Major technology providers, including Microsoft, Google, and Apple, are shepherding a new standard of user authentication: passwordless authentication. Passwordless authentication is a security method for validating a user’s identity without using a password. This group of methods, including biometrics, passkeys and security keys, and out-of-band authentication (such as via SMS or email), offer a more secure, efficient approach than conventional authentication methods.
As cyberthreats grow more sophisticated, conventional authentication methods such as passwords and even multifactor authentication (MFA), once a best-practice improvement for passwords, have become targets for hackers, exposing credential-based systems to undue risk. Passwordless authentication eliminates the risk of a credential-based attack, enhancing overall security, usability, and compliance.
Financial institutions are exploring this new security strategy in an evolving compliance landscape, as Big Tech pushes for industry standards to reinforce passwordless solutions. Regulatory bodies have also begun updating their guidance to encourage passwordless (phishing-resistant) authentication as a stronger standard, reflecting a broader industry shift beyond traditional MFA. As the industry moves into a new era of security standards, institutions should anticipate and prepare for future security policies that support stricter authentication requirements. Early adopters will be better positioned to meet future compliance expectations while improving security and efficiency for their users.
The benefits of going passwordless
Passwordless authentication can help protect your financial institution from security breaches, streamline operations, and minimize noncompliance risk as the regulatory frameworks evolve to reflect modern authentication methods. Top benefits of this new approach include:
- Enhanced cybersecurity. Passwords are often the weakest link in an institution’s security chain, exposing your data and systems to phishing, account takeovers, and other forms of credential-based attacks. Phishing-resistant authentication methods like biometrics, security keys, or passkeys can help reinforce your security and guard against unauthorized users and cyberattacks.
- Streamlined user experience and operations. Passwordless authentication removes the need for password resets, support tickets, and security incidents related to compromised passwords. Going passwordless simplifies the login experience for employees and customers by eliminating password-fatigue and reducing drain on IT support and financial resources caused by password-related support requests.
- Strengthened compliance posture. Passwordless authentication methods can help future-proof your authentication system as regulatory bodies and compliance rules evolve to reflect industry best practices for authentication.
A security pivot isn’t without challenges
Strategic adoption is critical to minimize operational challenges and new risks that come with passwordless technology. Your implementation strategy should consider the following:
- Outdated compliance standards. Many financial regulations refer to password-based controls, making it unclear how institutions should navigate compliance requirements like FDICIA, ICFR, and FFIEC guidelines. But as authentication methods evolve, so will regulatory guidance. Financial institutions need to review their authentication methods against the latest requirements and be prepared to adapt their systems and policies to remain compliant.
- User adoption. Employees and customers may be resistant to, or challenged by, new authentication methods. Comprehensive training and user education can help you achieve buy-in across your institution and minimize disruption.
- Security gaps. If not implemented correctly, passwordless solutions can create new security vulnerabilities. For instance, fallback mechanisms (password resets, security questions, or 2FA) that are poorly implemented can easily be bypassed by hackers.
With the rise of artificial intelligence and deepfakes, biometric spoofing, such as fingerprints or facial recognition, also poses a serious threat without proper countermeasures. Liveness detection and other countermeasures can help reinforce biometric authentication.
Lack of secure recovery options can also make it challenging for users if they lose access to their accounts. Well-designed passwordless authentication processes should include secure account recovery methods.
- Legacy systems. As passwordless becomes the overarching technology, more systems than not are going to be compatible with this new security approach. However, some institutions still have legacy systems in place that lack the infrastructure to support passwordless methods, which can prolong the transition.
Steps for building a passwordless ecosystem
As passwordless technology comes to dominate the authentication landscape, strategic planning is critical to ensure your institution meets industry standards and future regulatory scrutiny. Consider these steps to help your institution prepare for the transition.
1. Assess technology readiness
Identify systems within your technology stack that rely on password-based methods. Plan for upgrades where needed to support a cohesive implementation across your systems.
2. Build your passwordless technology stack
Replace password-based controls across your systems with phishing-resistant authentication methods like biometrics, security keys, or passkeys. FIDO2 passkeys — an authentication method that combines device-based authentication (smartphone, security key) with biometrics or another passwordless credential — is largely upheld as the benchmark for authentication standards. Understanding which combination of methods works best for your institution is critical to ensuring a successful and secure rollout.
3. Develop a hybrid transition model
Develop a plan to phase in passwordless authentication while maintaining compliance with existing password policies. A phased approach can help ensure smoother adoption and set you up for a successful transition as regulatory policies are updated to reflect these new methods.
4. Review internal policies
Review your current security policies and audit practices to ensure they support a passwordless ecosystem. Updating policies and procedures can help signal the significance of adopting this type of authentication to employees and stakeholders.
5. Establish trainings and user education
A passwordless system only operates as securely as its users, which is why it’s critical to get your employees on board with your new system once in place. Providing trainings and user education for employees promotes smooth adoption and minimizes operational disruptions.
A passwordless future is coming — strategic adoption is key
In an increasingly complex and sophisticated cyberthreat landscape, passwords are no longer enough to protect the security of your data and systems. It’s important that you start the conversation within your institution and explore authentication methods that align with your systems and institution. Starting the process for going passwordless now will help you maintain compliance and resiliency in the long term.
