On the usefulness of passwords

In his new entry The Curse of the Secret Question, Bruce Schneier offers some very interesting reflections on the security offered by passwords and the ‘secret questions’ that many sites use to identify a customer that has lost his password. He summarizes:

Passwords have reached the end of their useful life. Today, they only work for low-security applications. The secret question is just one manifestation of that fact.

Bruce talks about calling the customer service and proving his identity to them in some way. I had to do this with my bank too, once when I misstyped my password thrice. They connected me to their “security department” where they nicely asked me for data such as my ID number, my address and my birth date. In short, it was the telephone version of the “secret question”.

I just wonder, what other alternatives do we have? I fear that we do not have a better idea than passwords, yet.