The use of biometric authentication in preventing identity theft in commercial banks

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

The process by which the banking services have undergone a swift transformation by means of the use of digitized technology has led to a huge change in the manner in which financial services can be accessed by customers in Nigeria. This includes mobile banking, internet banking, ATMs, point-of-sale transactions and electronic transfers. Nevertheless, the increased usage of digital banking methods is also creating an increased risk of fraud, such as the stealing of the identity of the individual as well as access to their bank account..

Identity Theft happens when an individual’s personal or identification information is taken and utilized by other persons with the intention of fraud. In the case of banks, identity theft happens when the personal information of a bank client is stolen and used without authorization for the purpose of accessing an account, creating an account, conducting transactions, or receiving any financial services. One of the types of financial fraud identified by Central Bank of Nigeria (CBN, 2024) is identity theft.

One of the technologies that have been increasingly useful in overcoming these obstacles is the use of biometric authentication. The process of biometric authentication is the use of unique physiological or behavioral features of an individual in order to prove or verify identity. These include fingerprints, face recognition, iris recognition, and voice recognition. Unlike traditional passwords or PINs, the features used for biometrics are linked directly to an individual..

The Bank Verification Number (BVN) can be considered among the most vital use cases for biometric identity verification in Nigeria's banking sector. It was developed by the CBN to create a unique identity for customers in the banking sector of Nigeria and to ensure proper KYC processes. According to the CBN, "BVN is expected to assist in protecting bank customers from being victimized through unauthorized access and fraudulent activity, as well as to mitigate identity theft" (CBN, 2024). Biometrics and demographic data are used to create a unique customer identity..

Biometric identification has been more prominent in recent times due to the increasing digitization of the Nigerian banking industry. The report on financial market activities in 2024 by the CBN highlighted the fact that the bank had made it mandatory for all individual accounts and wallets to be identified using either BVN or NIN as an initiative towards enhancing the process of KYC. Financial institutions were also supposed to make it mandatory to check identity information of customers from the database through electronic means during customer onboarding (CBN, 2024).

In what ways may biometric authentication help prevent fraud? The first way is that it becomes hard for the imposter to impersonate a customer whose biometric details have been confirmed by the system. Second, the process of confirming biometric information can be used to detect any duplicity of the customers' identities in the course of onboarding. Finally, biometric identities can help trace the dubious actions of a certain customer.

Digital identity and user authentication in enhancing the security of financial services have not been overlooked by the CBN. According to its payment system strategy, digital identity and user authentication are among the major elements of data security, with biometric authentication contributing to fraud prevention and improved customer relationship management (CBN, 2024). Likewise, according to its cybersecurity publications in 2024, the CBN emphasizes the need for multiple-layered identification and enterprise fraud management systems through the adoption of technologies like artificial intelligence and machine learning (CBN, 2024).

Yet, the use of biometrics for identity authentication is no silver bullet against identity fraud either. There might be cases where scammers try to take advantage of flaws in customer onboarding, social engineering, hacked devices, bad cybersecurity policies, or vulnerabilities in identity databases. Moreover, biometric data is quite delicate because unlike passwords, one's fingerprints or face cannot just be reset in case of exposure. This means that the efficacy of biometric authentication relies not only on the technology but also on the proper handling of data. It is also because of the increasing digitization of the payment infrastructure in Nigeria that this becomes a highly relevant topic. As noted by the CBN (2024), increased digitization has led to certain cybersecurity issues related to lack of KYC, weakness of the institutions, and insufficient measures against frauds. For this reason, the Bank has advised the use of proactive approaches such as layered identity authentication and better fraud management capabilities.

Hence, biometric authentication should be considered not only as a method of solving the problem but also as one of the elements of the banking security system. Biometric authentication might be effective insofar as it correctly identifies the customer, keeps the biometric data secure, integrates biometric verification into KYC processes and customers' responses to the authentication requests.

1.2 Statement of the Problem

With the growth of e-banking and digital banking in Nigeria, there is the need for customer authentication. Digital banking enables customers to transact without going to bank branches, which makes it convenient to use digital banking. However, this scenario gives room for fraudsters to take advantage of the stolen customer information and compromised credentials.

The methods used for customer authentication include password, personal identification numbers and security questions. These methods are prone to being guessed, stolen, disclosed or manipulated. If the credentials are compromised, then unauthorized people can access the accounts. Biometric authentication offers another method of customer authentication since it requires verifying the unique traits of a person..

Identity fraud and cybersecurity threats have continued to be issues despite the implementation of BVN and other forms of identification verification systems in Nigeria. Issues such as weaknesses in KYC process, institutional issues and fraud prevention techniques have been cited by the CBN in 2024 as issues that affect the digital financial ecosystem in Nigeria (CBN, 2024). This brings into question the impact of the use of biometric authentication in helping to protect customers from identity theft.

Issues such as privacy, data protection, false identification, reliability, and hacking of biometric data are some of the issues of concern. Hence, it becomes important to investigate the issue of the use of biometric authentication in the prevention of identity theft in Nigerian banks.

1.3 Objectives of the Study

The general objective of this study is to examine the role of biometric authentication in preventing identity theft in Nigerian banks.

The specific objectives are to:

1.         Carry out an analysis of the adoption of biometric authentication by Nigerian banks in establishing the identities of their customers.

2.         Conduct an investigation into the influence of biometric authentication in preventing identity theft in Nigerian banks.

3.         Investigate the association between biometric identification of BVN with banking fraud prevention.

4.         Determine the difficulties encountered when implementing biometric authentication in Nigerian banks.

5.         Conduct an analysis of how Nigerian banks can enhance the efficiency of biometric authentication.

1.4 Research Questions

The study will answer the following questions:

1.         How common is the use of biometric authentication for customer identification at Nigerian banks?

2.         What impact does biometric authentication have on identity theft prevention at Nigerian banks?

3.         How are biometric identification and banking fraud prevention linked through BVN?

4.         What barriers impede the effective application of biometric authentication at Nigerian banks?

5.         What actions could be taken to enhance the effectiveness of biometric authentication for identity theft prevention?

1.6 Significance of the Study

The findings of the study will be beneficial to the Nigerian commercial banks because they will learn more about the usefulness of biometric authentication in customer identification and fraud prevention. The results of the study may be helpful to commercial banks in enhancing their authentication systems and customer security procedures.

The results of the study will also be relevant to the regulatory bodies like the CBN because they will find out how effective and difficult the use of biometric identity verification is within the banking sector. This may help them in developing and enhancing the existing policy in relation to digital identity, KYC, cybersecurity, and fraud prevention within the banking sector.

The bank customers will also gain from the study because of improved knowledge of biometric authentication which can enhance their banking security measures. In addition, the results of the study will be useful for academic literature and for the students who want to research banking security, cybersecurity, and financial fraud in Nigeria..

1.7 Scope of the Study

This research will be conducted in relation to the application of biometric authentication to guard against identity fraud in Nigerian banks. Biometric techniques of identification and authentication as applied to bank transactions are discussed, and special emphasis will be put on fingerprint identification and facial recognition as well as the use of BVN. Problems related to KYC, banking frauds, cybersecurity, and biometric security are among the topics to be covered.

The geography of the study is Nigeria, while the study itself is to concentrate on the banking sector.

1.8 Operational Definition of Terms

Biometric Authentication: The act of authenticating a person’s identity by matching the biometric or behavioral characteristics such as fingerprints or facial characteristics.

Bank Verification Number (BVN): A unique customer ID number that is tied to biometric and demographic information within the Nigerian banking system.

Identity Theft: An illegal action where the identity details of another person are obtained and misused without the consent of that individual.

Biometric Identification: The act of identifying the identity of a person through comparing the biometrics of that person with stored biometric data.

Banking Fraud: An illegal or deceitful action that seeks to benefit from banking processes for personal gain.

Know Your Customer (KYC): The processes followed by a financial institution to identify a customer.

Authentication: The process that involves confirming that the individual who wants to log into an account or use an application is a genuine customer of that bank..

1.9 Organization of the Study

This research is divided into five chapters. Chapter One contains the introduction, background of the study, statement of the problem, objectives, research questions, hypotheses, significance, scope, and definition of terms. Chapter Two deals with the review of literature on biometric authentication, identity theft, and bank fraud. Chapter Three deals with the methodology that includes the research design, population, sample size, sampling technique, instrument used for data collection, and data analysis techniques. Chapter Four contains the presentation and analysis of the data collected. Chapter Five discusses the results of the study, makes conclusions, and gives recommendations.