Finance and Universal Identity

Since 2000, technological innovation within finance has been held back compared to other sectors. There is likely a number of reasons. Firstly, conflicting interests exist between the incumbent banks, central banks, regulators, lawmakers and the electorate. For example, the risk models used by financial institutions were incapable of coping with the financial crisis of 2007-2008. In the intervening period one could argue technological innovation in the traditional finance sector has been stifled or at least in low energy mode.

The Wardley map below highlights inertia in regulatory technology (RegTech) as a limiting factor in the development of challenger banks and neobanking more generally.

RegTech Pre-COVID1405×992 40.5 KB

A solution to the puzzle could lie in one category of RegTech; identity or more specifically self-sovereign identity. A hyperconnected cashless society encompassing hyper-personalization technologies will require a resilient identity solution to be in place to address this inertia.

In 2018, 22% or 55 million US adults were unbanked or underbanked. There are many contributing factors:

• Lack of access via a nearby bank branch, ATM or mobile phone
• Minimum balance fees
• Distrust of the banking system
• No access to government-issued ID, which is required to open a bank account and comply with know your customer (KYC) regulations

A resilient identity solution may therefore help to address financial inclusion.

Is this a move toward something similar to the Social Credit System? Well, no. As government agency administered National Insurance numbers, passports, medical records, etc., are protected by rights and legislation, a universal identity provider would serve as a G2C/G2B data trust with legal data protection and access audit logs.

A universal identity provider will enable higher order systems such as an ecosystem of real time financial services stimulating innovation in areas such as chatbots, virtual assistants and intelligent agents.

Analogous to Amazon’s Seller Central, a Financial Services Central will allow third parties to offer finance kiosks or real time financial service aggregators that offer personalized finance products and services. These kiosks will eventually be viewed as banks. Imagine Office 365 Bank or G Suite Bank or My Supermarket Bank.

A universal identity provider will enable information asymmetry through opt-in middleware or intelligent agents. Like Amazon’s item-to-item collaborative filtering, service-to-service collaborative filtering will enable consumers to obtain useful actionable insights across the entire economy.

RegTech Post-COVID1406×1028 60.1 KB

@john.grant, this is a very strong statement. I would agree with the financial institutions did not handle risk properly, as it has much bigger scope and includes risk models, incentives of people who accepted, evaluated or imposed risks, and governance procedures.

I have mixed feelings about those. I have spent some time in the industry, and there are two aspects to the statement above:

• Financial services are utility today. Regulators expect extremely low-risk and high resilliency. This can be rarely achieved with new, emerging technologies that do not have best practices evolved.
• The onus on proving the tech and business models is on financial disruptors. However, proper fail-safe mechanisms are expensive to the point they invalidate business models.

Identify boils down to the process of confirmation that you are the person that expresses the will that commits to a certain transaction. If it is not you, or you did not express the will, the bank is (usually) liable for the lack of verification. This is the more expensive the bigger is the transaction. Daily payments at a grocery story do not require as much verification (unless the scale is involved) as zeroing your bank account because you want to buy a car for cash.

The Holy Grail of identity is to figure out whether the person that holds a smartphone is the person that is allowed to authorise any applicaiton based on data that was gathered. The stronger is the identity confirmation, the more difficult it is to prove it is wrong when it has been hacked, which unfortunately poses a high risk to the person using it.

If you put the control over what information is shared into the hands of people, some of them will hide information that should have been made visible (f.e. frequent travels to CT friendly countries). If you put the information into a gov body, you risk having it misused.

I do not see any clear path in this space other than universal trust scoring mechanism, but that is hard to reconciler with ethical values of privacy, the right to be forgotten, etc.

So I am stuck with ‘not-actionable’ label here. Maybe, over time, we will see a solution that has a potential to play the role of a universal identity provider, but I think we are very far from it.

Thank you for your comments @chris.daniel

To provide broader context, I anticipate all banks will be nationalised by the end of the year in an attempt to maintain continuity within the economy. This will accelerate the switch to digital currencies.

A resilient identity solution will be critical not only to decentralized identifiers, digital currencies and DeFi, but IoT and the era of hyperconnectivity.

In that light, everything makes sense!

Note to self. Always place your overriding assumption front and centre when posting Wardley maps for comment.