Why Banks Are Losing $34B to Identity Gaps — Lessons for Identity Providers

Why banks are losing $34B to identity gaps — and what identity providers must change in 2026

Hook: If your product roadmap still treats identity verification as a single-call API, your customers — banks and fintechs — are quietly losing millions. PYMNTS and Trulioo’s January 2026 report calculates a staggering $34 billion annual shortfall for financial institutions that overestimate their identity defenses. For identity vendors this is an urgent product and technical opportunity: close the gaps or watch customers migrate away.

Quick takeaway

Identity vendors must evolve from isolated verification endpoints into layered, continuous, privacy-first identity platforms that combine real-time risk modeling, bot-and-agent defenses, identity graphing, regional compliance controls, and developer-friendly SDKs and pricing. Below are concrete, prioritized improvements you can add to product roadmaps in 2026.

From the report: "When 'Good Enough' Isn't Enough: Digital Identity Verification in the Age of Bots and Agents" (PYMNTS + Trulioo, Jan 2026) — banks overestimate their identity controls and face large, avoidable fraud loss.

What the $34B number means for identity vendors

The headline — $34B — is more than a PR stat. It signals three immediate realities for identity product teams:

• Buyers urgently need coverage for advanced attacks: synthetic identity, account takeover, API harvesting, sophisticated bots and autonomous agents.
• Legacy single-touch KYC checks (document & DB lookups) are insufficient — buyers need continuous identity assurance across the customer lifecycle.
• Cost pressure forces buyers to prefer vendors who reduce false positives and operational friction while improving fraud economics (lower chargebacks, fewer manual reviews).

Top technical and product improvements, prioritized

Below are practical, ordered recommendations you can put in your product roadmap this quarter-to-year. Each item includes technical considerations, developer-facing features, and metrics to measure success.

1. Real-time, session-aware risk modeling (priority: immediate)

Fix the “single-call verification” problem by moving to session-aware risk scoring. Provide a continuous risk score at session, device, and identity levels that updates as signals change.

• Technical: Ingest event streams (webhooks, SDK events) into a low-latency feature store. Use online ML or streaming rules to compute a session score in <100ms. See the Edge Identity Signals playbook for operational patterns.
• Product: Expose a /v1/risk/score API, SDK events for browsers and native apps, and webhook callbacks for score changes.
• Success metrics: reduction in false positives, % decrease in SAR/manual reviews, improved conversion rate at onboarding.

2. Bot & agent detection hardened for 2026 AI threats (priority: immediate)

PYMNTS/Trulioo call-out of “bots and agents” must guide you to invest more in anti-automation. AI-driven agents now mimic human input and bypass old heuristics.

• Technical: Combine behavioral telemetry (keystroke dynamics, pointer entropy), headless browser fingerprinting, and challenge-response flows (invisible and stepped). Add ML models trained on synthetic agent datasets generated in-house. Consider guidance from vendor playbooks on hardening desktop agents.
• Product: Provide an explicit bot-confidence score and automated challenge orchestration (e.g., invisible reCAPTCHA alternative, dynamic micro-challenges that don’t hurt UX).
• Developer ergonomics: Offer an SDK toggle to raise challenge aggressiveness per risk profile.

3. Identity graph and synthetic identity detection (priority: short-term)

Synthetic identity detection is largely a graph problem — linking email, phone, device, SSN/ID hashes, and behavioral vectors reveals suspicious clusters.

• Technical: Build a privacy-preserving identity graph using hashed identifiers, graph ML (GNNs) for link prediction, and time-series analysis for velocity anomalies. See approaches for privacy-first matching in the collaborative/edge playbook.
• Product: Surface graph relationships in the dashboard, provide explainability (why a profile is linked), and allow customers to create shareable signals or denylists.
• Success metrics: decreased synthetic identity acceptance rate, % fraudulent volume detected earlier in lifecycle.

4. Continuous KYC and adaptive step-up (priority: short-term)

KYC isn’t a one-time checkbox. Provide continuous KYC monitoring, auto-triggered re-verification at risk thresholds, and adaptive step-up flows that preserve conversion.

• Technical: Maintain identity state machines and retention policies per region; implement out-of-band re-verification via SMS/biometric challenge when risk rises.
• Product: Expose policy engine UI and API so banks can define triggers (balance changes, device anomalies, transaction velocity) for re-KYC.

5. Privacy-first design & regional data controls (priority: immediate)

Regulatory scrutiny has increased in late 2025 and early 2026. Buyers need clear data residency options, subject access handling, and minimized data exposure.

• Technical: Provide region-aware ingestion, encrypted-at-rest keys per region, and data retention APIs that enforce purpose-limited retention.
• Product: Add GDPR/CPRA/other-regional compliance toggles, data export for DSARs, and privacy-preserving match modes (e.g., differential privacy, Bloom-filter matching).

6. Developer-first integrations: SDKs, domain routing, and observability (priority: immediate)

Friction at integration is a chief reason banks choose incumbent solutions. Ship world-class SDKs and observability to lower TTV (time-to-value).

• What's required:
  • Native mobile SDKs (iOS/Android), lightweight JS web SDKs, and server SDKs in Java, Node, Python, Go.
  • Clear documentation, API contracts, Postman collections, and sandbox environments with seeded test data that reflect 2026 attack patterns.
  • Support for domain routing and DNS best practices for webhooks (e.g., TLS certificate pinning, automatic DKIM/DMARC for notification emails).
• Observability: Provide per-transaction traces, latency SLAs, and fraud telemetry that plugs into customers' SIEMs and observability stacks (see observability playbooks).

7. Pricing and packaging that reflect risk economics (priority: next quarter)

Legacy per-API-call pricing disincentivizes continuous signals. Introduce pricing that aligns incentives.

• Options:
  • Subscription + usage: base subscription for platform, usage for high-fidelity signals.
  • Risk-based pricing: charge per-risk-evaluation or per-decision rather than per-verification.
  • Marketplace models: offer SDK modules or analytics add-ons via a marketplace for integrators.
• Why it helps: Aligns vendor revenue with buyer outcomes — lower fraud and fewer manual reviews reduce total cost of ownership.

Developer-friendly API example: risk score call

Make it easy for teams to implement session-aware scoring. Example curl and Node.js snippets show expected payload and response for a real-time risk call.

curl -X POST https://api.your-idp.com/v1/risk/score \
  -H "Authorization: Bearer $API_KEY" \
  -H "Content-Type: application/json" \
  -d '{
    "session_id":"sess_12345",
    "event":{
      "type":"login_attempt",
      "timestamp":"2026-01-15T12:34:56Z",
      "ip":"203.0.113.45",
      "user_agent":"Mozilla/5.0 ...",
      "device_fingerprint":"dfp_abc123",
      "behavioral_signals":{"keystroke_entropy":0.12}
    },
    "identity_hashes":{"email_sha256":"...","phone_sha256":"..."}
  }'

# response
{
  "risk_score":0.87,
  "bot_confidence":0.66,
  "labels":["high_velocity_ip","synthetic_linked"],
  "recommended_action":"challenge_biometric",
  "explainability":{"top_signals":["ip_velocity","graph_links"]}
}

Provide library wrappers that return typed objects and built-in retry/backoff for reliability.

Operational & compliance features buyers asked for in 2026

Late 2025 and early 2026 conversations with enterprise buyers reveal a short list of operational must-haves:

• ISO27001, SOC2 Type II — baseline certifications.
• Regional data residency and customer-selectable retention windows.
• Explainability dashboards and audit trails for regulators and auditors.
• Sandbox datasets that reflect modern attack vectors for internal red-team testing.
• SLAs for uptime and fraud-detection latency (critical for live payments and trading platforms).

Case study (hypothetical, tactical)

Bank A — a mid-sized European bank — faced rising account-opening fraud despite robust document checks. They integrated a layered identity platform that provided:

• Session-aware risk scoring with a bot-confidence signal.
• Identity graphing that revealed cohorts of synthetic identities sharing device proxies and phone number reuse.
• Adaptive step-up: low-friction onboarding with invisible challenges at low risk, biometric step-up only at high risk.

Result (90 days): 38% drop in accepted synthetic identities, 27% decrease in manual review volume, and improved conversion at onboarding. The bank estimated a five-month payback on integration costs.

How to prioritize your product roadmap (practical checklist)

Use this checklist to convert the report’s findings into an actionable roadmap:

1. Instrument: Release SDKs for session telemetry within 30 days.
2. Score: Launch a streaming risk engine (beta) within 60–90 days.
3. Detect: Add bot/agent models and expose a bot-confidence signal in Q2 2026.
4. Graph: Build identity graphing and synthetic-detection capabilities by Q3 2026.
5. Comply: Offer region-specific data residency controls and DSAR tools by Q3 2026.
6. Price: Pilot risk-based pricing with two enterprise customers by Q4 2026.

Sales & GTM implications — how to talk to banks

When engaging banks and fintechs, position your product around outcome economics, not features.

• Lead with measurable outcomes: reduction in accepted fraud, fewer manual reviews, improved onboarding conversion.
• Use the PYMNTS/Trulioo $34B stat to frame urgency, but follow with customer-specific ROI models (per 10M accounts how much can be saved?).
• Offer free red-team sessions and a sandbox with attack scenarios to demonstrate detection capabilities.

Future predictions for identity services (2026–2028)

Based on current trends, expect these shifts through 2028:

• Verifiable credentials and national wallets will be mainstream for onboarding in many regions. Identity platforms must accept and validate signed credentials.
• Privacy-preserving cross-entity intelligence: Federated models and MPC/Bloom filters will let vendors perform collaborative fraud detection without raw data sharing.
• AI agents will magnify attack surface: vendors must continuously retrain bot detectors with synthetic agent datasets and offer adversarial testing tools.
• Risk-based SLAs: buyers will demand SLAs tied to fraud reduction outcomes rather than pure uptime.

Actionable next steps for product teams (immediate)

• Run a 30-day telemetry audit: measure how many customers send session-level signals and where gaps exist.
• Blueprint a streaming risk engine and allocate capacity to build it within 90 days.
• Prototype a bot-detection model using internal red-team data and deploy it as an opt-in feature for key accounts.
• Revisit pricing: design a pilot risk-based pricing tier for one strategic bank customer.

Final word

PYMNTS and Trulioo’s finding — that banks overestimate their identity controls to the tune of $34B — is a market-level call-to-action for identity vendors. The opportunity is not incremental; it’s transformational. Vendors that re-architect for continuous assurance, invest in bot-and-agent defenses, build privacy-first identity graphs, and align pricing with buyer outcomes will capture the higher-value enterprise deals and materially reduce the financial services sector’s exposure to identity gaps.

Call to action: If you’re product-leading an identity platform, start a 30-day gap assessment this week. Need a checklist and integration templates built for banks and fintechs? Contact us to download a ready-to-run 90-day roadmap and sample API SDKs tailored for financial services.

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