Multi Factor Authentication in Banking (Why It’s Crucial & Benefits)

In this blog, you will learn how banking and financial institutions can use MFA to stop account takeover attacks and help keep your money safe. Anonybit’s fraud prevention solution can help you learn all about multi-factor authentication (MFA) in banking and financial accounts.

Understanding The Rise of Cyber Threats

As digitalization expands in the banking sector, cyber threats have become a critical concern. With more transactions and activities moving online, banks and financial institutions are increasingly vulnerable to sophisticated cyberattacks. In 2023, there were 3,205 publicly reported data compromises that impacted an estimated 353,027,892 individuals. This represents a 78% increase in the number of data compromises compared to 2022

The Financial Impact of Cyberattacks on Banks

The financial impact of cyberattacks on banks has escalated dramatically, with estimates suggesting that the cost per firm has reached $18.5 million annually. This increase reflects the growing complexity and frequency of cyberattacks, which are becoming more difficult to detect and defend against. The consequences of a successful attack can be severe, leading to financial losses and a loss of customer trust.

Cybersecurity and Digital Banking

As more businesses and consumers transition to cashless transactions, cybersecurity’s role in protecting digital assets becomes paramount. Cybersecurity in digital banking is a robust defense system that aims to safeguard consumers’ assets and sensitive information from malicious actors. When a cybercrime occurs, the customer and the bank suffer the consequences.

Customers may lose their money or personal information, while banks face the challenge of :

recovering data, compensating affected customers and managing the fallout. Oftentimes the cost of managing the attack or the fraud is more than the actual losses. 

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What is Multi Factor Authentication, and Why is There a Need for it in Banking?

Multi-factor authentication (MFA) enhances security by requiring users to verify their identity using more than one authentication method before granting access to a system or allowing a transaction to occur. Rather than relying on just a username and password to authenticate a user, MFA adds critical layers of security that can prevent unauthorized access even if a hacker has stolen a user’s credentials.

The need for MFA in banking is driven by the inherent vulnerabilities of traditional authentication methods, such as usernames and passwords.

One of the major drawbacks of relying solely on passwords is their susceptibility to being stolen or compromised. Hackers often use tactics like phishing, social engineering or brute-force attacks to gain access to passwords.

Brute Force Attacks

Brute-force attacks involve cybercriminals using automated tools to try countless combinations of usernames and passwords until they find the correct one. Once a password is compromised, hackers can gain unauthorized access to bank accounts, potentially leading to significant financial losses and breaches of sensitive customer data.

Implementing MFA adds a critical layer of defense against these types of attacks. Even if a hacker manages to obtain a user’s password, they would still need to pass an additional layer of authentication—such as entering a code sent to the user’s phone or providing a fingerprint scan—which they are unlikely to have access to. This significantly reduces the likelihood of unauthorized access. 

Anonybit Solution

At Anonybit, our decentralized biometrics system design helps companies prevent data breaches and account takeover fraud. With a decentralized biometrics solution, companies can enable passwordless login, wire verification, step-up authentication, and help desk authentication. We are on a mission to protect companies from data breaches, account takeovers, and synthetic identity fraud.

To achieve this goal, we offer security solutions that cover the user lifecycle such as:

• 1:N deduplication, synthetic and blocklist checks upon account origination
• Passwordless login
• Step up authentication
• Account recovery
• Secure storage of biometrics and other PII data

Anonybit eliminates the tradeoffs between privacy and security. Prevent data breaches, enable strong authentication to eliminate account takeovers, and enhance the user experience across the enterprise using Anonybit. 

Book a free demo today to learn more about our integrated identity management platform.

Types of MFA Methods

The Knowledge Factor: Your First Line of Defense

In the knowledge factor method, users must prove their identity by revealing information no one else knows. A typical example of this authentication factor is secret questions with answers only the user would know, such as the name of their first pet or their mother’s maiden name. 

Applications may also request access to a four-digit pin code. These methods are secure only if no one else discovers the secret information but this is increasingly unlikely. Criminals might investigate the user’s history or trick them into revealing this information. Pin codes can also be cracked using a brute-force method that guesses every four-digit number combination possible or by taking over an email address or phone number that received the pin code.

The Possession Factor: Protect Your Assets

In the possession factor method, users identify themselves by something they uniquely own. Here are some examples:

• Physical devices like mobile phones, security tokens, display cards, hardware fobs, and security keys.
• Digital assets like email accounts and authenticator applications.

The system sends a secret code as a digital message to these devices or assets, which the user then re-enters into the system. The account can be compromised if the device is lost or stolen. Some security tokens circumvent this problem by connecting directly to the system so they cannot be digitally accessed.

Inherence Factor: The Future of Authentication

Inherence methods use information that is inherent to the user. These are a few examples of such authentication factors:

• Fingerprint scans
• Voice recognition
• Facial recognition
• Behavioral biometrics like keystroke dynamics 

The application must collect and store this information, along with the password, during registration. This is the strongest authentication factor. 

How Does Multi Factor Authentication Banking Work?

Multi-Factor Authentication (MFA) in banking requires users to confirm their identity using multiple layers of verification, making it much more difficult for unauthorized individuals to access sensitive financial information. Here’s how MFA typically functions in a banking context:

The First Factor: Something You Know

Username and Password

The most common first factor is a traditional login credential, such as a username and password. The user most likely knows this. However, passwords can be vulnerable to attacks like phishing or brute-force attempts, which is why additional factors are necessary.

The Second Factor: Something You Have

One-Time Passwords (OTPs)

After entering their password, the user may be prompted to enter a one-time password (OTP) sent to their mobile device via SMS or generated by an authenticator app. This ensures that even if someone has stolen the password, they still need access to the user’s mobile device to log in. These methods are also not as secure since fraudsters can take over email accounts and phone numbers.

Security Tokens

Some banks use hardware tokens that generate OTPs or smart cards that must be inserted into a reader connected to the user’s computer. 

Mobile App Authentication

Users might be required to approve the login attempt through a banking app on their smartphone. The app might display a prompt that the user must approve, adding another layer of verification. If a fraudster has control over the user’s phone, they may be able to verify the authentication request.

The Third and Strongest Factor: Something You Are

Biometric Authentication

Banks increasingly use biometric data like fingerprints, facial recognition, or palm scans as an additional layer of security. This data is unique to the individual and extremely difficult to replicate, making it a robust security measure.

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Benefits of Multi Factor Authentication in Banking

Multi-factor authentication aims to provide extra layers of security by requiring additional authentication factors. Over 80% of cyber breaches are attributed to weak or stolen passwords, so MFA plays a crucial role in fortifying security. Even if one factor, such as a user’s password, is compromised, the other factors act as a safety net, ensuring the user’s identity is protected.

Cost Reduction

One of the most compelling benefits of Multi-Factor Authentication (MFA) is its potential for cost reduction. By adding an extra layer of security, MFA can automate many processes and significantly reduce the need for password resets and help desk support, leading to substantial time and cost savings for businesses.

MFA can also prevent fraudulent access to sensitive data or systems, saving on legal fees, fraud losses and investigative fees.  

Cost Benefits

By mitigating the risk of data breaches, MFA can help businesses avoid:

• Costly fines
• Litigation expenses
• Damage to their reputation, resulting in long-term cost savings

MFA is a cost-effective solution that offers tangible benefits to businesses of all sizes.

Enhanced Security

Enhanced security is the primary benefit of Multi-Factor Authentication (MFA). Using multiple forms of identification significantly reduces the risk of unauthorized access, even when one form of authentication is compromised. This added layer of security can help prevent:

• Phishing attacks 
• Password-related breaches, which are increasingly common in today’s digital environment

By requiring users to provide two or more factors for identification, MFA provides an additional barrier against cyber threats and helps safeguard sensitive information. Enhanced security is a crucial aspect of MFA that makes it an essential tool for protecting against cyber attacks and data breaches. 

Fraud Prevention

With the increasing frequency of cyber-attacks and data breaches, it’s essential to take measures to protect sensitive information from fraudulent access. Multi-factor authentication (MFA) provides an extra layer of security that makes it more difficult for hackers to access your accounts even if they have your password.

MFA Benefits

By requiring multiple forms of identification, such as a password and a fingerprint or a security token, MFA can significantly:

• Reduce the risk of cyber attacks 
• Prevent unauthorized access to your accounts

This is particularly important for financial transactions and sensitive information like financial accounts, marketplace access and medical records.

Multi Factor Authentication vs Two Factor Authentication (MFA vs. 2FA)

Multi-factor authentication (MFA) is a security system requiring more than one verification form to access an account or application. This layered approach helps ensure that the person attempting to access the account is indeed its rightful owner. If a cybercriminal can:

• Breach a system 
• Capture user credentials; they will be locked out of the account if MFA is enabled.

This is because the attacker will not have access to the additional authentication factors needed to complete the login process.

What is Two-Factor Authentication (2FA)?

Two-factor authentication (2FA) is a multi-factor authentication that uses exactly two factors for the authentication process. It can be thought of as a subset of MFA. Like MFA, 2FA helps improve security by creating an additional barrier preventing unauthorized access to sensitive data and applications. 

2FA is particularly effective at stopping third-party fraud, where a cybercriminal uses stolen information to impersonate a legitimate user and gain access to their accounts. When enabled, 2FA with biometrics as one of the factors can significantly reduce the chances of a successful attack on an account.

Top 5 Threats MFA Prevents In Banking? 

1. Brute-Force Attacks 

Online security breaches due to brute-force attacks are a growing concern for businesses and individuals. These attacks involve hackers using automated tools that systematically test different combinations of passwords to gain access to an account or system. Traditional authentication methods like usernames and passwords are only sometimes foolproof, which is why multi-factor authentication (MFA) has become necessary. 

By requiring multiple forms of identification, such as a password and a biometric factor like facial recognition or fingerprint scan, MFA makes it much more difficult for attackers to gain access through brute-force attacks, as they would need to bypass multiple levels of authentication.

2. Social Engineering

Hackers use social engineering techniques to manipulate individuals into revealing sensitive information. They may pose as trustworthy sources, such as banks or government agencies, to gain access to personal data like passwords or credit card numbers. Multi-factor authentication (MFA) can prevent these attacks by requiring multiple forms of authentication, making it much more difficult for cybercriminals to bypass security measures. 

If a hacker obtains a password through a phishing scam, they still need to provide additional identification factors such as a fingerprint or facial scan to gain access.

3. Phishing Scams

Phishing scams are a pervasive threat to online security and are becoming increasingly sophisticated. These scams often involve fraudulent emails or websites that trick users into divulging sensitive information, such as login credentials or credit card numbers. As a result, cybercriminals can easily gain unauthorized access to accounts and cause significant damage. 

Fortunately, multi-factor authentication can significantly reduce the risk of falling victim to these attacks. By requiring users to provide additional forms of identification, such as a code sent to their mobile device or a facial scan, MFA makes it much more difficult for hackers to gain access through phishing scams.

4. Stolen Passwords

Cyber attackers frequently use stolen passwords to gain access to sensitive information. This method of attack is one of the most common and effective techniques hackers use. Multi-factor authentication (MFA) can prevent this type of attack by requiring an additional layer of verification, such as a:

• Unique code or biometric scan
• Password

With MFA in place, even if a password is compromised, the attacker cannot access the account without the additional factor. Implementing MFA can protect against data leaks containing user passwords and significantly increase account security.

5. Key-Logging

One of the most common hacking techniques is key-logging, which allows attackers to capture keystrokes and steal passwords or other sensitive information. Multi-factor authentication (MFA) can prevent such attacks by requiring additional authentication factors beyond just a password. These factors can include biometric verification, device verification and/or one-time passcodes sent to a mobile device.

By adding these extra layers of security, MFA helps prevent unauthorized access to sensitive data and systems, making it an essential tool for businesses and individuals looking to improve their security posture.

Other Use Cases for MFA

Banking

The rise of online banking has also led to an increase in cyber threats in the banking industry. Multi-factor authentication (MFA) has become an essential tool for banks to :protect their customers’ financial information and prevent unauthorized access.

Banks may also use MFA for employee access to sensitive systems and data to ensure only authorized personnel can access them.

eCommerce

The retail industry is constantly facing security breaches and fraud. For this reason, Multi-Factor Authentication (MFA) can provide an additional layer of security for customers and retailers. With MFA, retailers can require customers to authenticate their identity with a password and other factors, such as a one-time passcode sent to their mobile device or biometric verification. By implementing MFA, retailers can:

• Reduce the risk of online fraud 
• Protect customer payment information

Education

In today’s digital age, educational institutions increasingly rely on technology to manage student information systems and online learning platforms. This has also made them vulnerable to cyberattacks and data breaches.

By requiring multiple forms of authentication before granting access to confidential information, MFA can help prevent unauthorized access and protect against a variety of cyber threats such as:

• Phishing scams 
• Stolen passwords

Government

Multi-Factor Authentication (MFA) plays a crucial role in government organizations due to the sensitive information they handle. Unauthorized access to government systems can have severe consequences, leading to data breaches and compromised national security. MFA ensures that only authorized personnel can access government systems and confidential data through various authentication methods like biometric authentication, device verification and one time passcodes.

Implementing MFA in government applications  enhances security and ensures compliance with regulations and policies related to data privacy and protection.

Healthcare

Healthcare is an industry that deals with sensitive data and requires high levels of security. Multi-factor authentication has become increasingly important in healthcare to protect patient information. 

With electronic medical records being stored online, preventing unauthorized access is crucial. MFA can be used to secure these records and ensure that only authorized personnel have access to them. Additionally, compliance with strict regulations is essential, and MFA provides an effective way to meet these requirements,

Social Media

With the rise of social media platforms, ensuring the security of user accounts has become a top priority. One way to accomplish this is through Multi-Factor Authentication (MFA). By requiring users to provide multiple forms of identification, such as biometric authentication, device verification or one time passcodes, MFA can significantly reduce the risk of account compromise. Additionally, MFA can increase user trust and confidence in the platform’s security measures, leading to greater engagement and loyalty.

Related Reading

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Book a Free Demo to Learn More About Our Fraud Prevention Software

At Anonybit, we help companies prevent data breaches and account takeover fraud with our decentralized biometrics technology. With our decentralized biometrics framework, companies can enable passwordless login, wire verification, step-up authentication, help desk authentication and more. 

Comprehensive Security Solutions for Companies

We aim to protect companies from data breaches, account takeovers and synthetic identity on the rise, privacy regulations, and digital transformation. To achieve this goal, we offer security solutions that cover the user lifecycle such as:

• 1:N deduplication, synthetic and blocklist checks upon account origination
• Passwordless login
• Step up authentication
• Account recovery
• Secure storage of biometrics and other PII data

Balancing Privacy and Security with Anonybit’s Integrated Identity Management Platform

Anonybit eliminates the tradeoffs between privacy and security. Prevent data breaches, reduce account takeover fraud, and enhance the user experience across the enterprise using Anonybit. Book a free demo today to learn more about our integrated identity management platform.