Best Tips and Practices for Identity Management in Banks

The advancement of technology has led to a surge in sophisticated and methodical security crimes. According to a report by Javelin Strategy & Research, 1 in 4 US consumers experienced account takeover scams, with financial accounts being the chief target.

Security issues are one of the major challenges faced by banks. The finance industry is adopting various new strategies to prioritize security and enhance user experience.

Once Dan Schulman, CEO of PayPal, was asked about his take on the same, and he stated that, “To build a secure and trusted financial platform, we must prioritize identity verification and management. It’s the first line of defense against fraud.”

Effective identity and access management in banking is the cornerstone of financial security. Implementing proper identity management systems in the finance industry can work wonders to enhance its security system and build a secure banking environment.

In this article, we will discuss the importance of identity management and how it can strengthen various banking operations, so stay tuned till the end to learn more.

Introduction to Identity Management in Banks

Identity management involves the identification, authentication, and authorization of users to make sure that the data or system is being shared with the right person. Identity management assigns a digital identity to each network identity.

After the identities are assigned, those identities are maintained and monitored throughout each user’s or device’s access lifecycle.

Banks are always priority targets for cybercriminals, hence it becomes necessary for banks to adopt sophisticated identity management techniques to safeguard their data. The points below explain why Identity management has become a crucial asset for banks –

It guards customer information from fraud by authenticating the users and limiting access to sensitive information, preventing cyber threats.

It provides customer services in various channels, such as online banking, mobile applications, and bank branches.

Strengthens security in hybrid cloud banking systems.

Regulated framework related to data privacy and security.

Challenges Faced by Banks

Thousand of incidents of security crimes in banks have been reported in the past as banks are considered the prime targets for such offenses. Some of the challenges concerning financial security faced by banks are

Digital frauds – The advancement of technology has also led to an advancement in digital crimes. Due to these, banks are focusing on strengthening their customer
onboarding and transaction monitoring systems to prevent any digital fraud incident.

Credit risks – one of the major challenges that banks face, It occurs when borrowers are not able to stick to their contractual obligations. It can be avoided by lending loans at a good credit score and running a background check before transacting.

Emergency risks – These are different from the traditional risks faced by the banks. This calls for more forward-looking and modern risk management practices in banks.

Compliance with rules and regulations – Banks can face fines and penalties if adequate protocols for compliance with rules are not followed.

The financial industry has faced the major challenge of being the priority target of cyberattacks in the past five years.

Best Practices to Improve Identity Management

To yield the most results, organizations must ensure that identity management tools are set up correctly and promise security. Let’s discuss five best practices that can help improve identity management

Zero trust model – Many platforms implicit trust feature, where the system remembers the password and the user does not need to fill in the password every time to log in. This can prove to be a major security risk.
Zero trust security models always consider the worst-case scenario, i.e. breach and never trust. This requires the user to always fill in the password.

Multi-factor authentication (MFA) – MFA significantly reduces the risk of breaches, as it often uses a combination of intricate methods to authenticate an identity.
Methods such as biometrics (Fingerprint, facial recognition, iris scanning, etc.), Possession authentication (sending OTPs), and knowledge authentication (answering security questions). All these methods are hard to crack, hence considered a great method to ensure security.

The Least Privilege Principle – This method limits access and permissions as much as possible without hindering the user’s activities.

Using Strong Passwords – The most simple and effective way. Make strong passwords using different characters. Even if your organization uses modern security measures, pay attention to passwords.

Automate Workflow – This protects the organizations from insider threats that might arise when an employee leaves and simplifies the transition for new employees.

The Role of Technology in Identity Management

Involving technologies such as machine learning and artificial intelligence in identity management significantly enhances the system’s efficacy.

AI-driven IAM systems are excellent at analyzing large volumes and providing real-time analytics that help companies manage user data and control access privileges.

Analyzing past data and activities, user behavior, and anomalies, helps the system in detecting potential security threats and act accordingly. Leveraging AI within identity management helps organizations enhance their security systems and elevate user experience.

Tips to Alleviate Risks

The prime goal of IAM is to provide security and reduce the risk of unauthorized access. Five tips to mitigate risks are as follows-

Automation of tasks– IAM can be used to automate tasks, reducing operational costs and unauthorized data access.

Use multifactor authentication – MFA acts as an extra layer of protection for data, as more than one method is required to log in to the account and get access to the data.

Role-based access – Clearly defining and assigning roles to the employees and providing them information access accordingly.

Data encryption – Encrypting data both transient and at rest will act as a protective layer for it.

Identity Governance – It helps to improve the compliance and audit performances.

DO YOU KNOW?Last year, 3,348 cyberattacks on the financial sector were reported globally, which is the highest since 2013. The reports of data breaches also increased from 690 in 2021 to 1,115 in 2023.

Real World examples of success

IAM helps ensure that only the right people have access to certain data. It has proven to be a great success in the banking industry. Some of the real-world examples that support its claim of being successful are-

Bank of America – After observing the rise in cybersecurity attacks, Bank of America implemented an IAM framework, especially for online banking. They used dynamic risk-based authentication that provides security and protection without compromising user experience.

HSBC – HSBC integrated biometrics authentication for proper secure authentication and machine learning for threat detection. Their new approach significantly reduced security threats.

Capital One – Capital One faced a significant data breach, that inspired them to implement automated monitoring tools for detecting anomalies and preventing future breaches.

Wells Fargo – They adopted IAM-based strategies to automate user provision and de-provision that ensures timely revocation of access when an employee leaves and minimizes orphan accounts.

There are several more real-life examples that prove the effectiveness of Identity management in the banking industry.

End Note

Identity management is the foundation of all banking operations. IAM solutions facilitate these operations by providing an effective mechanism for managing identities, enforcing digital control, and monitoring user activities.

This not only strengthens security but also provides a seamless customer experience across multiple channels.

IAM solutions have already proved to be a significant tool in the financial industry and will continue to play a central role in the future.

Also Read: 5 FinTech Strategies for Regulatory Compliance

Charu Thakur

Expertise