Banks Want to Own and Control Identity & Authentication Systems [Global Trend]

The increasing focus on digital services that businesses and institutions provide has created a growing need for certainty about the identity of their online customers and users. There are several parties involved in the process of providing a financial service to a single customer, starting with the government, banks and alternative providers, the customer himself, authentication service providers and other organizations that are involved in a monetary relationship with a person. All involved parties have the same concern when it comes to providing a digital service involving money transactions: security. To ensure a customer’s and the organization’s security, there's a necessity for a reliable identity verification through the digital channel. It is a matter of time when financial institutions and governmental organizations will come to a point where they join hands to smoothen the digital experience of a customer and service user without compromising security. A unified digital identity is certainly a growing cross-industry trend. Taking a step back, let's take a look at some benefits a unified digital identity can provide to each involved party.

What does this mean for the governments, service providers, consumers and banks?

Innopay—a professional consultancy focusing on payments, digital identity and e-business—explains the value of a unified customer digital profile for all stakeholders involved in utilizing it. The benefit for the service providers mentioned by Innopay is the fact that consumers do not have to fill out forms required to sign up for an account. Even if a consumer has never visited a website before, he will be able to login instantly. This means conversion processes can be optimized further, leading to higher revenues.

For the cooperating banks behind the service, it means a new way to leverage existing capabilities while gaining more relevance and visibility with their customers. For the banking sector and the rest of the world, this new service might be seen as an inspiration to develop new interbank identification and authentication products.

Moving from the background to particular examples, there are two interesting ones happening in the US and Netherlands which are worth mentioning.

In April Early Warning acquired Authentify Inc. Founded in 1999, Authentify is a leading player in phone-based, multi-factor authentication solutions. Last year Payfone, a provider of mobile security solutions partnered with Early Warning. The partnership brought Payfone's Identity Certainty platform to banks looking for better ways to authenticate customers with mobile.

In a joint statement, the CEOs of Bank of America, BB&T, Capital One, JPMorgan Chase, US Bank and Wells Fargo said, Our customers want the ability to make payments to anyone, in real time, making funds instantly available in the recipient’s bank account. To achieve this, we are combining our collective, bank-owned digital payments network (clearXchange) with our fraud, risk and authentication assets (Early Warning) to further ensure that our customers can send money, confidently, securely and in real time via their financial institutions.

Commenting on the acquisition, Paul Finch, CEO of Early Warning, said, With this acquisition, Early Warning is bringing together immediate funds availability, integrated authentication and fraud management capabilities into a single platform. The resulting security, reliability and consistency among financial institution payment services will provide a required catalyst to advance real-time payments.

Another important example: Dutch banks. The growing attention and usage of digital services has led Dutch banks to join hands in launching a pilot for a new interbank digital identity service in 2016. The service will allow a customer with an online banking account in the Netherlands to login to commercial and government service providers’ websites without the need for maintaining multiple accounts.

The banks will be collaborating through the Dutch Payments Association and will be working with Innopay on a pilot which will go live next year and let participating customers use their online banking details to access services from the Dutch tax authority and an insurance company. The association particularly emphasized that no banking details such as account balance or payment details are exchanged.

For consumers, Web merchants, governments and banks, the new service is a significant step forward. Online banking is widely accessible to the vast majority of the consumers in the Netherlands. Therefore, the new service will have almost full reach within the Dutch market. This makes it instantly attractive for commercial and government service providers.

Innopay shared the news on participating in the pilot launch on its official website. The company specified that the service is based on the user experience and technology of the hugely popular Dutch payment product iDEAL. The service will offer two main services that always require the explicit consent of the consumer:

  • To allow identification and authentication of a consumer based on credentials issued by a consumer bank
  • To provide verified personal attributes of an authenticated consumer from the bank’s administration.

With the reach and level of assurance that the service can provide for the government, digital identity service can become a valuable addition to the Dutch government’s Idensys scheme (previously eID scheme).

As described in the official statement of the Dutch Payments Association, Those customers who will opt in for a service will have to give consent to their bank to hand over personal data to the bank's partners. Each partner organization may request a different set of data on the customer. For example, the bank may ask for a customer’s approval on behalf of one partner company to pass on information about the name and address while another partner will request the date of birth. After the experiences of consumers and organizations in this trial are evaluated by the Payments Association, the joint service of the banks will be offered in the broader market.

Suggesting the next steps, Innopay assumes that for the cooperating banks—probably inspired by the comparable Scandinavian examples like BankID (Norway, Sweden) and Tupas (Finland)—it means the opportunity to include other comparable services, such as signing/contracting or the provisioning of additional attributes.

About the Dutch Payments Association:

The Dutch Payments Association organizes the collective tasks in the national payment system for its members. Its members are providers of payment services: banks, payment institutions and electronic money institutions. The Payments Association’s responsibilities lie in the areas of infrastructure, standards and shared product features. The Dutch Payments Association seeks to ensure a socially efficient, safe and reliable payment system. This requires accessibility, openness and transparency of its organization. To learn more, click here.