The pandemic accelerated U.S. consumers’ adoption of digital banking, giving rise to a growing segment of customers who now prefer to forgo physical bank branches altogether. A 2021 survey of 6,000 consumers found that these so-called digital natives — those who prefer to bank strictly through smartphones and other online portals and devices — made up about 32% of consumers, representing a sizable increase from 26% a year earlier.
Consumers who use one digital tool tend to employ others, and the proliferation of digital channels for payments and money management means many consumers are linking their bank accounts to other platforms. These linkages may be for mobile payments, budget tracking or investing, with 58% of consumers reporting that their bank accounts are linked to services such as Venmo or Apple Pay. Consumers make these connections mostly for their convenience, but there are drawbacks, as connecting accounts may expose consumers’ data to fraud and other security risks. According to the study, almost one-third of consumers with linked bank accounts have been involved in data breaches, possibly due to these linkages. Yet, they remain undeterred, with nearly two-thirds keeping their bank accounts connected to third-party apps.
Many consumers are clamoring for greater transparency and control of their data, and financial institutions (FIs) are stepping up as consumer advocates. However, meeting financial customers’ needs requires cooperation from all parties involved through an ongoing industry collaboration known as connected banking. This month, PYMNTS examines how connected banking improves security and the customer experience, helping FIs better serve their customers and creating new opportunities for innovation.
An Opportunity To Increase Security
Incidents of fraud and stolen information in digital transactions are nearing a crisis point. A 2021 survey of 2,000 United States and United Kingdom consumers found that in just one year, 20% more consumers reported having their card information stolen and used to make fraudulent payments, 60% more reported having a card stolen and misused and more than twice as many reported having a card opened in their names using stolen information. While 79% said they increased their online shopping, approximately two-thirds said they felt more at risk from doing so. Still, 20% more consumers compared to 2020 said the risk of fraud was worth it for digital transactions’ convenience, illustrating consumers’ growing dependency on their digital lifestyles.
In fact, three-quarters of app users polled in a recent survey felt confident that the information they share with platforms is both private and secure, yet 80% were unaware that apps use third-party providers to harvest users’ financial details. Less than one-quarter knew that data aggregators could sell personal data to third parties for marketing, research and other uses. Nearly three-quarters of app users did not realize that apps have access to their bank account usernames and passwords, and 78% were unaware that aggregators frequently access their personal data even after the app has been closed or deleted.
This widespread lack of consumer awareness puts the onus on FIs to improve security and educate customers about the steps being taken to protect their data. The Clearing House has been working with FIs to advocate for improved technology standards and infrastructure as well as risk management requirements and laws to help ensure customers’ protection from digital hazards. Connected banking framework elements include enabling mechanisms that allow consumers to authorize and control the data they share as well as supporting industry-wide migration to application programming interfaces (API) to offer consumers better security and privacy. Other elements include the establishment of a model legal contract between banks and FinTechs, common data sharing and security standards and a common process for determining the safety and security of third-party apps.
This will be increasingly important this year, as 2021 was considered to be one of the worst years on record for cybersecurity, according to one report. More than half of organizations expect to see an increased number of reportable fraud incidents this year, and to fight that, 69% plan to increase cybersecurity spending in 2022.
As the economy grows ever more digital, with fewer physical safeguards in place, FIs will need to work together closely to make sure consumers maintain the confidence and security they need to keep trusting that their financial information is safe. The continued growth of the digital economy relies on it.