Strong Growth for Biometrics in Financial Institutions Expected Globally May 2008
New report from Frost & Sullivan
Banking on Biometrics: A Snapshot of Biometrics in Financial Services
Imran F Khan, Research Analyst, Auto ID & Security Group
The financial services vertical is poised to be one of the key end-user markets for biometrics technology globally. Biometrics, which verify an individual’s identity based on their unique physiological and behavioral characteristics, offer advantages of enhanced security, convenience, and time efficiency, which benefit financial institutions.
According to the latest analysis from Frost & Sullivan, the financial biometrics market accounts for almost a third of the revenues of the total biometrics market revenues globally. It is expected to grow at a compound annual growth rate (CAGR) of more than 50 percent from 2006 to 2013.
Although the government and civil identity applications have been the early adopters and largest implementers of biometrics over the last few years, the commercial and the consumer sectors have become important target markets, especially financial services. This is in order to offset increased fraudulent activity and identity theft.
Regulations Driving Growth
In North America and Europe, regulatory compliance has been the biggest motivation for financial institutions to adopt biometrics. Some prominent government regulations include:
The 2005 Federal Financial Institutions Examination Council (FFIEC) guidelines
The Sarbanes-Oxley Act of 2002 (Section 404)
The Basel II Accord
Regulatory activity has resulted in increased demand for secure authentication of banking accounts, stronger employee audit trails, and risk mitigation. Although the regulations do not endorse any specific technology, biometrics is emerging as the favored choice owing to its capability of being able to accurately link any transaction with an individual’s unique traits.
Reaching the ‘Underbanked’
In the developing regions of the world such as South Asia, Latin America, and Africa, biometrics is playing an important role in helping banks reach the vast rural population with innovative solutions. This segment of the population has been largely underserved by the financial services industry due to illiteracy and distance from bank branches.
ATMs integrated with biometric sensors are growing in popularity, especially in developing nations. Since 2004, Columbia based Bancafe Bank has deployed hundreds of non-AFIS fingerprint-enabled biometric ATMs in rural Columbian towns to cater to coffee growers. Similarly, in 2006 in India, Citibank launched a non-AFIS fingerprint-enabled ATM to allow its microfinance customers to access funds sanctioned to them. The technology allows customers to withdraw funds using just their fingerprints rather than having to carry an ATM card.
In the medium term, biometrically-enabled ATMs can be used for more unique applications. There is significant potential for relief organizations such as UNICEF to disperse aid through biometrically-enabled kiosks and ATMs. This will ensure that only the rightful recipients can access the funds.
Diverse Use of Biometric Modalities
A unique proposition of biometrics is the diverse number of modalities that find applicability in financial services. Modalities ranging from non-AFIS fingerprint recognition, face, iris, vein, voice, signature, and hand geometry recognition have all found varying levels of acceptance.
The following chart depicts how various modalities are being utilized across the three major financial biometrics applications— Physical access control, logical access control, and transactional authentication.
In 2006, non-AFIS fingerprint recognition was the dominant modality. The technology’s key strengths are its cost efficiency and high accuracy. It also has wide applicability in physical access control, logical access control, as well as transactional authentication. Non-AFIS fingerprint recognition technology is found across financial institutions for uses ranging from ATMs, access to bank vaults, and business PCs.
Other emerging biometrics such as voice verification and vein recognition are gaining traction globally. A number of banks in Europe have deployed voice verification technology to enable remote authentication of customers for telephone banking. In 2006, Netherlands based ABN AMRO deployed a telephone-banking customer verification solution utilizing voice biometrics in its contact centers. This installation is considered to be one of the largest deployments of biometrics in the financial services vertical.
Vein recognition that includes palm and finger vein recognition was largely prevalent in Japan and South Korea until 2005. However, in 2007 it has begun to emerge as a popular alternative to non-AFIS fingerprint recognition, especially for biometrically-enabled ATMs and increasingly for physical access control.
Despite vein recognition’s high cost when compared to non-AFIS fingerprint recognition, its contactless interface, low failure-to-enroll rate, and lack of association with criminal activity places the technology in a strong growth position. At present, vein recognition is in the early adoption phase, but has the potential to become a widely deployed solution as its price is anticipated to decline in the medium to long term.
Future Trends and Strategic Recommendations
Most financial institutions have adopted biometrics for operational and employee-facing applications. Wider deployment in the financial industry is anticipated as the number of successful credible reference sites increases and financial institutions realize the cost-efficiencies and benefits of biometric technologies in comparison to alternate security technologies.
From an end-user perspective, it is imperative to publicize the benefits that biometrics can offer in terms of convenience, cost efficiencies and time efficiencies.
With biometrics, the ability of financial institutions to provide more value to their customers, while complying with regulations, can provide them with a competitive advantage.
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New analysis from Frost & Sullivan (http://www.autoid.frost.com), World Financial Biometrics Markets, finds that the markets earned revenues of $117.3 million in 2006 and estimates this to reach $2.07 billion in 2013
The World Financial Biometrics Market is part of the Auto ID and Security Growth Partnership Service program, which also includes research in the following markets: North American AFIS markets, World Biometrics Markets. All research included in subscriptions provide detailed market opportunities and industry trends that have been evaluated following extensive interviews with market participants. Interviews with the press are available.
Frost & Sullivan, the Global Growth Consulting Company, partners with clients to accelerate their growth. The company's Growth Partnership Services, Growth Consulting and Career Best Practices empower clients to create a growth focused culture that generates, evaluates and implements effective growth strategies. Frost & Sullivan employs over 45 years of experience in partnering with Global 1000 companies, emerging businesses and the investment community from more than 30 offices on six continents. For more information about Frost & Sullivan’s Growth Partnerships, visit http://www.frost.com.
Strong Growth for Biometrics in Financial Institutions Expected Globally