Banks can play a key role in the development of a federated digital identity solution that can then be used not only for banking but for all sectors, on all devices and over all channels. After all, banks have demonstrated that they can provide very robust online identity. What is also very important: they already have the KYC data and the trust of the customers. Indeed, surveys show that banks would be the preferred trust partner for consumers and corporations.
This is a good starting point for banks as customers rightly complain about today's fragmented, outdated identification methods such as passwords and security questions and yearn for harmonized, safer and easier ways to identify themselves online.
Consumers are nowadays looking for interoperable, convenient authentication solutions so that they can identify themselves in the same way in all of Europe at all sorts of providers and around the world. I, for example, bank with a German bank but would like to re-use the authentication I am used to. Let my bank verify me when I renew my driver’s license at home, rent a bicycle in the Netherlands, buy a musical ticket for London or ideally even when I check in to my hotel in New York.
Of course, banks are not the only ones vying to provide identity services. But instead of leaving the topic to Google and Facebook, who are pushing very hard to identify everyone everywhere, maybe a federated solution which allows banks, mobile phone organizations, governments to bring in their assets in a connected, federated way is the way forward. Especially if banks and fintechs work together to provide such a federated, interoperable, convenient solution across borders then all will benefit. Banks can re-use their KYC data to retain trust relationships with their clients (and for new revenue streams), consumers get a safer and more convenient online experience, merchants have less cart abandonments and less fraud.
Learning from history, we saw that in payments, banks initially focused on the national markets with little pan-European collaboration. Because “there is no business case for cross-border payments”, the market for pan-European, even global solutions, was left open to American card schemes and e-payment solutions such as PayPal. Banks should prevent history from repeating itself. This is possible when banks, together with fintechs, build borderless digital identity solutions based on an open framework with pan-European and even global aim.
Opening up the current silo approach
To do this, we need to open up the current silo approach, because today we are again building ever more silos, this time for identity. At best, a big bank will collect an insurer, a merchant or two, a media organization and a few other players and optimistically offer “identity for everyone” in the hope that others will join their initiative. However, the other big bank will have partnered with its own favorite merchant and own other players and will likely not abandon its own initiative. Thus, we are again building a landscape of silos across Europe (there are 23 identity solutions in Germany alone) with everyone hoping - vainly – that the others will join their own initiative.
These silos do not communicate with each other, so users have to enter their personal information every time they register for a new service. This is inconvenient for consumers and merchants and causes dangerous proliferation of personal data.
Let us instead work on an open framework which allows all banks, all telecommunications organizations and others to work together in a seamless, federated way. There are many standards (OpenID, FIDO), architectures (identity brokers, n-corner models, etc., that have enabled seamless worldwide payments) and technologies (biometrics, token, data) that allow federated, convenient, safe identity to be realized across industries and across borders.
This overarching digital identity platform will be easily adoptable by other sectors and countries. It will work on all devices and across all channels - just like banking. This is why the introduction of an open standards-based architecture that defines how service providers exchange data with banks and other identity providers in a secure and standardized way is surely the way forward. Open standards enable secure interoperability between different organizations and identity systems.
This way of working is not new to banks. They already use open standards now that data is made available to third parties via APIs as part of the PSD2. Abandoning the silo approach is a good first step, but the creation of an open standards-based architecture gives the development of a federated digital identity the needed boost. After that, banks might take back more control in the world of payment-related services, the most urgent now being digital identity. Identity is bigger than payments and should now be high on the strategic agenda.