Cash is king in its most literal sense. However, consumer behavior toward cash transactions has changed drastically over the past decade.
With continued innovations and technological advancements, cashless transactions took over. And amid the pandemic, more development transpired, leading to the peak of online banking.
From 2015 to 2022, the percentage of Americans using cash dropped continuously from 24% to 14%. On the other hand, the share of those who have already abandoned cash in all their purchases rose from 24% to 41%.
With digital wallets and virtual credit cards, online banking is now more of a staple. The increasing population of businesses without physical stores further supported this.
In recent years, online banking has transformed to keep up with the financial landscape. The penetration of cryptocurrencies into the mainstream market prompted banks to adopt them.
However, these changes came with a cost. Security threats, data breaches, and online scams became more prevalent as more individuals and businesses relied on their phones and computers.
This phenomenon should not be surprising since almost half of the American population connects to public WiFi regularly. With its weaker-than-usual security, malicious individuals can easily break into their gadgets and even banks.
It’s no wonder that security technologies are now at the forefront of the fintech revolution. As such, let’s look at these innovations and how they will reshape the online banking landscape.
Online Banking: Security Challenges
Digital banking has already taken over physical banking. Over the past decade, the number of banked individuals in emerging and developed economies has continuously increased. It was more evident in the US, driven by increased access to financial services.
However, these notable developments still come at a high risk. Security technology infrastructures remain wobbly if we look at the increasing number of data compromises over the years.
From only 157 data compromises in 2005, the number increased by about 20 times to 3,205 in 2023. Likewise, the global average value of data breaches reached $4.45M, a 15% increase in three years.
Conversely, we can attribute these worrisome figures to the increasing number of banked people. In the US, for instance, the percentage of banked individuals rose from 88% in 2011 to 95% in 2021. This FY24, it is expected to increase to 97%.
It is also essential to note the decreasing wealth disparity as the gap between the rich and poor narrows. The percentage of unbanked people in the poorest 40% category dropped from 21% to 5%.
Likewise, the number of unbanked individuals within the richest 60% dropped from 6% to 0.7%. As ridiculous as it appears, the improving standard of living was one of the critical drivers of the increasing number of data breach incidents.
The shift from cash to cashless payments to digital banking and e-wallets is another primary contributor.
Moreover, only 29% of Americans are banking in person, showing that the remaining 71% rely on online banking. As businesses and consumers shift to digital banking, hacking risks also increase.
Indeed, it is a great challenge that the financial sector must address. As policymakers try to promote financial inclusion, they must also enhance security technology infrastructures. Consumers are at a greater risk since they have limited capacity to add more protection to their data.
Consequently, banks and other financial institutions must work together to strengthen their security measures. Although we can attribute these risks to the increasing number of digital banking users, it is not pleasing to see their proportionate changes.
They must keep up with the technological changes as the financial sector evolves to enhance consumer protection. That way, data compromises will be controlled despite the influx of banking customers.
Security Technologies for Digital Banking
The increasing risk of data breaches prompted banks and other financial institutions to heighten their security measures.
Recent statistics show that 51% of organizations intend to increase their security investments against data breaches. These include planning and testing, incident response, threat detection, response tools, and employee training.
In line with these plans, these are some security technologies we expect to reshape online banking.
AI and machine learning
AI and ML may help banks provide personalized services to clients. These include fraud detection, credit scoring, and financial advice. In addition, they can answer queries, assist in banking transactions, and provide other services using chatbots.
Moreover, AI can create virtual assistants to provide insights into customer spending patterns, which can help in finance management. The average savings for using security AI and automation is $1.76M.
Biometric authentication
Biometric authentication is already an essential security feature for unlocking mobile devices. This technology is also applicable to online banking. For identity verification, customers may log in using face recognition, fingerprints, and iris scans. So, it will provide an extra layer of protection, which can be more efficient than traditional multi-factor authentication.
Wearables and smart homes
Online banking platforms may integrate themselves with wearables like smartwatches. It can also include smart home devices like smart thermostats and voice assistants. Customers can monitor their online accounts and manage their finances through these devices.
Even while jogging or working, they will receive login attempt alerts, allowing them to prevent hacking instantaneously. Hence, these can provide a convenient and seamless user experience.
VPNs
Even the most established business establishment may not be safe from fraudulent activities. That is why it is essential to use a VPN for routers to protect their online privacy. If someone from your internet service provider (ISP) tries to track you or hacks a website you’ve recently visited, a VPN will thwart the attempt to track your browsing activities. Once you connect your device to the VPN server, your internet traffic will be passed through the VPN provider’s internet connection.
Blockchain and cryptocurrencies
Blockchain technology protects a user’s identity when buying and selling cryptocurrencies. It aims to keep a secure, transparent, and decentralized ecosystem. Banks may integrate blockchain technology with their system to protect the identity or anonymity of their customers. As such, online banking users can safely do banking transactions.
Key Takeaways
Digital or online banking is evolving drastically, driven by the latest trends in technology. However, financial institutions must address and eradicate risks to promote consumer protection.
Emerging security technologies may be incorporated in the banking industry to provide a seamless, smooth, and secure experience. These will play a crucial role in developing a cashless society and raising the standard of living among banking customers.
