Banking
HOW TRANSPARENCY CAN IMPROVE IDENTITY VERIFICATION FOR BANKS
Published
3 years agoon
By
admin
By Paul Dunphy, Research Scientist for OneSpan
In the Netflix series The Crown, a lead character exclaims: “Who wants transparency when you can have magic?” Magic and transparency can be thought of as different extremes of how large and complex institutions try to win our trust. Typically institutions choose “magic” due to the lack of insight they provide, which means we can only hope that they will act in our interest. We often depend on such institutions – but since we can’t trust magic, we need transparency instead.
Today, technology is providing new transparent approaches to identity verification for banks to improve issues with the customer due diligence phase of onboarding. Aite Group found that abandonment rates for financial account opening processes range between 65 – 95%, depending on the product. If this process is not conducted thoroughly, banks could face regulatory action and costly fines. When re-framing this problem from one that banks must solve individually, to one that banks can solve collectively, then new approaches become possible.
Banks can solve problems in identity verification by sharing a live log of data related to identities that have already been verified. Yet this can be difficult to realise, even in the digital age. Pragmatic challenges such as: tracking master copies; resolving version conflicts; and managing concurrent updates, can create an aversion to this type of arrangement due to the risk to the integrity of those records.
Distributed ledgers (blockchains), can help here. Over the years we’ve learnt that:
- You can choose between 1,000 cryptocurrencies at this very moment
- Programming errors in smart contracts will lead to power struggles amongst those who govern public blockchains.
- Realising a truly decentralised ledger is difficult since centralised power structures naturally emerge.
- People spent $4.5M on an Ethereum-based game about breeding cute kittens
- Permissioned distributed ledgers are more than “just” shared databases
- Creating a global cryptocurrency is difficult for many reasons, including fraud prevention.
Given the attention that distributed ledgers have attracted in recent times, it is inevitable that the first forays into applying transparency to solve identity verification problems have used this technology.
Let’s look at two different approaches to how banks can create transparency by using distributed ledgers.
A Shared Log for Identity Verification
If banks are able to co-operate and maintain a shared log of data relevant to identity verification it can help streamline identity verification. KUBE (Know Your Customer Utility for Banks and Enterprises) is a technology that has been proposed by the Isabel group along with Belfius, BNP Paribas Fortis, ING, and KBC to achieve exactly that.
The technology aims to increase the efficiency of onboarding for business customers through a shared log of identity attributes previously checked by member banks. The technical details of KUBE are not yet clear, but the distributed ledger in the architecture will contribute to consensus between each bank on the latest version of the log, along with assuring the integrity and availability of the data. Once customers are registered in the KUBE system, the identity verification performed with one bank is available to another bank with the consent of the customer, who receives the benefit that they only need to verify their identity once amongst that federation of banks.
In this example, KUBE provides a verifiable and transparent log which creates transparency between banks on the network. But, the customer must rely on KUBE to protect the confidentiality of their personal information.
Decentralised Identity
One other option is to re-envision digital identity completely to place the customer on more of an equal footing with banks. Decentralised Identity (self-sovereign identity) is a model of digital identity whereby a user is equipped with cryptographic techniques to create, self-verify, and own a digital identity that is portable between relying parties. Its constituent components are a trustworthy shared log, public key cryptography, and verifiable credentials (now a W3C standard).
Sovrin is one exemplar of this approach and its technology comprises a public-permissioned distributed ledger based on Hyperledger Indy and cryptographic credentials following the W3C standard. For example, after identity verification the customer is provided with a verifiable credential from that bank, which is stored in an identity wallet on the customer’s mobile device. When the customer onboards with a new bank, they provide that credential along with a decentralised identifier (DID) that they use, and prove their ownership of both using properties of public key cryptography. The receiving bank must then check the validity of the credential on the shared ledger. Thus, identity need only be verified once amongst a federation of institutions and the customer retains control over disclosure of personal information.
This area is one of active investigation; as such, there is no product that is ready-to-go. One crucial challenge that requires research is the relationship between user experience and privacy, since in this model customers will inherit new responsibilities and software to use to manage their privacy.
Privacy is Important
Both examples require privacy for both customers and financial institutions. When designing a shared log for identity verification there might be an inclination to start with a minimum viable product that simply pools the personal information of customers. Pooling the personally identifiable information (PII) of customers creates an attractive honeypot for attackers, and a point in the system design where information can be accidently leaked.
In addition, banks have their own privacy concerns. Clearly, we shouldn’t design a system where banks can conduct surveillance on each other. In the design stage of a technology, we must consider how the benefits of transparency can solve new problems, while at the same time, finding acceptable levels of data confidentiality and privacy.
Closing Thoughts
The value of transparency-enhancing technologies such as trustworthy shared logs are subject to a network effect, which means that the value of an application in the financial industry is tightly coupled with the number of financial institutions that choose to use them. The exciting research direction of the future is to investigate how distributed ledgers and transparency-enhancing techniques more generally, can create new applications in banking, and reduce our need to trust magic.
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Banking
Are SaaS platforms challenging banks for a piece of the payments pie?
Published
3 days agoon
September 26, 2023By
admin
Attributed to: Ralph Dangelmaier, Global CEO of BlueSnap
The finance industry is at a tipping point with software firms on the brink of becoming banks. This may seem like a farfetched idea, but now that software platforms come equipped with payment capabilities, their SME customers may want to receive more financial products from these platforms.
This is part of the wider trend of ‘embedded finance’ – when companies which aren’t banks incorporate financial services such as lending, insurance, and payments into their product.
Software firms are particularly leveraging ‘embedded payments’ – where the ability to accept and process payments comes with the software itself. Think of a school consolidating all the payments a parent would make for their children – tuition, books, extracurricular activities – in one software platform. This trend has exploded in popularity because there’s a desire among companies, and their customers, for everything from products to payments to happen under one roof.
With the market value of embedded payments expected to reach £2.08 trillion by 2026 and customers becoming increasingly married to their software, let’s look at how we ended up at this turning point in payments.
How chasing convenience puts money in platforms’ hands

Ralph Dangelmaier
The growth of embedded payments is propelled by the need for ease, trust, and convenience. As platforms are selling payments hand-in-hand with their software, customers don’t need to integrate with additional service providers just to accept payments. And they’re already bought into using the platform for its other functions.
Not only is this kind of back-end reconciliation easy and convenient but it helps software platforms generate revenue too. That’s because software companies that embed payments become Payment Facilitators (a.k.a PayFacs) – allowing them to monetize transactions that happen within their platform.
By selling payments, software firms can see up to a fivefold increase in value per client. Rather than depending on software subscriptions alone, these platforms now receive a cut of every transaction that’s facilitated using their software too. This provides them and the businesses they serve with a mutual incentive – shared profits.
Software platforms are passionate about helping their customers create the most easy-to-use experience to drive a higher volume of transactions. Of course, there are many ways to launch new revenue streams, but why leave money sitting on the table when all you have to do is become convenience-obsessed?
Why finance teams want software and payments in one
As a payment expert who’s worked in a bank’s back office, I know how important a financial software stack can be. In its highest form, it can steer a business’ entire financial strategy.
Often these stacks are well curated, but the biggest drawback is the manual collection of data across platforms. Trying to build a financial picture of a business using your ERP, CRM, human resource and billing system can involve hours of laborious data entry.
For everyday finance teams, this isn’t an efficient use of time. They need to be able to pull data swiftly to advise their executives on financial strategies. CFOs are also under pressure to choose the right software stack to streamline processes and ensure payments ROI.
That’s why payment technology that removes the manual work for finance teams – to get from A to B more quickly – is growing in popularity.
Software firms using embedded payments are saving them hassle and time. Not only that, it helps the key financial decision makers of SMEs stay in a constant state of financial planning, where they can change their strategy whatever the market conditions may be.
The end of traditional banking for SMEs?
Increasingly, SMEs are struggling to get the payments support they need from traditional banks. The ‘higher risk, lower return’ view of the small business market among banks leaves software platforms in a ripe position for a takeover.
There are over 90,000 software companies in the UK alone. With nearly half of software platforms (48%) turning to embedded payments to gain a source of competitive advantage, this figure could represent a threat to corporate banking as we know it.
SMEs don’t have the deep pockets that multinational businesses have. The Amazons and BMWs of the world have long reaped the benefits of a corporate account with a large bank – and the round the clock support this offers.
But SMEs face high conversion fees and often receive minimal support chasing late payments, leaving them between a rock and a hard place. If these businesses can save money by moving from banks to software platforms, then banks are at risk of losing their position over the middle market.
Looming regulation
Until now banks have been able to defend their position because safety and security is key. Once platforms become regulated, then what? It won’t be long before regulators eye up the software industry as their next big focus.
But regulatory bodies like the FCA, PRA and more favour ‘controlled innovation’, so this will take time.
Currently, to process transactions in Europe, businesses must go down the lengthy and costly process of becoming Payment Service Providers (PSPs). That’s why many software platforms are choosing to partner with a licensed payment provider which sells the payment package to them, instead.
In fact, 89% of software platforms choose to work with PSPs rather than become a PayFac themselves. It makes sense when it’s taken more than a year for some platforms to begin processing payments on their own.
Given the sizable financial risk of processing your own payments and the administrative burden this brings, it’s no wonder software firms are looking to fintech for a better way.
After all, it’s not just about processing the payments. A partnership with a payment technology partner comes complete with support in onboarding, underwriting, compliance, risk, payouts and customer support.
In short, software platforms see the benefits of selling payments and are primed to become the next big financial players.
Not only is there revenue for the taking but their customers benefit as well. With software platforms ready to offer SMEs a banking alternative and a superior customer experience, they’re offering a truly win-win solution for all involved. And it’s payment technology partners that can help them make this vision a reality.
Banking
Emerging technology will power long-term sustainability within the UK banking industry
Published
3 days agoon
September 26, 2023By
admin
By Peter-Jan Van De Venn, VP Global Digital Banking at Hexaware Mobiquity.
Sustainability has been a big focus for the banking industry in recent years, with the issue becoming increasingly important for consumers. It’s no wonder that sustainability has become baked into the purposes of almost every bank, from Natwest to HSBC.
However, the economic uncertainty of the last year has led to many banks putting it on the back burner. Challenging market conditions have forced financial institutions to change their priorities to concentrate on protecting the bottom line. Our research found there’s been a significant drop in the number of UK banks saying that sustainability remains a key business strategy. 12 months ago it was a major priority for 100 per cent of banks, but now that number has shrunk to 60 percent.
Whilst it’s understandable that banks are feeling the pressure at the moment, there’s a risk that they will miss out if they hit the pause button. From cost savings brought by innovative digital products and services, to improved brand reputation and increased profitability, there are a lot of longer-term benefits they could be failing to unlock. So how can they keep moving forward?
Losing momentum
Emerging technology holds the key to their success, with the power to disrupt current behaviours and promote a more sustainable culture. Banks are already aware of this, with 76 percent using digital transformation to drive sustainability, but a lack of leadership has made it difficult to build momentum in the last 12 months. Currently just over half (54 percent) of banks have tasked an executive at board level with overseeing sustainability – way down from 83% just 12 months ago.
This lack of board authority means banks are struggling to engage the entire organisation to move ahead with sustainable initiatives. As a result, almost two-thirds of banks are seeing progress slow, admitting they are not actively taking steps to foster more sustainable behaviours throughout the organisation. Those that have taken their foot off the gas need to find a way to move forward again.
No time for standing still
Banks know that technology can drive sustainable behaviour. For instance, many of them are already encouraging their workforce to work remotely, as a way of reducing travel. This has two benefits – not only does it cut the costs of running physical offices at full capacity, but also reduces the bank’s carbon footprint. There has never been a better time to invest in technology to drive more sustainable behaviours.
New digital products and services can also extend the benefits beyond employees to encompass the wider customer base. A fair number of banks are already investing to make this happen. More than a third (35 percent) of banking organisations are using Machine Learning (ML), Artificial Intelligence (AI), cloud and analytics to make digital services more easily accessible. Investment in these technologies will be critical as the number of physical bank branches continues to decrease, with figures from Which? showing this is taking place at a rate of 54 branch closures each month.
Hitting environmental and social responsibility goals
Emerging technologies can also help banks keep pace with tightening ESG rules and regulations. Banks are faced with demands for increasingly granular reporting and transparency on ESG – demanding a new approach. In line, 41% of them are developing data visualisation tools to improve stakeholder engagement and understanding of ESG risks and opportunities, while 37% are using machine learning and artificial intelligence to identify and track ESG risks and opportunities across a wide range of data sources.
More than one in three are also using the blockchain to improve transparency and traceability in supply chains, and implementing digital tools and platforms to collect, analyse, and report ESG data and metrics in a standardised and consistent manner. All these applications of emerging technology will put banks on track to address global environmental challenges and unlock a greener future.
Long-term sustainability
As the economic pressures hopefully start to subside, increasing numbers of banks will start investigating how they can use emerging technologies to provide engaging experiences and value-added services for customers, to drive greater revenue and efficiencies.
Whilst banks are right to focus on their revenue under difficult trading conditions, it’s important they don’t miss out on the long-term benefits that sustainability can bring. To capitalise on this, banks must keep pushing the boundaries and invest in emerging innovations to drive more sustainable banking behaviours, benefiting the planet and driving great digital experiences for customers.
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