Banks could become Identity brokers to spur innovation and to create Banking Apps market place

Banks could become identity brokers by analyzing and using the information they know about their clients, and giving that insight over to customers or other vendors for specific products and services, like insurance, and creditworthiness.

There is a significant behavioral gap between the consumer and the institution— one that is now being filled rapidly by better-positioned non-bank competitors like PayPal, Square, Apple, Starbucks, P2P lenders and many more. Banks need to consider and support an identity driven architecture and business model to open its services and to support Apps market place that banks could offer to customers that will protect their digital identities against fraudulent activity, stay compliant and can push innovations to the edge.

The growth in person-to-person (P2P) lending seems to be successfully coordinating lenders and borrowers via the Internet rather than through institutions. The great success of global P2P business models, has fueled successful OZ start-ups like Society One.

A recent Australian Financial review article states “Moguls take on power of big banks”: James Parker and Ryan Stokes have described peer to peer lending as a global force triggering a transformation of banking as they back Sydney start-up SocietyOne to eat into the profits and margins of major Banks. “Unlike many sectors, banking is an area that has been largely undisputed”.

If the regulation of payments and the regulation of banking diverge, with a lighter touch for payments in contrast to the well-understood demands for tighter regulation in the banking sector, it seems very likely that the business of banking and the business of payments will separate too. We will get a vigorous and innovative payment sector. Banks will be more tightly regulated because they create money by lending. Anyway with P2P lending they will get squeezed too.

P2P lending seems to be successfully coordinating lenders and borrowers via the Internet rather than through institutions. Identity and Credit verification has been a very important process supported by GreenID and Veda. It also enables companies in meeting statutory obligations, including the Anti-Money Laundering and Counter-Terrorism Financing Act.

Today, nearly 20% of Kenya’s gross domestic product moves through M-PESA, the nation’s mobile-money system operated by Safaricom, its leading mobile network. Kenya’s bank regulators did not intervene to stop a mobile operator from offering financial services. In the case of M-PESA, for example, users must be in the presence of one of the system’s agents to send or receive money. It’s the agent who verifies the user’s identity, makes a record of the transaction, and holds the cash involved. Most M-PESA outlets (an agent may have more than one) handle 50 to 100 transactions a day. In many nations, however, methods to create profits at scale have not been worked out. Instead, providers have rushed to sign up agents without paying enough attention to the skills needed for success or to the business case for local stores and traders to participate.

Another disruptive space is NFC AND mobile payments, a key goal for banks moving into the mobile-money space would be simply to get more customers to use mobile, which in turn will spur more businesses to accept it. Retailers, meanwhile, see everything a customer does with them, “but banks, through the credit card, through the transaction history, see everything the customer does with everybody,”. This offers banks an opportunity to develop “a more comprehensive profile of who their customers are and what they’re doing” in order to provide tailored products and services.

Banks and other financial services firms are currently required to verify an individual by using government-issued, paper-based credentials such as a passport or drivers license.

It is imperative for Banks to consider Identity as part of their digital strategy to retain and expand customer base, to build brand loyalty, in building a successful Apps market place and in providing the right incentives to the right people. A new thinking about Identity is required to support this App, API and Authentication paradigm.

— Consider Identity as part of the Digital strategy & in building an ecosystem, e.g. How NZ Banks leverage RealMe initiative
— Embrace Digital Identity & national federated digital identity services to reduce fraud and paper based manual verification
— Consider Identity while creating an App market place strategy and in building an App store review process to to allow only genuine & 3rd party reviews
— Improve user experience and reduce customer churn rate across all channels by using OAuth and OpenID connect
— Allow partner, suppliers and app developer to bring their own Identity
— Provide delegated administrator control to Enterprise customers, so that they create Apps and APIs for their organization & partners federating their own Identity and policy store (similar to how Google Apps and SalesForce exposes Apps and APIs for other businesses)
— Allow App mash up with effective Identity & authorization delegation

Identity management is a major growth area in today’s digital economy and for Banking segment. Identity can be used to boost the Apps and roll out various mobile payment initiatives. Identity verification to reduce fraud, roll out mobile payment
In a space where trust and privacy are paramount, RealMe has been a powerful advance for New Zealand Post in its digital service offerings. Many NZ Banks allowing customers to access a wide range of products and services completely online leveraging RealMe.

RealMe® does two key jobs. It gives you a single login to multiple online services, and, if you upgrade to a verified RealMe account, it also works as your online ID. This technology allows an identity architecture with privacy as the core of it.
RealMe1

RealMe

How does it help NZ Post & local Banking industry

—- Helps boost retail traffic to Post shops
—- Increase services portfolio
—- Customer retention
—- Digital long tail revenue from business services
—- Multi channel & Trusted services
—- Allows Banks to offer services completely online without involving Branch staff for Identity verification

Each of these identities may have attached to it one or more attributes that come from a variety of Attribute Providers (APs). The NZ POst might be the preferred provider of the ‘address’ attribute. My bank identity and my travel identity might both use this same attribute. An identity and one or more attributes are bound together in digital certificates, and it is these certificates that are passed around to support transactions.

Australian Government has also initiated similar Identity related government initiatives e.g. Vanguard Government Authentication service and MyGov, although primarily focused in public sector. The Document Verification Service (DVS) is one of the key initiatives of of Australian Governments’ National Identity Security Strategy and allows verification of birth, marriage, citizenship certificates, driver licences, Medicare cards, passports
visas etc.

Identity would be key for banks to work with 3rd party vendors to integrate various core Banking services and products as well as mobile payment services provided by others or white-labeled from others. The ambitious Banks may look to develop mobile wallets with integrated loyalty, promotions, vouchers and other services to enhance the shopping experience for customers and merchants in ways we can’t even imagine yet.

For example, Property exchange Australia has created a secure online platform where property transactions can now be performed and that allows Land Registries, Financial Institutions, Property Lawyers and Conveyancers to transact together, online. Pexa has automated Identity verification using by Australia Post and ZipID and integrated the e-conveyancing system with Australia’s major banks . It uses Banks functionality to complete single-party transactions such as new mortgages, mortgage discharges as well as refinancing online rather than through the traditional paper channel.

Recent Murray review is quite timely and Commonwealth Bank has already endorsed the report by FSI panel for a national digital identity, and said the report is a “significant milestone for the industry” and commended the process for being “wide-ranging and consultative”. Find out more here >>>

by

A Business and Technology executive with a proven track record of delivering innovative and successful business outcomes in challenging circumstances.

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2 Responses so far.

  1. Adrian Slade says:

    Excellent article, can I re-post this on my blog: http://www.securiam.wordpress – I have been a bit lazy of late…

    The post does hit a few area’s that I have been thinking about, one of those is the chief demand for idP services right now is to secure credit card transactions. I see opportunity for the banks to de-risk (reduce cost) the online retailer > merchant > card provider chain! I believe there is the opportunity to lower APR rates by deploying such services to reduce underwriting costs – so attracting more customers.

    There has to some financial carrot to stand up and host these services! The secure idP services that I am aware of are mostly funded by government because the business cases are not there… Yet! IDA (UK) FCCX (US) and ‘RealMe’ mentioned in the post above mostly have dependence on the national postal services.

    Some may raise objections on the privacy aspect, but is important to remember banks would only assert assurance for one’s financial transactions – and they all ready have that.

    Banks may not be the first to stand up consumer idP – too risk averse – but I can see them partnering with an entity providing secure consumer idP to provide that financial assurance piece – maybe a mobile operator (OneAPI) or even the likes of a LinkedIn.

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