How Do Tariffs Work? Economic Uncertainty from Tariffs Fuels Changes in Banking and Security

Tariffs are often framed as geopolitical chess moves. Tools wielded by governments to protect local industries or pressure trading partners. But in reality, they have ripple effects that reach far beyond international negotiations and balance sheets. Understanding how do tariffs work isn’t just an economics exercise anymore. It’s critical to understanding consumer behavior, trust in digital banking, and the rising importance of identity verification behind the scenes.

First, a Quick Refresher: What Do Tariffs Actually Do?

More Than Just Import Taxes

At their core, tariffs are taxes imposed on imported goods. But they’re not just about raising government revenue. Tariffs are often used as strategic levers to:

Encourage domestic production by making foreign goods more expensive.

Penalize trade partners for perceived unfair practices.

Balance trade deficits.

What That Means for Everyday Consumers

For us, the everyday consumers, tariffs can mean higher prices for a lot of the things we buy, from groceries to electronics. When things cost more, people tend to be more careful about how they spend their money and might become more conservative in their overall financial habits.

If there's talk of tariffs, you might even see some people buying more of certain goods now, worried that the prices will go up later – a behavior some call "doom-spending."  

How Tariffs Shape Financial Habits

When the economy feels shaky because of tariffs, it can really change how people handle their finances.

When Confidence Drops, Caution Rises

According to Lance Surety Bonds Study, 50% of consumers plan to reduce spending due to concerns about employment and inflation.

This usually means they'll hold off on making big purchases, like a new car or a vacation, and instead focus on saving more money, just in case things get tougher. There’s also hesitation around loans and credit cards as households try to avoid debt.

This cautious approach to spending and a focus on saving are common reactions when the economic outlook is unclear.  

The Banking Ripple Effect

Banks might see more people opening savings accounts as they try to build a financial cushion. On the other hand, there might be less demand for new credit lines, like credit cards or loans, as people become more hesitant to take on debt during uncertain times. We might also see a shift towards people wanting more low-maintenance digital banking services, as they prefer to manage their money conveniently from home.  

What Banks Are Seeing on the Ground

Savings Over Spending

Banks often see an uptick in people opening high-yield savings accounts, certificates of deposit (CDs), and money market accounts, as they seek secure ways to manage their finances during uncertain times. CDs, with rates as high as 4.50% APY, offer stability for those willing to lock in funds for a set term. Meanwhile, money market accounts, currently yielding up to 4.46% APY, balance accessibility with competitive returns. These options give consumers a safety net while helping them earn interest as they wait out economic fluctuations.  

Slower Demand for Credit

On the flip side, there's often a slowdown in how many people are applying for credit cards, loans, and even new checking accounts that might be tied to big expenses. The Federal Reserve’s November 2024 survey reveals rejection rates for auto loans and mortgages hit record highs, with lenders tightening standards due to economic volatility. Even creditworthy borrowers face stricter scrutiny, slowing economic activity further.  

Digital-First Expectations

The American Bankers Association notes 68% of Millennials and Gen Z prefer mobile apps for banking, driven by demands for instant access and transparency. Banks without robust digital infrastructure risk losing customers to fintech competitors.  

Security Matters More Than Ever in a Digital-First World

Economic uncertainty creates fertile ground for fraud:

• Synthetic identity fraud: Scammers combine real and fake data to open accounts, costing banks $20 billion annually.
• Account takeovers: Phishing attacks spike as criminals exploit distracted consumers.
• New account fraud: Fraudsters exploit rapid digital onboarding to launder money or steal funds.

To combat this, strong identity verification processes are crucial for banks. Banks need to make sure that the person opening an account or conducting transactions online is really who they say they are.

This helps protect both the bank and its customers from fraud and financial losses.  

What Identity Verification Looks Like (Without the Jargon)

Behind the Scenes at Sign-Up

When you’re opening a new bank account or financial service online, KYC (Know Your Customer) verification is a regulatory must-have, and identity verification (IDV) is a core part of that process. During sign-up, you might be asked to scan a government-issued photo ID, like a driver’s license or passport, using your phone’s camera. Then, a quick selfie helps confirm that you’re the person on that document. These simple steps help verify that a real individual is present and that the submitted credentials are valid. In some cases, knowledge-based authentication, like a few personal security questions, might be added for an extra layer of verification.

Designed for Users, Not Just Systems

Modern identity verification, like what Vouched offers, is designed to be fast and easy for the user. While KYC regulations require thorough identity screening, Vouched keeps the process smooth with fast, intuitive verification flows. Using multiple AI models and real-time data checks, the platform delivers a fraud detection rate of 99.58% — all without overwhelming the user. This balance of compliance and convenience reduces abandonment and ensures trust from the very first interaction.

It’s Not Just About Security — It’s About Trust

Security is important, but it's also about building trust between the bank and its customers.

Making Banking Feel Safer

When people feel confident that their bank is taking steps to protect their data and their money, they're more likely to trust that bank. Transparent security practices, like encryption and consent-based data use, build long-term loyalty.  

Smooth Onboarding = Stronger Relationships

A seamless sign-up process creates a better first impression, especially with customers who might be feeling cautious or who aren't very comfortable with technology. For banks, this translates to higher deposit growth and customer lifetime value.  

Why This Matters Right Now

Whether it's tariffs or other shifts happening around the world, economic uncertainty seems to be a constant factor these days. Banks need to be prepared to adapt to these changing conditions and the way people manage their money as a result.  

While it might not be the most exciting topic, identity verification plays a foundational role in the banking world. It's the behind-the-scenes work that allows banks to grow safely, increase their deposits, and earn the trust of their customers, especially during times of economic change.  

Looking Ahead: What Smart Banks Are Prioritizing

So, what are the key things that forward-thinking banks are focusing on right now?

Digital Infrastructure That Can Flex

• API-first platforms: Integrate verification, fraud detection, and compliance tools without costly IT overhauls.
• Global scalability: Support cross-border customers with multi-language interfaces and localized ID checks.

Quiet Confidence in the Background

In conclusion, tariffs have a significant ripple effect, contributing to economic uncertainty that directly influences the banking sector. As consumers become more cautious, their financial habits shift, leading to changes in banking activity and an increased need for robust security measures.

Strong identity verification and a focus on banking compliance are essential. As well as understanding how tariffs work and impact the economy is crucial now as we look towards the future.
With solutions like Vouched handling identity verification, banks can redirect resources toward personalized services, competitive rates, and community outreach - the pillars of lasting customer trust.

See how Vouched simplifies identity verification and enhances security in a changing financial landscape—request your personalized demo today!