Digital Identity Moves Up the Agenda

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 inevitably will have impacted their competitive position in respect of valuable new business opportunities (see: Customer onboarding in retail banking). 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.

Banks are required to use trusted source data based on original documents that include photographic ID and proof of address and date of birth when verifying a new accountholder’s identity. The initial screening also incorporates other processes such as CDD (Customer Due Diligence) that includes 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.

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 this year 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 team at DIN 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 DIN proposition.

DIN 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) DIN utilises open banking dataflows and is an FCA-registered Account Information Service Provider (AISP). DIN is an interesting proposition, in part because of the simplicity and security of the approach. DIN uses pre-existing bank verification data and does not require the creation of a new ‘digital identity’ or additional data siloes. In light of the importance of the KYC rules, identity verification within banking is extremely robust. Whilst other commercial propositions typically look to an ancillary technology or process, the simplicity of using an existing one has obvious appeal.

DIN is perhaps particularly worthy of note because of the knowledge and experience that the company’s CEO brings from his role as Chief Commercial Officer of the VOCALINK network (another important financial services utility). With increasing recognition of the need for a single, universally accepted standard for verification, the ability of Wilson and his team to successfully navigate the ecosystem and collaborate with multiple stakeholders could be crucial to DIN’s success. Indeed, this may prove just as vital as DIN’s potential to provide a straightforward solution that is nevertheless sophisticated in terms of its security provisions.

Posted by Jon C Davies at '08:42'