Your Software Development Guide to Digital Identity in Modern Retail Banking

Can your bank open a new account in under 60 seconds without asking for a password?

If not, you’re likely losing prospects before they even begin their journey. Today, the first interaction between a customer and your bank happens at the identity screen. And when that experience is slow, confusing, or fails to build trust, users abandon it. For digital-first banks, identity is no longer a backend process, but a critical moment that blends security, user experience, and brand perception. That’s why forward-looking institutions are investing in retail banking software development solutions that make identity seamless, secure, and scalable.

This article explores the shifts transforming digital identity and offers practical guidance for building systems that turn verification into a competitive edge.

Why Retail Banks Must Treat Digital Identity as Tier-1

Think about the last time you signed up for a new service. Did it take more than a couple of minutes, requiring digging out your ID, taking a selfie, and waiting for approval? These moments, meant to establish trust, can instead drive users away before they ever open an account. According to industry benchmarks, up to 38% of people abandon onboarding due to friction in the identity flow. They want the experience challenger banks are offering: quick, intuitive, and password-free. And they’re not comparing you to just other banks. They’re comparing you to every app they use.

It’s not only about smoother UX. As AI-driven fraud becomes more sophisticated and regulators across Europe and the U.S. increase scrutiny, the identity layer has become a strategic priority. In fact, a recent KPMG report found that 89% of U.S. banking executives rank security and fraud prevention among their top three technology investments, second only to data-driven personalization.

The upside? When done right, digital identity can deliver measurable impact: improved NPS (Net Promoter Score), reduced fraud losses, and shorter onboarding times that translate into lower costs and faster time to revenue.

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What’s Changing: Trends Retail Banks Must Prepare For in 2026

Digital identity is changing, and retail banks need to keep pace. Here’s what’s driving that change and why it matters now more than ever.

Government-Issued ID Wallets Are Going Mainstream

The UK’s Gov.uk Wallet is expected to launch in summer 2025, and it’s already reshaping how people think about identity. In fact, 71% of UK adults say they understand the concept of digital identity, and 44% say they have already used a digital ID service. With this wallet, users can verify their identity in just a couple of taps - no passport scan, no utility bill, no delay.Banks like NatWest are already piloting wallet-based signups, and the benefits are clear: less friction, instant verification, and fewer manual interventions. For users, it feels simple. For retail banks, it reduces KYC overhead and strengthens compliance.

VC-Backed Platforms Are Setting New Standards

The private sector isn’t waiting around. Companies like Persona are raising hundreds of millions to reimagine ID verification with AI-powered tools that go far beyond document scans. These platforms deliver real-time identity checks using biometrics, behavioral analytics, and device intelligence. All packaged in APIs that are easy to integrate and scale.

What makes them stand out isn’t just speed. It’s the ability to adapt - constantly evolving their fraud detection models, meeting new regulatory demands, and improving the user experience without sacrificing security. For retail banks, they offer a rare balance: the agility of a SaaS product with the potential to customize and scale like an in-house solution.

For those weighing the trade-offs of building vs. buying retail banking software solutions, this opens a third path - blending vendor speed with custom control.

Passkeys Are Quietly Replacing Passwords

Passwords are losing relevance - by mid-2025, 69% of passkey-aware users have enabled at least one, and 74% say they prefer passkeys over traditional login credentials.Unlike passwords, which are easy to forget and even easier to compromise, passkeys rely on biometrics or device-level authentication. They’re resistant to phishing, seamless to use, and already embedded in the Apple, Google, and Microsoft ecosystems. That makes them a natural fit for everyday banking experiences.

In fact, at Accedia, we recently saw this shift firsthand while helping a UK bank introduce passkey authentication. The speed at which customers adopted the feature was surprising, but their reasons were even more telling: rather than highlighting security benefits, they appreciated simply having one less password to manage. It was a clear reminder that convenience often matters most to users, even in the context of stronger security.

And for retail banks, the shift to passkeys means fewer password resets, lower support costs, and stronger security across the board. Your customers will get in with just a tap - no friction, no forgotten credentials - while you benefit from higher retention and a reduced fraud footprint. It's a small change that can have a big impact on both experience and efficiency.

AI-Powered Fraud Detection Is the Norm

Fraud isn’t limited to stolen IDs or fake documents. Today’s attackers are using deepfakes, synthetic identities, and automated scripts to bypass outdated systems, and they’re getting better by the day. To stay ahead, retail banks need to shift from static, document-based checks to a more dynamic, intelligence-driven approach.

Modern fraud detection tools are changing that. They can now spot unusual login behavior, flag inconsistencies in device usage, detect spoofed biometrics, and analyze submission patterns for signs of automation. This is fast becoming a critical line of defense in modern retail banking digital identity solutions.

It’s not just about catching more fraud. When integrated seamlessly into your identity flows, AI-powered detection also reduces false positives, helping legitimate customers get through faster without additional friction. It’s the kind of silent protection that strengthens both trust and efficiency.

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Build, Buy, or Blend? Finding the Right Retail Banking Software Development Approach

If you're responsible for modernizing identity at your bank, you’ve likely faced the big question: should we build our own system, buy something off the shelf, or try to combine both? Each option comes with trade-offs, and the best choice depends on your goals, your team, and how fast you need to move.

Build: Full Control, Higher Complexity

Building in-house gives you full control. You can tailor every detail of the experience, from the login screen to the fraud triggers, and you own the entire stack. That’s a huge advantage, especially for banks with unique regional compliance needs or a highly specific user journey. But it’s not for everyone. Development takes time, costs can escalate quickly, and finding the right banking software development talent (and keeping them) is an ongoing challenge.

Buy: Speed and Simplicity

On the other end of the spectrum, buying an out-of-the-box solution can get you up and running fast. These platforms prioritize fast deployment, making them ideal for banks with standard needs or limited internal resources. Many off-the-shelf retail banking software solutions now include native support for digital identity, making integration faster and lowering the barrier to entry for teams that want to modernize quickly. However, you’ll likely face limitations down the line. Customization might be challenging; you’ll need to live with someone else’s UX, and integration can be even more difficult.

Blend: Flexibility with Proven Foundations

That’s why many banks today are blending the two. They start with a proven SaaS identity platform to handle the core verification and compliance logic. Then build their own layers on top to reflect their brand, fine-tune the experience, and meet specific business needs. This hybrid approach offers a balance: the reliability of a tested engine with the flexibility to innovate where it counts.

Choosing the Right Model

Choosing the right mix also means understanding your deployment options. Most SaaS platforms today are cloud-native, delivered as API-first services. This model supports rapid updates and easier experimentation with features like selfie verification, document scanning, or passive liveness detection. Meanwhile, on-premise modules, while more secure and compliant in highly regulated markets, often lag in innovation and require more IT involvement for upgrades and patching.

For emerging technologies like behavioral biometrics or real-time liveness detection, innovation is happening in the cloud. These tools rely on machine learning and behavioral models that improve over time, something that’s far easier to maintain via SaaS than on-premise environments.

Of course, blending the two approaches isn’t without its challenges. It takes a clear architectural vision and thoughtful integration to ensure everything from vendor APIs to custom modules works together smoothly. That’s why many banks choose to partner with teams who’ve done it before, bringing both technical know-how and an understanding of the regulatory landscape. For example, firms with experience supporting retail banks have helped build flexible, future-ready identity experiences that balance control and speed without forcing difficult trade-offs.

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Your 5-Step Roadmap to Modern Identity Implementation in Retail Banking

You don’t need a complete overhaul on day one. Start small, learn fast, and scale wisely. Here’s a practical framework to guide your team:

Map Your Current Identity Landscape

Begin with a full view of your current setup. Where do users log in or verify themselves? Which tools are involved? Are there multiple verification methods across channels or touchpoints? Just as importantly, where are people dropping off?

This stage is about identifying friction, not assigning blame. Common issues include duplicated steps, fragmented user journeys, or outdated methods like SMS-based 2FA. You’ll also want to check whether your flows meet regulatory expectations like PSD2, PSD3, or FFIEC. Getting that clarity upfront lays the foundation for smarter decisions later on.

Run a Focused Passkey Pilot

Once you’ve identified your biggest pain points, pick a single use case where you can pilot a modern alternative like passkeys. Mobile login or onboarding journeys are often good candidates because they’re frequent, visible, and easy to measure.

This doesn’t just help validate the technology but also helps you understand how your real users behave. In a recent project Accedia worked on, a mid-sized bank reduced forgotten-password resets by 40% and improved repeat logins, just by adding passkey support to its mobile channel.

Simplify and Consolidate Vendors

Over time, identity stacks can become overly complex, especially when different teams or regions use different solutions. Multiple vendors often mean siloed data, inconsistent experiences, and higher costs.

Consolidating your retail banking software solutions under fewer trusted providers makes your stack more secure and easier to manage, especially when onboarding, recovery, and fraud checks need to work in harmony. This will improve integration while reducing overhead and improving your ability to respond quickly to changes in fraud trends or regulations.Deploy Adaptive MFA (Multi-Factor Authentication) and Fraud Analytics

Not every login attempt carries the same level of risk, so why treat them all the same? Adaptive MFA lets you tailor security based on real-time context: the device being used, location patterns, behavioral data, and more.

When signals suggest the user is legitimate, let them through with minimal friction. When something feels suspicious, step up the challenge. AI-powered fraud analytics, such as anomaly detection or device intelligence, can help you strike the right balance between user experience and security. This approach will strengthen your defenses without turning away genuine users, especially during critical flows like payments or onboarding.

Establish Ongoing KPIs and Review Cycles

Identity systems need ongoing attention. Set quarterly goals tied to measurable outcomes like fraud rate, average onboarding time, user satisfaction (e.g., NPS), and regulatory compliance scores. Treat identity like any product or service: something that should evolve with your users’ expectations and your business needs. A simple review process can reveal low-effort improvements that make a great impact.

Digital Identity: The New Core of Retail Banking Software

In retail banking, trust is your most valuable currency. And trust begins with identity. Done right, digital identity unlocks smoother onboarding, stronger fraud prevention, and faster compliance alignment. More importantly, it creates a better experience, one where users feel seen, protected, and respected.

That’s the future of retail banking. And it starts with the question: can your customer prove who they are in just a few taps?