Solving pension challenges with biometric technology

This week marks the Pensions Awareness Week in the UK with many online sessions taking place for consumers about pensions savings and benefits. While the sessions are certainly useful and educative for consumers, there are many challenges in the industry itself. Fraud and error in the national British benefits system are estimated to have led to £8.6 billion in overpayment during the financial year of 2021 to 2022. Following recoveries, the net government loss remained an eyewatering £7.6 billion – or 3.5% of total benefit expenditure[1].

Unfortunately, the costly business of pension fraud and error is not limited to the UK’s Department of Work and Pensions (PWD). The pension industry has recently been plagued by fraud, and, due to increasingly sophisticated schemes, the problem has worsened.

Because of the size of the assets on average, pension funds make naturally high-value targets for fraudsters. At the same time, pension holders are particularly susceptible to online fraud. They’re often poorly equipped to deal with identity theft and at risk of accepting unsolicited offers online. A recent FCA study found that 72% of pension holders could not identify a common sign of a pension scam[2].

The exorbitant monetary and reputational cost of pension fraud and error makes it imperative for insurance providers to offer enhanced safeguards for data accuracy and the movement of funds, without creating negative experiences for the pension holder.

With biometric technology, pension providers can boost overall security and customer experience, while cutting operational costs.

Protect pension holders and providers

Fraudsters may obtain a pension holder’s account and identity information through elaborate scams and theft. This information may then be used to access a pension holder’s account to change information and ultimately transfer funds.

Pension funds are often secured with legacy knowledge-based authentication methods (like passwords and security questions based on personal info) – something a user knows. 

This authentication method is impractical, as the knowledge is often forgotten or time-consuming to submit, and offers a poor protection level, as fraudsters can glean the information through a variety of means (some as easy as simply perusing social media). 

Although many pension providers have moved onto multi-factor authentication (MFA), incorporating something a user has (email or a device), it is still prone to hacking.

Biometric technology, on the other hand, relies on something a user is, which enables a far more secure and convenient method for customer authentication. This is because, biometric features, like a face or fingerprints, are unique to each person and are therefore virtually impossible to replicate.

Attempts to trick the system with fake artefacts (a picture of a face or a video) are prevented with passive liveness checks, which ensures the person in front of the authenticating device is live and present. Biometric data is also hard for bad actors to leverage, as it’s converted into numeric patterns, securely encrypted, and then time-stamped at the time of capturing with no possibility of reverse engineering.

In addition to account takeovers, pension providers must deal with the risk of fake or stolen identities being used by bad actors to join pension schemes for the purposes of fraud, tax evasion, or money laundering. This issue is particularly problematic when a pension provider doesn’t have sufficient means to accurately verify new members and their documents who are onboarding remotely.

With biometric technology, pension providers can accurately verify the identity of new members onboarding remotely. While facial recognition technology with passive liveness ensures the authenticity of the person, NFC reading or Machine Learning-based algorithms confirm the validity of the ID documents.

Promote data accuracy and prevent overpayments

Recent regulatory developments mandate that pension providers to prioritise accurate data management. Not only does inaccurate data result in costly payment errors and subsequent rectification, but it could also lead to significant reputational damage and severe legal challenges. 

Biometric-based digital onboarding enables automated and accurate data capture during new member onboarding. With real-time OCR, the information provided on the submitted documents is accurately populated into the data fields. Any changes to a pension holder’s personal information can be done with an instant and secure biometric-based member authentication.

Inaccurate data might also lead to overpayments, including failure to notify the pension provider of a member's passing.

As pension providers are naturally unaware of the full extent of overpayments, it’s hard to estimate the full scope of the issue, but account investigations and recouping funds are doubtlessly a very costly and inefficient business.

Fortunately, with liveness checks, pension providers can significantly mitigate overpayments by making sure the claims are made by the genuine (and alive) pension holder.

Offer a superior customer experience

In a fiercely competitive environment, customer experience often becomes the deciding factor for commercial success. Pension providers that fail to provide a good customer experience risk losing members to competitors and suffering reputational losses. The trouble is that increasing security requirements often add to customer experience friction.

Biometric technology enables the ultimate end-to-end customer experience for pension holders, radically simplifying and streamlining the onboarding and authentication processes.

To register, new pension holders only need to capture their ID document with their device camera (the OCR automatically captures their info in real-time) and snap a selfie for verification. With good biometric identity verification solutions, the average onboarding time is under 5 seconds.

Thereafter secure and reliable user authentication is virtually instant. Authentication for the purposes of accessing pension dashboards, changing personal details, making claims etc. is as simple as looking at the camera. Lengthy passwords are not required, and pension providers can rest assured that their member accounts are well-protected from fraud.

Naturally, in addition to nifty onboarding and authentication, the ultimate customer experience for a pension holder is to truly be able to trust a pension provider with their savings. Pension providers must therefore prove that member account security is always at the forefront of their concerns. By adopting the right biometric technology, pension providers can fulfil the highest level of customer protection and satisfaction.

To learn more about how biometric technology can build trust and create value for both pension providers and their members, visit www.facephi.com.

Enrico Montagnino

General Manager, Facephi EMEA