks' competitive positioning strategies.

In the evolutionary positioning, biometrics offers a serial incremental development of existing bank and payment card systems practice. Magnetic stripe cards continue to operate at ATM for cash withdrawal, account enquiry and other new services. Whilst card verification, ie the question 'is this card valid?', is a less secure process with magstripe cards than with a smartcard, developments are possible for limited cryptography with magstripe technology. The addition of user identification, ie the question 'is this the authorised cardholder?' would then largely subsume considerations of security limitations to the card verification process. This strategy would therefore maintain existing infrastructure with add on biometric readers, thus avoiding expensive network and hardware re-investment, reduce counterfeit and fraudulent card use, whilst offering the consumer appeal of operating securely without a PIN to remember - a facility which can be expected to draw new consumers previously adverse to PIN use into the banking and payment system. The security of the biometric could also allow new services to be offered at the ATM or a public kiosk.

In this context, finger or hand biometrics are thought to be preferable to voice due to the public context of the transaction, or to signature due to user entry time. Iris biometrics are being advanced in this application - compared to fingerprint the readers are more expensive which would matter less at ATM than at POS, but FAR/FRR accuracy is greater and acceptance could arguably be higher given the famed criminal connotation of fingerprinting.
An iris biometric could well prove more viable in Japan where offering of the hand is less acceptable culturally and where the preference for cash shopping restricts the need for expensive iris readers to ATM rather than POS application. The system would operate by the card swipe calling the biometric template for 1:1 matching against the user's biometric offered at the ATM or POS.

The question is then how the business case of these advantages matches costs and business objective effects for the banks and their potential non bank competitors - the dependence on existing infrastructure would however be a competitive advantage to existing banks rather than new entrant competitors lacking such an ATM/POS infrastructure. In this evaluation, fraud and counterfeit reduction has often been found to be of less commercial value to the banks than development of their market position - Europay for example quote a figure of some $2-3 per card for fraud costs precluding investment in expensive fraud reduction technology.

However estimates of US cheque fraud suggest that fraud reduction investment could well prove profitable. Smartcard technology may well feature in this scenario where stored value applications such as an electronic purse are offered, but the value of card verification security brought by smartcard public key cryptography may well seem less once biometrics are offering user recognition. POS productivity enhancement may well be important to the biometric business case.

In the developmental or extension positioning, banks are seen to roll out existing service concepts both for cash withdrawal and payment servicing either on-line into new channels and/or off-line to currently unbanked populations. These are essentially two different market segments requiring separate analysis. Remote telephone banking, shopping, and payment is already widely available, and these on-line systems evolving to real time operation supported by neural network checks do provide substantial security.

However, the increase in security offered for example by a voice biometric to access telephone banking does provide defence against card theft and again offers an entry mechanism to telephone banking to new service providers currently lacking card systems infrastructure. In this scenario some log on could call a systems biometric template to be checked against the user's voice. Equally PC banking, shopping and payment offers a ready log on call for a biometric to be matched using 1:1 algorithm technology with the user's biometric entered at some keyboard device.

Voice biometrics could again be more acceptable in this private context use, although other NC users for example in a corporate environment may want a silent finger, hand or iris biometric, and additional features such as videoconferencing may favour a camera for face biometrics.

Reaching unbanked populations in Eastern Europe, S E Asia and Africa has been a major market application of biometric technology as fingerprint access to pension and bank systems has been pioneered in South Africa. Many of these environments are off-line due to the relatively low development of telecommunications infrastructure. The user's biometric must therefore be matched against a master template either held on the user's card, or held in a local terminal. The quantitative size of this market may well make it a prime target for banks with high growth objectives.

Finally the revolutionary positioning foresees a major change in banking and payment systems from the present magstripe card infrastructure, leapfrogging smartcard deployment, to a card-less biometric banking environment. This would clearly have major attractions to consumers, virtually eliminate fraud and counterfeit, and enable the entry of new service providers not needing to rely on existing ATM and POS infrastructure.

Such a revolutionary concept may result from competitive market pressures, but would rely on the availability of at least filtered 1:many biometric algorithms. Users would simply present a fingerprint, hand or iris biometric to be identified uniquely from a large population database. The relational branded banking which is currently so important to banks in their competitive customer positioning would need to be redefined.

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4 The Bank Customer Set - Their Business Positioning
re Biometrics

The issues relevant to market adoption of biometric technology will be researched with a representative group of global banks, payment agencies, telcos and service providers, viz.

Potential Interview Set for Project Diagnostic

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5 Output

The output presented in both report and interactive presentation form will work through the above methodology to arrive at the business opportunity in biometric enabled banking systems in terms of

     • the qualitative and rough scope quantitative banking business
        service market developments

        eg telephone access voice biometric identification/recognition
        banking services
        eg PC access, Internet served, biometric identification/recognition
        banking services
        eg cardless ATM/POS new generation banking and payment system futures
        eg developing country entry banking system solution businesses

     • viable value chains to deliver biometric enabled banking systems

     - actual and potential positioning on the value chain
     - competitors and potential partners' value chain strength and
        profit positioning
     - consituent deliverables measured with revenue and profit potential
     - optimal partnerships and joint ventures identified by the value
       chain analysis


Further mapping of the application of specific biometrics technologies to these banking scenarios is set out in the appendices to this proposal where

     Figure 1 analyses pilot and implementation banking biometrics projects
     to date

     Figure 2 compares different biometrics' price and performance

     Figure 3 and 4 show how various biometric enabled banking systems
     developments might operate

     Figure 5 summarises the application of 1:1 and 1:many biometric algorithms
     into on-line and off-line environments, showing the functionality of banking
     cards and the consumer useage

The technology applications analysis of these appendices will inform but not drive the banking systems market demand scenarios to be researched with major banks in the global banking sector.

Our proposal is therefore to work by analytical interview with a number of banks, telcos, service and biometric suppliers to determine their disposition towards biometric enabled banking and payment system developments to identify and evaluate a profitable business opportunity along the value chain of a biometric banking system customer deliverable.

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Appendices

Fig 1 Biometric Banking Applications Market
- Current Position

Fig 3 Biometric Banking Technology Applications Market
- Future Scenarios in an On-Line Context