Blockchain Technology Could Disrupt Everything. Are You Ready?


Large banks are making the news with big bets on blockchain, but regional banks should also be looking at opportunities to leverage blockchain. The financial services industry has moved beyond the proof of concept stage and is now beginning to embrace the transformational potential of blockchain-based digital ID, digital banking, smart identity, smart contracts, trade finance, voting, reinsurance, KYC, onboarding, cross-border payments, loyalty and rewards, and real estate management. Just for starters.

Today, questions about blockchain are both strategic—should I do it or wait?—and practical—if I go in, where do I start?

Smaller banks will have to be smart and focused about time and resource investments. Forming groups—or consortia—can help create the aggregation of abilities and shared risk to take advantage of blockchain, either to do things differently or to do different things.

Three Pieces of Advice

Make choices early. Make decisions about what you want to achieve with blockchain before you put money on the table. Start from a business point of view, and with a business issue you want to solve. You can’t do everything, so make choices early and pick goals that are specific to your business and your bank: grow, create new ways to generate revenue, or cut costs with a cheaper or faster platform.

Start from a place of strength. Choose a specific use case close to your core competitive advantages, something you’re confident could help secure your current market position or open opportunities that you have the resources to pursue successfully.

Don’t go at it on your own. Like the internet, the value of blockchain derives from group participation. Establish a minimal viable ecosystem (MVE) to start. For example, if you want to use blockchain to address syndicated lending, first identify all the abilities required to bring it to market. Identify who needs to be part of that system to make it successful and form a consortium to bring them all together. Start small—that’s what MVE is all about—to validate that it works so you can extract value, then create and run a pilot, and finally expand to include others.

Three Areas of Focus

Get smart. Dedicate a team to study blockchain and develop a proof of concept. This should include a business strategist, a developer who knows blockchain or programing languages like Java, Bison and C#, and a technical architect who can connect dots between technology and the business. Build something beyond a pilot and learn from the effort so you can recognize limitations and identify the best potential opportunities for your bank.

Improve what you’re doing. Pick a specific use case that solves a problem in your organization. Take into account the platform you’re using today, a consortium you’re part of, or how you’re delivering services—and then consider how blockchain can help you be more cost effective or deliver better value in that one area to improve what you’re already doing.

Innovate. Once you’ve identified ways to cut costs or improve on services you already deliver, consider adopting services you don’t deliver today. Blockchain can help you identify new opportunities to help you keep a leadership position or expand a position of strength. If you’re a leader in large loans for farmers, consider the two-part question: How can blockchain make farm loans better, faster or cheaper–and how can it help open new opportunities for an agriculture bank?

The bottom line for bankers: To get value out of blockchain, do it with others. A good first step is to join or create a consortium that supports your goals. Hundreds are already established, for specific use cases, for creating technology techniques and standards, and for redesigning business processes. You can also buy or invest in a startup to bring resources and ideas to a use case you have a strong position for. Either way, focus on one specific goal—the narrower it is, the more likely that people will be passionate and specialized—and able to build an ecosystem that can help everyone improve their business position with blockchain.

Combating Identity Fraud Through Biometrics


The Know Your Customer (KYC) process, which is the identification and verification of a bank’s clients in order to understand and better manage risks, is a central requirement of the federal anti-money laundering regulations. Today, technologies such as mobile and biometrics have a strong impact on the redesign and digitization of the registration process, significantly improving operational efficiency and customer satisfaction.

A range of financial institutions have been exploring opportunities through biometrics in one capacity or another, but in most cases employ biometrics for identification and authentication purposes for existing accounts, aimed at making passwords obsolete once and all. With increasing multipurpose adoption, by 2021 the market will reach a value of $30 billion with its primary revenues shifting from the government sector to banking and consumer electronics.

Experts from M2SYS, a biometric identity management technology provider, suggest that as more banks and financial institutions begin to augment their customer identification security policies, the evaluation of using biometrics for KYC management will increase rapidly.

The use of biometric identification management technology for accurate customer identity verification has proven to deliver efficiency and convenience for organizations that have adopted it. The technology also helps comply with government regulations to prevent identity theft and money laundering. Due to inefficient KYC management, nearly 9 million Americans are victimized each year, costing consumers $5 billion, and banks and corporations $56 billion, annually.

Industry expert David Benini, vice president of marketing at Aware, a biometric software developer, wrote recently that “More than just —something we are,’ biometrics allow us to permanently bind ourselves physically to digital information; a powerful capability that enables us to not only biometrically authenticate, but also to biometrically deduplicate.” The idea behind biometric KYC management is quite simple–instead of the customer being required to present official identifying documents in person upon application, a biometric-based search can eliminate the need for a lengthy check with additional tapping into public and private records to ensure the absence of copy records.

Biometrics allow banks to be sure that a particular person does not exist in the database with different data. Benini emphasizes that the power of the idea behind biometric identity proofing rests in the ability to combat identity theft at its source by ensuring the integrity of identity data at the point of enrollment.

Given its unique properties, biometric-based KYC management in the financial services industry enables institutions to speed up the customer verification process without compromising the accuracy. Implementation of biometric KYC management solutions can ensure higher accuracy and efficiency, eliminating the risk of financial fraud and its legal and financial consequences for consumers and organizations.

The critical benefits of transitioning to biometric KYC management include:

Enhanced Operational Efficiency
KYC management has traditionally been a resource-consuming process requiring time and manpower (hence, substantial financial expenditure) to verify a person’s identity, since KYC compliance involves a tedious process of verifying the customer’s original documents of proof of identity and proof of address in person, among other things. Biometric KYC cuts corners without compromising accuracy and security, as biometrics carry unique and arguably impossible-to-forge information and are permanently tied to one’s records.

Improved Cost-efficiency
There are a couple of ways biometric KYC management saves money for financial institutions: reduced time to verify information about the person, and as a result of increased accuracy, reduced expenses on fixing issues that appear as a result of inefficient KYC procedures. It takes an average of $1,173 and 175 hours to clean up one’s credit report and associated complications, and when you multiply that times the vast customer base of a medium-sized bank (not to mention much larger banks), it’s obvious that biometric KYC can become a real cost saver, facilitating a better allocation of resources.

Greater Security
Today, biometric-focused technology and software has reached a level of sophistication where providers can ensure higher levels of protection against identity fraud and all compliance consequences because of it. Behaviometrics are the last word in secure identity verification, bringing together machine learning and continuous tracking of user behavior. A separate class of companies is delivering biometric-focused anti-fraud solutions, including NuData Security, BioCatch, BehavioSec and AimBrain.

Gains in Convenience and Customer Satisfaction
The speed of identity verification affects overall customer satisfaction and is more convenient since it ensures an easier and more efficient user experience. And an enhanced customer experience translates into a better reputation and higher customer retention.

Organizations that aim to keep up with the latest technological advancements for efficient KYC management cannot miss out on the application of biometric-based solutions. Today, there is no lack in technology companies powering biometric KYC management through sophisticated software and biometrics screening technology. Recognized leaders include Daon, EyeVerify Qualcomm, with such companies as BioConnect, M2SYS, HooYu, Aware, Hoyos Labs, ID Global, Socure, physiSECURE and many more comprising an expanding list.

Blockchain Makes Digital ID a Reality


The concept of identity has not kept pace in a world of accelerated digitization and data. Nowhere is that more apparent than the cost and friction involved in answering three basic questions simply to engage in commerce:

  • Are you who you say you are?
  • Do you have the mandate you say you have?
  • Can I trust you?

Imagine a world where once these questions are answered the first time, no one else needs to ask them again, or only a subset or new information has to be provided. Archaic identity systems aren’t just frustrating—they’re holding back innovation. The full potential of financial technology and digital global finance, so close at hand, will come about only when a global standard for digital identity does. The technology to make that happen? Blockchain.

A blockchain is a record, or ledger, of digital events, one that’s “distributed” between many different parties. It can only be updated by consensus of a majority of the participants in the system. And, once entered, information can never be erased. With a certain and verifiable record of every single transaction ever made, Blockchain provides the underlying technology to give consumers control over their own portable digital identity.

Blockchain brings digital identity into 2016 (and beyond), opening the full potential of digital innovation to change how we buy and sell goods and services, manage health and wealth, and present our digital identity to the world.

Identity data is everywhere—on all types of devices, applications, private and public networks—but it’s disconnected and doesn’t present a complete, accurate profile of a customer. Plus, it’s personal information: Shouldn’t each person own their identity data and choose what they share and when?

Blockchain is a universal, distributed database that can make it easier for individuals to consolidate, access and reveal what they choose about their own identity data. It’s generally considered more secure, reliable and trustworthy than previous identity solutions because it’s controlled by the user and immutable—protected by a combination of cryptology, digital networks and time stamping on a decentralized network not controlled by any single entity.

Blockchain-based digital ID brings identity into a single record—a persona—that is effectively pre-notarized and authenticated and usable almost anywhere. Individuals control their own ID, adding references and third-party endorsements to verify authenticity, so customers and banks can trust that the content is accurate and secure. It offers an extremely efficient way to capture, share and verify information, and establishes a reliable, secure but relatively easy way for individuals to open a bank account, set up utilities, pay taxes, buy a car—nearly anything requiring personal ID.

Benefits of Blockchain Digital ID
The trust breakthrough: Most customers have a rich online record of what they do, who they know, buying habits, credit—but banks and customers both need better reasons to trust the accuracy, completeness and security of identity data. With customers in control of identity data and a framework for rapid verification, blockchain enables an environment more conducive to mutual trust.

New opportunities: Blockchain provides entry into an ecosystem that increases in value as it expands, providing multiple points of ID verification while creating a more complete description of personal identity. This enables banks to “know” each customer better and offer tailored products that are valued and appreciated.

More loyal customers: Customers typically bear the brunt of inefficiencies, wasting time filling out forms, repeating conversations and gathering documentation. By increasing efficiency, security and accuracy of customer data, next generation digital ID helps make banks more attractive to existing and potential customers.

Improved regulatory compliance: Financial firms spend up to $500 million a year on Know Your Customer and Customer Due Diligence compliance. Next generation digital ID can reduce compliance costs by providing a universal, secure platform for consolidated data collection and records management.

Transparency and better controls: With users controlling their ID and every action an immutable record, you’re less likely to have problems with ID management, theft, security and inconsistency. You can also reduce risks of paper documentation left on desks or digital information with insufficient tracking and controls.

Blockchain-based digital ID fundamentally strengthens identity security and can help ease the burden of regulatory compliance. At the same time, it can improve the customer experience and establish a more solid basis for trust between banks and customers. It also transforms identity data into a rich description of a person, so banks can anticipate customer needs and offer solutions that actually make sense for each customer.

Through blockchain, digital ID is poised to completely change the way we think about and manage identity. It can solve old problems and open new opportunities for banks that are ready to embrace the change.

Emerging Technologies Combat Cybercrime


Anyone following the news knows that cybersecurity is a hot topic across all industries. This is especially true for the financial services industry. With hacks and online fraud on the rise, banks are doing everything they can to reassure customers that their digital information is safe and secure.

And in 2016, this means thinking beyond traditional security measures like a simple username and password combination or a personal identification number (PIN). Digital authentication technologies have evolved beyond passwords, and now include biometric data, like a fingerprint or voice identification, and digital identify authentication, which could combine a user’s device and location, for example.

Banks are increasingly adopting emerging technologies to minimize the opportunities hackers have to conduct illegal activities. Here are three areas that illustrate how banks are stepping up their fraud prevention game through the use of digital authentication technologies.

Federated Digital Identity
One of the biggest friction points for both security teams and users is having multiple identities and logins for different systems. That’s why forward-thinking institutions are exploring the move to a single, federated digital ID that users can authenticate themselves with across different institutions and product lines.

Giving users a single ID provides greater security. Login information isn’t being passed around among multiple systems, so hackers have fewer access points to exploit. Banks are also being forced to comply with increasing cybersecurity regulation as the federal government tries to combat illegal activities like money laundering. Having a single ID would allow financial institutions to quickly access that user’s unique digital token, thereby eliminating unnecessary fraud investigations.

An early sign of this model is USAA’s partnership with the federal government. The goal of the partnership is to allow USAA’s members to access their banking and government accounts with a single username and password. This will serve not only to make things more convenient for the user, but to allow both the U.S. government and USAA to focus their security efforts on protecting just a single digital identity. (USAA’s customer base is restricted to active and former U.S. military members and their families.)

Blockchain Technology
While centralizing IDs and logins makes sense on the front end, banks are looking at the blockchain and distributed networks to provide additional security on the back end. The blockchain acts as a digital public ledger, and the technology was originally designed for bitcoin transactions. Because information on the blockchain isn’t stored on a single computer or server, it removes the risk of a central point of security failure.

Since blockchain technology authenticates users based on a device-specific token, hackers can’t just steal user data from a central server for the purpose of fraudulent usage. The blockchain also facilitates true peer-to-peer transactions, eliminating the need for middlemen who verify ACH transfers, for example. This eliminates yet another potential access point for hackers.

That’s why payment technology companies like Dwolla are turning to blockchain to enhance security. They partnered with BBVA earlier this year to create a real-time payments platform on the blockchain. The idea is to still provide the convenience of digital payments, but facilitated by the Blockchain to provide an additional layer of security.

Biometric Authentication
The next big wave in preventing online fraud for banks might just be biometric authentication technologies. In fact, USAA is in the process of rolling out user authentication with software that recognizes the facial contours of users before allowing them to log in. Since things like fingerprints and facial features are nearly impossible to duplicate by hackers, biometrics could provide even more security than device-specific tokens.

In addition to providing secure access, biometrics take away the need to use other sensitive data for authentication purposes. Things like phone numbers, emails and Social Security numbers wouldn’t have to pass back and forth during the login process, thus decreasing their vulnerability of being hacked.

Banks are forced to walk a finer line than ever, balancing convenience with security and fraud prevention. Technologies like the federated ID, blockchain and biometrics are being recognized by financial institutions as the next wave in fraud prevention. If banks are able to steadily phase these in and fortify potential security gaps along the way, they’ll be able to more effectively keep the bad guys out while keeping the customer experience smooth and seamless.