FinTech’s Greatest Challenge – Identity & Trust in a Data Economy
As humans, we were born to trust and form social connections. When we enter the world, within an hour we will draw our heads to seek the eyes or face of the person gazing at us. The Oxford Dictionary defines trust as “a firm belief in the reliability, truth, ability, or strength of someone or something”. This means trust is a form of nurturance – the parent-child bond, community cooperation and other social connections.
At the same time, trust is also the lubricant that greases the wheels of our economy, making the trillions of everyday transactions possible around the globe – between strangers, organizations and businesses.
The biggest hurdle to trust and financial inclusion is the moving of personal information around the planet. Fundamentally, the data exists for us to build trust – between companies and people, and people and people, but leveraging that in a privacy-centric way that enhances society as a whole makes this delicate balancing act a key barrier to financial inclusion. The key question is – how do we build trust online to enable financial inclusion and how do we do that with information in today’s environment where trust is all too fleeting?
In Dodd (Frank) We Trust
The essence of our sharing economy is steeped in a framework of trust. From Uber driver and rider ratings, Airbnb hosts and guest ratings, to Yelp business ratings. But in corporate America, trust has descended to an all time low in the last couple of decades. The Enron scandal and the worst upheaval in the global economy since the Great Depression shook trust in bedrock financial corporations and the agencies that were supposed to regulate them.
Post 2008 economic meltdown, policy makers knew they had to tighten the restrictions on financial institutions. Since then, over $235 billion in fines have been levied, new laws such as Dodd-Frank Act was enacted, and rigorous compliance rules are increasing the breadth and depth of data reporting, aggregation, and analysis. From almost no oversight 20 years ago, and within 10 years, the bar was raised so high that it almost slowed industries to a grinding halt.
Building a Layer of Trust for the Unbanked
For businesses, figuring out who is trustworthy is a minefield to navigate. Businesses have a battle on multiple fronts – preventing suspicious transactions or fraud from entering their system, meeting compliance obligations and appeasing regulators, all while fighting for customer dollars, and winning public confidence. The challenge becomes even greater for cross-border commerce; every country, state, jurisdiction presents its own sets of barriers and hurdles – the regulations, infrastructure, cultures and financial markets it needs to cross.
We are global citizens, existing in a digital global economy, and in a mere seven years, we could become the first interplanetary species, yet, opening a bank account at home, much less abroad remains a pipe dream for many; a recent survey by the FDMC showed that 15.6 million adults in the U.S. are considered unbanked. Globally, there are currently 2 billion adults are unbanked, meaning they don’t have or use any financial services of any kind.
Mobile as a Gateway to Financial Inclusion
Mobile financial services have the potential to offer a path to financial inclusion given that 1.7 of the 2.5 billion unbanked own mobile phones. Mobile adoption is growing in even the remotest regions of the world. In Sub-Saharan Africa, where there is the highest percentage of unbanked in the world, there’s also one of the highest rates of adults – 45 percent – saying that they only have a mobile money account and nothing else, versus only just 1 percent of adults globally. Why? We only need to look at a mother in Africa who would need to walk a long way to pay their bills; now they can use mobile minutes to pay a bill. Now, when that same mother wants to open a scarf business online, we should have a system in place to trust her so she can participate in the world economy.
Unlocking the Power of Information
People have two identities – physical and digital identity. The mobile device is what will connect them both. As the world’s population expands their mobile digital footprint, mobile providers will have more access to data that will pave an alternative pathway in determining trust for those in developing countries.
The mobile is an extension of us today, and captures essential information about us that allows us to be verified, such as the device ID, GPS location, biometrics, mobile number identification, 2-step Login and social media data. However, this won’t be a cakewalk; there are challenges in the industry that need to be addressed carefully, such as privacy, interoperability, infrastructure, adoption, and security. The Post-Snowden era has accelerated the requirement for technology to be flexible and innovate the way we move information around in a privacy-centric way.
But we can certainly learn a thing or two from Sub-Saharan Africa; if a mother can pay her electricity bill with her mobile minutes, we can use the same model to build a layer of trust online to allow us to open a bank account online without going to a bank branch, or as a U.S. citizen move to a new country and be able to open a bank account without providing a hard copy of a utility bill or 1000 points of ID.
There’s a world of opportunity to tap into the power of mobile data information to fuel the next generation of online experience – sending money, setting up a merchant account, a bank account, peer to peer account – to drive financial inclusion around the world, and, to borrow from Ronald Reagan’s favourite quote – “To Trust, but Verify”.
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