Digital Identity Series - Why the Banks?

Max van de Poll is the Head of Digital Identity at Cybernetica, and responsible for SplitKey, the next generation mobile authentication and digital signing tool for digital government and high value transaction-based organisations. He’s put together a short blog series around digital identity and how to create successful services that benefit everyone, from government to businesses to citizens. Have a read and do engage with comments, arguments for different approaches, and questions.

While the world is on lockdown and we’re all seeing some of the disruptions that a remote life, confined to the digital realm can bring, it seemed appropriate to share some insight into how creating a digital identity for our citizens can limit some of these difficulties. I wanted to dig a little deeper than past posts into some of the challenges we face when implementing such a service, and what steps we can take and considerations we need to make to achieve success. So in this short blog series on digital identity, I’m going to dive into why banks are such an asset when rolling out a digital identity service, why a large user-base is vital and how we can work to build one, what considerations we should be making in terms of technology and our population, and finally, my colleague from Data Exchange Technologies, Tobias Koch, and I each take a look into creating the right environment for digital government to flourish and benefit everyone in society. I start with “Why Banks?”.

If you’ve read other posts I’ve written on creating successful digital identity solutions, then you’ll have seen that I repeatedly push for the involvement of banks. This year seems like a poster child for digital identity and why it’s so important for citizens and customers to have a safe, secure, and convenient method of identifying themselves online, so it seems like a good time to take a bit of a dive and look at why banks are key.

Looking at a few of the foundational aspects of successful digital identity services; trust, valuable, frequently used services, and high population penetration, then we already start to see why banks might be important. So, let’s get stuck in and start with trust.

The banking industry is heavily regulated and more and more, there is a focus on KYC (know your customer) and AML (anti-money laundering). For the banks to avoid offering their services for illegitimate means, they must know who they are offering the services to. This involves gathering enough data on an individual to ensure the customer is who they say they are, and from there, the bank can establish whether this person is low risk enough to work with, i.e. are they unlikely to be involved in terrorism or money laundering. Of course, there is a lot more to KYC and AML, but knowing that the banks risk considerable repercussions if they are found involved in money laundering or financing terrorism is enough for us to know that KYC is taken very seriously within these institutions.

There are few other service providers that must go to the same lengths to know who their customers are, and all of this is so that the government can trust banks to provide their services responsibly. With government trust on one side, we of course have customer trust on the other. The vast majority of us trust banks to protect our money and assets, and trust they will act in line with the law when we borrow large sums of money. Banks are pillars of trust in our society that we all rely on; both government and citizens.

Valuable services.
In order to drive uptake of a digital identity service, people need to have a reason to use it. I’ve talked a lot about how we create a two-sided market when we build a digital identity service, and how banks are key to overcoming that challenge. Digging down a bit, there are a few reasons banks are so useful here. The first is that the top two or three banks in a region or country often serve a significant portion of the population, which I’ll touch on in the next section, but the other reasons are that banks offer a range of services with varying ways to sign up, depending on the level of identity proofing necessary, and, for the most part, banking customers understand that gaining access to their data and money requires a higher level of security than other online services.

The latter two reasons are also important to the bank, which is a bonus when it comes to signing them up to a digital identity service. Opening a bank account, at least with traditional banks, is an in-person activity, just as applying for a mortgage or car loan would be. The reason the individual must present themselves in the flesh is to prove their identity using a government issued identity document. In these scenarios, neither party wants to be there. It’s expensive for the bank to rent the space and have a human sitting there, and of course, for the customer, they’d rather not have to leave the comfort of their own home, park or get public transport, etc. Being able to offer these services online, and replace the in-person identity proofing with remote solutions offers great value to everyone involved. For many, replacing phone or postal interactions with web-based activity is also considered valuable, and again, this means savings for the bank. Because bank accounts, mortgages, loans, etc. can be complex, time consuming tasks, simplifying the process and speeding it up brings a lot of value to the citizen.

Another reason banks offer a smoother start to digital identity services is that regulations are pushing banks in the direction of more secure access and transaction verification technology, which means extra steps when logging in or sending money. But due to the circumstances, customers are likely to understand and accept this, unlike if a streaming service or email client started asking for high assurance authentication every time you wanted to use it. People understand banks are high value targets for attackers, and that they’re protecting huge amounts of assets, and assets belonging to those people, so an extra layer of security is not going to start a mass exodus. A modern digital identity service can actually offer a smoother log-in experience than currently in place for many customers, so there’s a further chance of win-win.

Population penetration.
Digital identity services bring the most value when they are used frequently, and this is true for all involved; the citizen, the government, and all relying parties. Frequent use of the service means a higher percentage of the activity taking place is more secure, i.e. simple online access to accounts or sending small amounts of money, and of course, a lower percentage of the activity is taking place in person, i.e. new accounts, mortgage applications, etc. The latter is where we can better see tangible savings on our books. I write in another post in this series how we need to build a userbase large enough that it enables actual reductions in the in-person service offerings, otherwise we are missing out on some of the largest benefits. As an example, in a report written by Arkwright in 2018, it explained that banks in Norway, Sweden, and Denmark saw reductions in branches of between 20% and 40% due to their digital identity offerings. This would lead to massive savings.

So, we look at banks as major beneficiaries of such a service, but as I mention above, they are of great value because they often serve significant portions of the population. Just taking Barclay’s Bank and Lloyds Bank in the UK, they each have around 22M - 24M customers [1] [2]; around a third of the population each (no doubt, some overlap). But a third of the adult population, that’s likely taking part in society, is a massive group to go after, and if a bank like this can reduce the number of times their customer base needs to call, receive or send mail, or physically show up at a branch, they win. But those customers win as well, because that group, through being a customer of that bank, can now interact with their government in a similar way, as well as tens of other businesses like insurance companies, rental agencies, and telcos. And the government and these businesses also benefit, as each of these businesses need to know who their customers are, and very often require in-person, postal, or phone interactions to set up an account or purchase valuable services.

In order to achieve strong population penetration, which brings value to the digital identity service, there must be value in that service to begin with. Without trust, it’s hard to offer long term value, and can be very difficult to build a customer base and set of valuable services. As you can see, these three attributes are closely linked, and need to come together at the same time. Just like with fire, we need oxygen, heat, and fuel, and without any one of these, we’ll struggle to ignite a successful service. So, we look to banks, which by their nature and the industry they’re in, bring trust and value. Going after the right banks brings a large user-base, and together, we can build a solution that benefits banks, government, and society in general. Digital identity truly does offer a genuine win-win.

Written by Max van de Poll

[1] Barclay’s UK Performance Review 2017
[2] Fast Facts about Lloyds Banking Group