Banks are moving away from passwords as digital access becomes the main point of customer interaction. The shift addresses rising costs and fraud risks targeting users rather than bank systems.
Passwords have long been the default method for digital banking access, but they are increasingly difficult to secure. Customers reuse passwords across platforms, respond to phishing attempts and struggle to manage complex credential rules.
For banks, this translates into higher fraud losses, growing call-centre volumes and increased regulatory pressure. Layered controls, such as one-time passwords and SMS verification, improved security incrementally but did not eliminate the core vulnerability. Shared secrets can still be intercepted, tricked or stolen. As fraud patterns shift towards social engineering rather than technical breaches, passwords have become one of the weakest links in the access chain.
How passkeys change authentication
Passkeys replace passwords with cryptographic keys tied to a user’s device. Authentication relies on public-key cryptography, where the private key never leaves the device and is unlocked through biometric or device-level verification.
This changes the risk profile. Credentials are no longer stored on bank servers, thereby reducing the effectiveness of phishing and credential reuse. Login processes become more consistent across channels, while access shifts from knowledge-based verification to device-based trust.
For customers, access feels simpler. For banks, risk exposure shifts away from credential compromise towards device and platform security.
Fraud trends and customer behaviour drive adoption
Fraud trends increasingly target customers rather than infrastructure. Eliminating passwords removes a common entry point for attackers. At the same time, customer expectations have changed. Users are accustomed to biometric access on smartphones and expect similar simplicity from financial services.
Regulatory expectations also play a role. While rules differ across jurisdictions, supervisors consistently emphasise strong customer authentication, preventable fraud reduction and responsible data handling. Passkeys support these objectives without adding visible friction.
Operational impact for banks
Introducing passkeys affects authentication architecture, support workflows and incident response. Banks must manage device enrolment, handle secure recovery when devices are lost or replaced and ensure consistent access across mobile, web and assisted channels.
Recovery design is a critical control point. Weak fallback processes risk recreating the same vulnerabilities that passkeys are intended to remove.
Poorly designed fallback mechanisms can undermine security gains. Recovery flows that revert to weak identity checks risk reintroducing the same vulnerabilities that passkeys are meant to remove.
Passkeys reduce credential theft while shifting access risk to devices
Figure 1. Password-based access vs passkey-based access
| Area | Password-based access | Passkey-based access |
|---|---|---|
| Credential storage | Shared secrets stored on servers | Private keys remain on user devices |
| Phishing exposure | High | Significantly reduced |
| Login experience | Friction-heavy, error-prone | Faster and more consistent |
| Fraud risk | Credential theft and reuse | Device compromise and enrolment risk |
| Support costs | High password reset volumes | Fewer access-related support calls |
| Recovery process | Password resets, OTPs | Device-based recovery with safeguards |
Source: BankQuality
Customer adoption and inclusion challenges
Passkeys simplify access for many customers, but adoption is uneven. Some users rely on older devices, shared computers or assisted banking channels. Others may be uncomfortable with biometric authentication or unclear about how device-based access works.
Banks need to balance security improvements with accessibility. They should provide alternative access paths for unsupported devices, offer clear explanations of how passkeys work, design recovery processes that are secure yet usable and equip support teams to handle authentication transitions. A poorly communicated rollout risks confusing customers and increasing support demand in the short term.
Risk management and governance considerations
While passkeys reduce credential theft, they introduce new dependencies. Banks must assess risks related to device security, platform integrity and third-party technology providers. Governance frameworks need to clarify accountability when authentication failures or disputes arise.
Clear policies around biometric data usage, consent and storage are essential, particularly in jurisdictions with strict privacy regulations.
What this means for digital banking
Passkeys represent a structural change rather than a feature upgrade. Authentication becomes embedded and largely invisible, reducing friction for customers while lowering fraud exposure for banks. Passwords are unlikely to disappear immediately, but their role will continue to diminish as passkeys become the default for mobile-first users.
Banks that invest early in clean architecture, strong recovery design and customer education will be better positioned to scale secure digital access without eroding trust.