In the race to fight fraud and streamline digital banking, biometric technology is taking center stage. Financial institutions are tapping into fingerprint scans, voice recognition, and facial scan ID to verify users and lock down accounts – transforming everything from logins to high-value transactions.
The appeal is compelling: less friction for users, stronger security measures for institutions, and better compliance with evolving general data protection regulations.
But this rapid shift isn’t without risks. As adoption grows, so do concerns about privacy, data misuse, and new fraud vectors. Finance leaders face a critical challenge – how to harness this technology without compromising trust.
In this blog, we explore how financial institutions are using biometric authentication to fight fraud and enhance user experience – while tackling the growing challenges of data privacy, evolving threats, and regulatory compliance.
Why Financial Institutions Are Turning to Biometrics
As fraud threats grow more sophisticated and regulatory pressure increases, traditional methods are no longer sufficient — more robust security measures are essential. To that end, financial institutions are turning to the use of biometric data and biometric authentication to build smarter, more secure solutions that won’t compromise user experience or impact customer retention.
Benefits of using biometrics as part of a multi-factor authentication approach include:
- Frictionless User Experience: Biometrics streamline the authentication process with quick, user-friendly methods like iris scans, fingerprint scans, facial recognition technology, and voice ID, eliminating the need for passwords or physical tokens and reducing friction at every touchpoint.
- Stronger Identity Theft Assurance: Because biometric traits are unique and far harder to replicate than traditional credentials, they provide a higher level of protection for an individual’s identity, and reduce the risk of account takeovers and credential theft.
- Multi-channel Security: Biometrics offer consistent protection across platforms—from mobile apps and ATMs to in-branch services and call centers. For example, HSBC UK implemented voice biometrics and, in 2019 alone, prevented nearly £400 million of customers’ money from falling into the hands of telephone fraudsters.
- Compliance Enablement: As financial institutions face stricter Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements, biometrics help meet these standards through more reliable identity verification, reducing fraud risk and supporting regulatory compliance.
Set to hit $82.9 billion by 2027, the market for biometric authentication is reshaping how the industry protects customers while keeping the experience seamless and trustworthy.
Biometric Authentication Isn’t Foolproof: Security Risks to Watch
While biometrics offer powerful advantages, they’re not without vulnerabilities. As adoption grows, so does the interest from hackers in finding ways to bypass these systems. Financial institutions must understand and mitigate the risks to keep trust intact.
Here are some of the biggest risks to consider.
Biometric Spoofing and Presentation Attacks
Fraudsters are leveraging tools like deepfakes, silicone masks, and synthetic fingerprints to trick biometric systems into granting access. These so-called presentation attacks can bypass poorly secured systems, especially those without liveness detection.
Replay and Injection Attacks
Biometric information, once captured, can be replayed or digitally injected into systems to spoof authentication. If the personal data isn’t encrypted and securely transmitted, it opens the door for attackers to reuse it.
Centralized Database Vulnerabilities
When biometric templates are stored in centralized databases, a single breach can compromise millions of immutable identities. Unlike passwords, biometrics can’t be reset—making such breaches especially damaging.
For example, in 2019, a widely used biometric access control system has exposed 23 gigabytes of sensitive data, affecting more than 27.8 million records. BioStar 2, the compromised platform, left fingerprints, facial recognition data, and other personal details publicly accessible online.
False Positives and False Negatives
Biometric systems aren’t perfect. Errors in matching can deny legitimate users access or, worse, allow unauthorized individuals through. Both scenarios undermine user confidence and system reliability.
As biometrics become more integrated into financial services, institutions must approach deployment with caution to ensure systems are resilient against sophisticated attacks and that users remain in control of their data.
Balancing Data Sensitivity and Regulatory Pressure
Biometric data offers powerful cybersecurity benefits, but it also introduces high-stakes individual privacy concerns. Unlike passwords, biometric traits such as fingerprints, facial features, or voice patterns are personally identifiable and permanent; once compromised, they can’t be changed.
This sensitivity raises the risk of “function creep” – where systems designed for authentication are later repurposed for tracking or surveillance without user consent.
As biometric use expands, regulators are paying closer attention, and the legal landscape is tightening:
- GDPR (EU): Requires explicit user consent for biometric data collection and mandates that only the minimum necessary data be used.
- BIPA (Illinois): Imposes financial penalties on companies that misuse biometric data or collect it without proper notice and consent.
- CCPA (California): Demands transparency around biometric data use, including clear disclosures and opt-out options for consumers.
And, the consequences for non-compliance are growing as law enforcement agencies take notice. For example, in the first-ever BIPA trial in October 2022, a jury found BNSF Railway violated the law 45,600 times by requiring fingerprint scans for railyard access – once per class member. The verdict led to a $228 million award for the plaintiffs.
Public trust is also at stake. According to the Cisco Consumer Privacy Survey 2023, 81% of consumers are concerned about how companies use their biometric data. As a result, financial institutions must find the right balance in leveraging biometrics to strengthen data security while remaining transparent, compliant, and respectful of user privacy.
Best Practices for Balancing Biometric Security with Privacy
Unlocking the benefits of biometric systems and reduce fraud without eroding trust requires financial institutions to adopt:
- Decentralized, Secure Storage: Keep biometric templates on user devices to reduce breach risk.
- Liveness Detection and Anti-spoofing Tech: Ensure the biometric input is real-time and genuine.
- Biometric Encryption: Store encrypted templates, not raw sensitive data.
- Dynamic Identity Verification: Combine biometrics with behavioral signals and contextual data.
- Clear Consent Mechanisms: Allow users to opt in when sharing sensitive data, understand use cases, and manage preferences.
- Privacy-by-design Frameworks: Build security and transparency into biometric systems from the start.
Leveraging these best practices, financial institutions can strengthen fraud prevention while respecting user privacy, maintaining regulatory compliance, and building long-term trust in biometric authentication systems.
How DataVisor Enhances Biometric-Based Fraud Prevention
As financial institutions increasingly rely on biometric authentication methods to bolster security, DataVisor provides an advanced layer of protection against sophisticated fraud tactics. By integrating biometric data with behavioral analytics and real-time anomaly detection, DataVisor enables a comprehensive defense strategy.
DataVisor's platform offers cross-channel intelligence, allowing for the detection of fraudulent activities across various customer interaction points, including mobile apps, web portals, and call centers. This holistic approach ensures that anomalies are identified regardless of the channel used.
In addition to traditional biometric verification, DataVisor incorporates behavioral biometrics such as typing patterns, swipe dynamics, and interaction styles to create a secondary layer of fraud detection. This helps in distinguishing between legitimate users and potential fraudsters who may have compromised biometric data.
Dynamic risk scoring is another key feature, combining biometric confidence levels with device information, location data, and behavioral patterns to make informed decisions about the legitimacy of user actions.
The platform's real-time anomaly detection capabilities are crucial for identifying unexpected login behaviors, even when biometric authentication is successfully passed. By continuously monitoring for deviations from established user behavior, DataVisor can flag and prevent unauthorized access attempts.
Building Trust in the Biometric Future
Biometric authentication is reshaping financial services, offering a powerful combination of convenience and security. But as adoption grows, so do the risks.
To stay ahead of evolving threats – from deepfakes to data breaches – financial institutions need more than just biometrics; they need intelligent, layered protection.
DataVisor enhances biometric systems with cross-channel visibility, behavioral insights, and real-time fraud detection to ensure that security doesn’t come at the expense of trust.
Want to see how DataVisor can help protect your biometric authentication strategy? Learn more here.
