Digital Identity Moves Up the Agenda

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29 September 2021

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Jonathan Davies

Tech Market View

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As the impact of the pandemic has fuelled an explosion in online commerce and firms seeking to transact business remotely, the need for streamlined, secure customer onboarding has been a particular challenge within the financial services industry. Despite a longstanding recognition of the problems relating to this issue, it has still not been resolved satisfactorily.

At the height of “lockdown”, the failings of some of the major banks in this regard were particularly badly exposed. The inability of these institutions to service prospective new customers effectively will inevitably have impacted their competitive position in respect of valuable new business opportunities. However, the need for a solution goes much wider.

A key element of the challenge relates to the understandable but stringent requirements around the verification and screening of new customers. The regulations around Know Your Customer (KYC) and Anti-Money Laundering (AML) put the onus on financial institutions to ensure that detailed checks are carried out before any individual or entity can have access to the financial system. These rules are taken very seriously by the regulators and sanctions for compliance failures in these areas can be significant.

Meanwhile, open banking is helping to transform the provision of services via an ecosystem of innovative providers utilising open APIs and real-time dataflows. This approach has changed how providers engage with customers and partners and has significantly increased the variety of offerings available. Despite the name, the impact is not restricted to the banking sector. Access to retail bank data flows is giving rise to a multitude of opportunities across the value chain.

The Open Banking Implementation Entity “OBIE”, (created by the Competition and Markets Authority to fuel competition and innovation in retail banking) has highlighted a significant upturn in activity in the face of the pandemic. Recent figures show that, since the advent of COVID-19, UK consumers have been signing up for online banking services at a rate of around 160,000 per month.

Lockdowns have led to heightened interest in the digital identity space and there has been increased activity in this market over recent months with a variety of independent solutions coming to market. Meanwhile, the UK government has been progressing a framework to enable and certify private sector solutions and is currently engaged in a consultation exercise in preparation for legislating on this topic. The full consultation published in July is open to any member of the public and closes on 13 September.

Against this backdrop, UK-based startup, Digital Identity Net (DIN), is on a  fundraising exercise as it seeks to grow the footprint of its own online verification solution. Off the back of this cash call, I caught up with the folks at Digital Identity Net to learn more about the company’s offering and approach, fundamental to which is a social purpose that positions financial inclusion at the heart of the Digital Identity Net’s proposition.

The primary offering, OneID®, is a digital identity service that utilises open banking data to connect consumers, banks and businesses to provide verified online proof that individuals are who they claim to be. With user consent, OneID shares bank identity information with other parties and is free for consumers at the point of use. Merchants pay a fee for each verification provided, with the revenue generated shared with the bank or other data supplier.

Led by Martin Wilson, CEO, (formerly Head of Payments Change at RBS/NatWest) Digital Identity Net utilises open banking dataflows and is an Financial Conduct Authority-registered Account Information Service Provider (AISP). Wilson and DIN are a particularly interesting proposition. In part this is because of the simplicity and security of the DIN approach, which uses pre-existing data and does not require the creation of a new ‘digital identity’ or for the customer to download a new app or scan any identity documents; customers use the banking app that is already on their mobile. In light of the importance of the KYC rules, the approach of the banks to identity verification is extremely robust. Whilst other commercial propositions typically look to an ancillary technology or process, the elegant approach of using an existing one has obvious appeal.

Banks are required to utilise trusted source data based on original documents that include photographic ID, proof of date of birth and proof of address when verifying a new accountholder’s identity. The initial screening process also incorporates other checks such as CDD (Customer Due Diligence) a longer process that incorporates checks for known criminals and PEPs (Politically Exposed Persons). Both KYC and CDD are, in turn, crucial aspects of AML compliance. Regulated firms are required to verify the identity of all applicants and thoroughly vet new customers to help control financial crime and comply with international sanctions.

DIN is also worthy of note because of the knowledge and experience that the company’s CEO brings to the table from his role as Chief Commercial Officer of the VOCALINK network (another important financial services utility). With a widely available, universally accepted method for verification being the key to enabling a prosperous digital future for the UK, Wilson and his team at DIN are operating at an exciting intersection between recognising this need for online identity verification and the potential for Open Banking to provide a simple yet sophisticated solution. With stakeholders from all angles acknowledging the importance of such a service, DIN seem to be stood at the start line of a very exciting opportunity.

Original source: Tech Market View

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