Why Global Regulations Are Accelerating Passwordless Banking

The current operational framework of financial institutions is shaped by three main factors, which include cyber threats, regulatory requirements, and increasing customer demands. The security system of digital identity protection has reached its weakest point because passwords have lost their status as the main protection method. Banks and fintech companies need to develop new online user authentication methods.

For banks operating across multiple regions, passwordless banking is no longer a future consideration. It is a strategic and regulatory imperative. Regional regulatory frameworks such as the European Union’s PSD2 and the General Data Protection Regulation (GDPR), along with guidance from the United States National Institute of Standards and Technology (NIST) Digital Identity Guidelines, are accelerating the shift toward phishing-resistant, multi-factor authentication models worldwide. In markets like Singapore and the UAE, regulators are actively encouraging the phase‑out of SMS‑based one‑time passwords in favor of cryptographic, device‑bound authentication.

Passwordless banking provides businesses with actual results that extend beyond their legal obligations. Mojo Growth Research reports that passwordless systems have achieved first deposit conversion rates that increased by 57.6% and 30-day active customer rates that improved by 44.6% compared to traditional password systems.

This article explains why global regulations are accelerating passwordless banking adoption, the impact on both consumer and business banking, real case studies, measurable benefits, and how organizations can approach passwordless implementation strategically, with concrete insights that speak directly to decision‑makers.

The Regulatory Pressure Behind Authentication Modernization

The 2025 Verizon Data Breach Investigations Report shows that 88% of basic web application attacks used stolen credentials, which demonstrates that attackers still use credential theft as their primary method to access web systems.

 Regulators now doubt password-based systems because this one statistic demonstrates their flaws. Three main factors drive regulators in all countries to enforce stricter security requirements on digital financial services.

Strong Customer Authentication Requirements

The European Union established the Revised Payment Services Directive (PSD2), which requires all European financial institutions to implement Strong Customer Authentication (SCA) as part of its regulations. SCA requires at least two independent authentication factors, something the user knows, has, or is. The regulations now require more than passwords for authentication purposes.

Data Protection Mandates

The General Data Protection Regulation (GDPR) established higher standards of accountability for data breaches that involve personal data. Organizations must implement appropriate technical and organizational measures to secure data. Credential leaks result in three types of consequences, which include regulatory risk, fines, and damage to reputation.

U.S. and Global Cybersecurity Standards

In the United States, the National Institute of Standards and Technology (NIST) has updated its Digital Identity Guidelines (SP 800-63) to discourage knowledge-based authentication and promote phishing-resistant methods. The recommendations support authentication methods that use biometric data and cryptographic keys stored on devices and FIDO2 standards.

Why Passwords Are Becoming a Compliance Liability

Passwords fail on three fronts:

• They are reused across services
• They are easily phished
• They require expensive reset and recovery processes

According to the 2025 Cost of a Data Breach Report by IBM, the global average cost of a data breach was $4.44 million, underscoring that breaches remain highly costly for organizations worldwide and credential-based attacks continue to be a major security vector driving these costs. 

Regulators consider multiple credential breaches as proof that companies fail to achieve basic security standards. The system creates financial benefits for institutions that choose to implement passwordless online banking.

How Regulations Are Driving Passwordless Banking Adoption

As global regulators tighten security standards, financial institutions are moving beyond passwords, adopting advanced authentication methods that protect users and ensure compliance.

1. Phishing‑Resistant Authentication

Current regulatory frameworks require organizations to use cryptographic methods and anti-phishing authentication systems. Passwordless systems, especially those based on FIDO2 passkeys and public‑key cryptography, eliminate shared secrets that attackers can steal or reuse. The security measures of this system decrease the probability of credential stuffing, phishing attacks, and account takeovers.

2. Reducing Fraud and Identity Theft

The Federal Trade Commission reported that consumers lost more than $10 billion to fraud in 2023, which established a new record. The fraud vector of credential compromise serves as a significant threat.

The institutions decrease their dependence on weak knowledge-based methods by implementing passwordless systems that use biometric authentication and device-bound cryptographic credentials in their consumer banking operations.

3. Zero Trust Architecture Alignment

The Cybersecurity and Infrastructure Security Agency CISA together with its partner organizations promote Zero Trust frameworks, which require ongoing user verification and strong identity verification methods.p 

Passwordless authentication integrates seamlessly into Zero Trust architectures because it strengthens identity verification without increasing friction.

Real‑World Adoption & Measurable Benefits

Conversion and Engagement Metrics

The Passwordless Conversion Impact Report 2026 by MojoAuth shows that organizations that switch to passwordless authentication achieve better results in essential banking and fintech conversion metrics. 

The report found, through its analysis of hundreds of millions of global authentication events, that organizations that implemented passwordless solutions achieved the following benefits:

• Higher account opening conversion rates
• The KYC completion rates showed better results
• Organizations experienced a major boost in their first deposit conversion rates
• The 30-day active user retention rates showed better results for organizations that used passwordless solutions.

Research results show that a passwordless banking system not only strengthens security measures but also delivers important advantages for acquiring new customers and achieving complete onboarding and maintaining customer engagement, which serve as vital performance metrics for businesses targeting bottom-of-funnel (BOFU) customers.

Bank Adoption Examples

The major Australian bank ANZ Plus introduced its passwordless web banking system, which uses biometric authentication and device authentication to replace standard password entry methods. The new security system improves protection for users while decreasing the chances of malware attacks and phishing attacks.

The existing solutions show that financial institutions use passwordless authentication to comply with regulations while enhancing their security systems and improving their users’ online interactions.

The Impact on Consumer and Business Banking

Enhanced Consumer Experience

Passwordless authentication meets regulatory requirements while delivering better usability. The FIDO Alliance reports that certain passkey-based authentication systems have completely prevented phishing attacks, while users reported greater convenience and security than they experienced with standard password systems.

The security features combined with the user experience protection create a competitive edge for businesses that operate in markets with high digital adoption rates and elevated customer service standards.

Business Banking Benefits

Business banking environments need high assurance, together with regulatory compliance and traceable audit logs. Passwordless solutions provide:

• Hardware‑backed security keys
• Risk‑based adaptive authentication
• Strong device‑bound credentials

These elements reduce fraud exposure while maintaining audit readiness, a central requirement for enterprise banking.

Operational Efficiency and Regulatory Compliance 

Lower Support Costs

The highest volume of work at the help desk system occurs when users attempt to reset their passwords while their accounts remain locked. Companies that implement passwordless authentication systems experience major decreases in both customer support requests and their operational costs. The support cost savings, which directly impact ROI, enable IT teams to focus on their strategic initiatives.

Simplified Audits and Reporting

Passwordless systems create superior audit trails because they combine cryptographic authentication proofs with device registration logs to improve compliance documentation and regulatory reporting.

Implementation Considerations for Financial Institutions

Passwordless banking implementation requires structured planning despite clear regulation.

• Legacy System Integration: The core banking systems need to support FIDO2/WebAuthn through API-driven orchestration which requires multiple system rollouts that will minimize operational disruptions.
• Risk-Based Authentication Models: Step-up authentication for high-risk transactions, device fingerprinting, and behavioral analytics balance compliance with usability.
• Regulatory Mapping: The implementation of passwordless controls should be developed according to SCA requirements, data protection regulations, and cybersecurity standards to create an effective audit and reporting system.

The Competitive Advantage of Early Adoption 

Early adopters of passwordless banking reduce regulatory scrutiny while establishing customer trust and improving their market position. The rapid growth of digital banking adoption provides institutions that implement modern authentication methods with substantial advantages in reducing fraud and improving operational efficiency.

According to the World Bank, digital financial services adoption continues to expand globally, increasing exposure to cyber risk.

How Facia Empowers Secure and Passwordless Banking

The international financial regulations that have been established so far now require banks and fintech companies to implement authentication methods that protect against phishing attacks and do not use passwords for verification. The use of weak password systems in both consumer banking and business banking operations creates three major problems, which include fraud risk, regulatory exposure, and increased operational costs.

Financial institutions now need solutions that combine strong security features with necessary regulatory compliance and user-friendly operation. Facia offers a comprehensive suite to address these challenges. Its passwordless authentication platform replaces passwords with advanced biometrics and AI-driven identity verification, which reduces fraud while improving compliance.

The 3D Liveness Detection system verifies live users while protecting them against any unauthorized access due to impersonation attacks. Facia has developed an integrated onboarding system that combines all identity verification processes together with document authentication and screening procedures into one streamlined system, which improves operational efficiency while building trust with customers.

By adopting these solutions, financial institutions can meet regulatory demands, reduce credential-based fraud, and deliver secure, frictionless digital experiences, making passwordless banking not just a strategic advantage but a regulatory imperative.

Stay ahead of global regulations with Facia’s secure, passwordless authentication platform. Book a demo today.