Banks eye biometrics to deter consumer fraud

Citibank is looking into the feasibility and cost of using biometric technology as a more efficient and secure method of identifying its customers. Meanwhile, Huntington Bancshares Inc. is studying the impact of identity theft and fraud with a close eye on biometrics as a possible approach to reducing the chronic problem.

Indeed, a growing legion of financial services firms are considering adopting biometric systems, which use peoples’ unique physical or behavioral characteristics, such as fingerprints or voice patterns, to identify them. Skyrocketing fraud rates and heightened security concerns in the wake of the Sept. 11 terrorist attacks have helped spark interest in biometrics.

According to Meridien Research Inc. in Newton, Mass., consumer fears and losses due to fraud are strong enough incentives for institutions to invest large sums of money in biometrics as an alternative to personal identification numbers. And with 500,000 cases of identity theft in the U.S. each year, consumers are ready to accept biometrics at the cost of decreased privacy and more intrusive methods of identification, said a recent Meridien report.

Deutsche Bank AG in Frankfurt and New York-based Citibank have been using biometrics for several years for employee access to computer server rooms, Meridien said.

Tom Connaughton, managing director of risk management at Citibank, said his company wants to be a leader in extending biometrics technology to customers, providing them with several identification options, such as fingerprint and facial recognition technologies, so they can choose the one with which they’re most comfortable.

Having customers use biometrics to gain access to accounts is the only way for the bank to know for sure whom it’s dealing with, Connaughton said.

Steady increases in fraud have led more financial institutions to invest in biometrics. In 2000, companies spent US$127 million on biometric devices; fingerprint scanners accounted for about 44 per cent of those sales, according to Meridien. Facial recognition technologies made up 14 per cent of overall sales, hand geometry 13 per cent, voice recognition 10 per cent and iris scans eight per cent, according to Meridien.

Spending to Counter Losses

By 2004, the financial services market will spend about $1.8 billion annually on biometric technology, according to IDC in Framingham, Mass.

According to a report to be released this month by Gartner Inc. in Stamford, Conn., one in 12 online consumers surveyed said they have been victims of identity theft, or someone else using their personal information to steal money or buy products. Meanwhile, 1.13 percent of all online transactions are lost to fraud, representing billions of dollars in losses each year.

Meridien said biometrics is a good fit with banking because the technology can offer “security to customers at [automated teller machines (ATM)], within branches to authorize transactions and for online banking.” It can also be used inside companies to secure vaults and monitor access to doors and computer systems, said Meridien analyst Christine Barry, who co-authored the report.

Huntington Bancshares in Columbus, Ohio, performed a study of biometric technology three years ago. At the time, the technology had too many problems associated with it, according to Huntington CIO Joe Gottron.

“The initial setup was quite cumbersome at the time, and the technology had limitations in sharing biometrics data at the time between ATMs. Basically, we stepped back and said it doesn’t make sense at the time to push the envelope of technology,” said Gottron, who started working at Huntington Bancshares a little less than a year ago.

He now has a team working on defining fraud’s impact on the bank. Once that study is complete, sometime within the first half of this year, Gottron may commission another biometrics study to see which technology would fit best.

“There’s going to be a lot happening [in biometrics] in the next three years. I’m going to stay close enough to biometrics, given the new world we live in, to make sure we make a move on it when the business case warrants it,” said Gottron.

Bogus charges associated with online credit card fraud are estimated to amount to as much as $24 million per day, totaling nearly $9 billion in 2001, Meridien estimated.

Identity theft is considered the fastest growing crime in the U.S., with about 500,000 to 700,000 people affected annually, according to the Social Security Administration in Baltimore.