Digital Identity services & ecosystem will be the key differentiator between banks
In a wide ranging discussion at the EuroFinance Conference in Copenhagen with Bank of America Merrill Lynch Global Transaction Services’ Matthew Leavenworth, Head of Strategy and Innovation, and Alex Wong, Solutions Consultant, important thoughts about the strategic future of banks and their global transaction services emerged.
What do banks do?
Leavenworth started by saying that the first and foremost principle is that BofA Merrill is a ‘for profit entity’ which is in business of meeting its clients’ and customers’ needs and making money for shareholders “by being a trusted fiduciary entity for corporates, government, other banks and consumers.” His definition of ‘what banks do’ is that, “They are the guardian of a ledger of assets that people own.” He continued, “I am first expected to know what consumers/companies have, and then second we facilitate the use of their assets.” Wong expanded on this saying, “It is about how we help the owners of these assets exchange them or get them to where they need to be.”
Leavenworth concluded, “The final part is that we are a regulated entity so we have responsibilities to the governments where we operate to be a good steward.”
The key differentiators between banks
Leavenworth first observed banking is a mature business in which the sole purpose is understood and the constraints are set by regulators, competitors, and clients’ expectations. The problem though is that today the constraints box is becoming tighter and inter-operability - the essential oil in banking - is, in some ways, becoming more difficult, e.g. new technologies such as Block-Chain are only of use if enough banks use it. This leaves less scope as to where banks can differentiate. There are opportunities to do so both in the old, well-established businesses, such as the bank note processing services from BofA Merrill, and in the brand new markets and processes that the latest technologies open up.
In these, Leavenworth believes that the key differentiator is around identity, “If I am going to secure somebody’s assets and know what their value is in their ledgers, and help them transact, I need to be able to verify their identity, AND ensure that this identity is useful in many different places.”
He continued, “This is a new concept that banks have to explore in a digital age because both the regulators and our clients demand this of us. Also it is critical for inter-operability between banks. The problem is that digital identities are now being fashioned out of e-mails and telephone numbers using them as unique identifiers, but that doesn’t necessarily correlate with an actual identity.”
He is concerned that other organisations are taking over the digital identity role, for example, “When I pull out my iPhone is my identity being established by Apple or by me? Is Apple now the guarantor of my identity? When I send an e-mail from my iPhone of behalf of BofA Merrill who is the guarantor of my identity?” He believes that this is vital problem which banks have to figure out how to solve, and indeed, “How banks solve digital identity and provide a whole service around this will be a huge differentiator.”
Who is going to do KYC?
This raises the question, Who is going to provide KYC solutions that banks and corporates can rely on? Known to have developed solutions in this space are Thomson Reuters and Clarient Entity Hub, but Leavenworth wonders whether that this list might also need to include Apple and Google in the future? He continued, “If I have a Twitter handle plus a Google presence and those are publically identifiable, is this my Digital Identity? Will I use this to identify myself in financial transactions?” Important and interesting questions that need resolving by banks and their corporate clients.
CTMfile take: Two things were clear from this debate, 1) banks’ digital identity ecosystems and KYC support is already a vital differentiator and will be even more so in the future, and 2) BofA Merrill understands this and is driving towards appropriate solutions.
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