How has banking evolved to make payments more secure?

By: Atul Singh, Director- Banking and Transport Solutions, Gemalto

Banking today, is no longer the same as it was a few years ago. Imagine having to go to a bank branch and wait for hours in a line to transfer money? Or having to deposit a cheque and waiting for days for it to clear? In the past decade, there been a tectonic shift from traditional brick and mortar banking to more modern methods of banking. From using mobile phones for SMS banking to using the internet, we have seen a complete overhaul in the way we carry out our banking needs. This now includes video chatting with bank branch from the convenience of our home or office or with a click of a button opening up a new account.

There are several trends that have enabled this evolution of the banking industry. Primarily, the growing need for easy, 24/7 and convenient banking has propelled the use of the internet and mobile devices. Adding to that, is the advent of new and emerging technologies that have further enabled fast and convenient banking, anytime and anywhere. Furthermore, bolstering the adoption of newer banking methods are India’s growing young and technology friendly generation, the availability of affordable mobile phones and data plans, and the push for greater financial inclusion.

However, as the adoption of mobile and online banking grows and we move into a cashless digital realm, banks have also experienced a dramatic increase in frauds such as identity thefts, phishing and card skimming. According to a survey by Assocham and PwC, financial frauds let to approximately $20 billion in direct losses annually. To counteract the rise in frauds, banks have enhanced their security measures to ensure that their customers can have a secure banking experience. Some of the developments which have shaped the current banking industry and also promise greater levels of security are:

1. SMS banking - It provides instant SMS notification to customers, alerting them about their account activity as and when they happen. For example, every time a cheque is cleared, money is withdrawn from an ATM, or cash is deposited into their account, users receive an SMS message, allowing them to immediately detect suspicious activities. Users also receive One Time Password (OTP) for second factor authentication when they perform online banking transactions, or request banking information such as nearest branch, account enquiry, or cheque status.

2. EMV Migration - Thanks to the growing population with rising disposable income and India’s financial inclusion initiatives, the adoption of debit and credit payment cards is steadily increasing, leading to a greater need to secure this payment method. As of October 2016, India has over 27.3 million credit card and 739 million debit card holders, with more being added each day. As the trend towards cashless transactions picks up, there is marked escalation in the number of frauds. For example, in the city of Mumbai alone, between January to September 2015, credit and debit card frauds grew by 90 percent, when compared to the same period in 2014.

To protect users and secure transactions, the Reserve Bank of India (RBI) has advised all banks to issue cards that are EMV chip and pin based cards. The EMV standard enables greater security by encrypting and storing the data in a chip, as compared to a magnetic stripe cards that can be easily copied or accessed. Besides physical or card-present transactions, EMV also secures the ever growing online and mobile transactions. If combined with other measures such as two-factor authentication and encryption, fraudulent activities can be greatly prevented.

3. Move towards online and mobile banking – With the proliferation of smartphones and a technology savvy generation, online and mobile banking have seen a rapid uptake. During the first half of 2015, mobile transactions saw a 90 percent, increase reaching INR 214,560 million according to the Reserve Bank of India. Similarly, online banking is also becoming increasingly popular as consumers shift towards ecommerce and banking experience. This is expected to grow even further with India’s burgeoning internet population and expected to reach 500 million by the end of 2016.

As mobile wallets, banking applications, and online banking continue to become integrated into our lives, ensuring that these transactions are secure, is very important. Banks have implemented multiple factor authentications in addition to a username password combination. This includes using OTP, voice recognition through biometric verification and public key infrastructure (PKI) technology (digital signatures) to significantly tighten transaction security.

4. Arrival of new ways to make payments – The need for quick, easy and secure transactions, has given rise to Near Field Communication (NFC) transactions. We’ve already seen some leading public and private banks in India launch such cards and have seen much success. To encourage the adoption of this swift payment solution, the RBI has removed the need for a second factor authentication for transactions up to INR 2,000 using NFC-enabled cards. At the same time, banks and POS providers are already rolling out NFC-enabled terminals across the country to enable the use of contactless cards.

As NFC continues to gain momentum, educating users on the security aspects of NFC will be essential. Tokenization is a secure solution that helps in minimising frauds. It substitutes a cards payment credentials with a special number or ‘token’ that can be used only for a defined purpose, thus preventing misuse.

The change in consumer behavior and availability of newer technologies are continuously shaping the banking industry. Customers are taking more control of their financial decisions, are very well informed through social media, and are demanding more personal relationships with their banks. They are also concerned about security and privacy as their personal information is no longer limited to a particular branch or bank. Clearly, banks need to do more to attract and retain customers in this rapidly evolving and competitive landscape. And this can be done with developed customer-centric, secure and innovative solutions that deepen their customers’ trust while making their lives easier.