In recent years, especially since around 2015, a huge number of fintechs have launched in Brazil, shaking up structures that had until then been firmly established and well consolidated. Against this backdrop, traditional banks realized they needed to go digital to keep winning and retaining customers.
It became clear that the main competitors of traditional banks were the wave of neobanks — the digital banks we know today and that a large share of the population uses.
From that point on, a battle broke out between traditional banks and neobanks, one that has greatly benefited customers. More recently, this competition has gained new elements that work in the neobanks’ favor.
To turn the tide, traditional banks have spent recent years trying to become ever more digital and more connected with their users — launching apps, making money transfers easier and embracing open banking.
Open banking emerged as a way to share data between banks and make customers’ lives easier, giving them access to more credit lines and benefits based on their history across all the banks where they hold accounts. This is giving every bank, neobank or traditional, greater access to customer data and information.
This data sharing was key to measuring the growth of neobanks relative to traditional banks. To give you an idea, Banco do Brasil saw its share of transactions fall from 33% in 2017 to 10% in 2020, while Nubank saw transfers surge by 17% in 2020.
The big difference between traditional banks and neobanks goes far beyond skipping the lines; it comes down to something traditional banks struggle to grasp: user experience.
One of the clearest examples of why traditional banks need to improve their CX is security and the interruptions for identity verification.
The identity verification present at every bank is more rigid at traditional banks, because they use CIAM to secure all accounts — but traditional CIAM systems don’t allow the flexibility needed to invest more in usability.
This limitation is very common within bank teams and creates a real tug-of-war between security and CX teams. On one side is the need to guarantee security; on the other, the need for traditional banks to become more appealing to users.
These banks also need to expand data collection, since consumers tend to choose products that offer greater personalization.
In other words, beyond investing in usability, banks need more data to modernize and become relevant to their customers again.
What’s the best way forward?
Looking at the context as a whole, the only apparent solution would be to reduce security to gain usability and collect data the way neobanks already do.
But that is not the best path, since reducing security is not viable in a world where scams and account takeover attempts are rising massively.
With this scenario in mind, WSO2 created a solution that helps banks and financial institutions on two fronts: a data-driven CIAM, known as behavioral authentication or ADS.
In this authentication model, the system analyzes a range of user data, mapping user actions end to end and, by identifying behavioral patterns, streamlining authentication — eliminating, for example, constant interruptions during a session.
The solution works by combining two types of data: data from banking apps and data from users’ everyday lives, such as what they post on social media and in other apps they use daily.
How does it work and what are the benefits?
Behavioral authentication is based on the premise that users follow a daily routine, which makes it possible to verify the authenticity of certain purchases.
Verification happens on three fronts: match scoring, threshold configuration and machine learning. Each sets criteria to validate that a purchase is genuinely the user’s, so that when making a transaction, paying a bill or opening the banking app, the user no longer has to go through multiple verifications along the way.
Behavioral authentication also captures a range of customer data that allows companies to offer users increasingly personalized products.
This data is collected from social media and news feeds through to habits within the banking app. For example, imagine posting on Facebook about your wedding and having your bank suggest a new investment to help you save for the big day without feeling the pinch along the way.
How can you ensure stronger security in this scenario?
The big difference between data-driven CIAM and traditional CIAM is that banks can make users’ daily lives easier and offer increasingly personalized, user-centric solutions.
However, all of this data sharing happens solely and exclusively with the user’s authorization, just as with open banking. Users can, for example, choose which data to share with financial institutions and for how long, giving customers complete autonomy over the decision and the freedom to change their minds whenever they want.
If you want an in-depth look at how data-driven CIAM works, its features and how Digiage can help, download our latest e-book and learn more!
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