Can digital identity cut through the complexities of KYC?

In November 2017, five representatives from Australia’s digital identity and online payments industries came together to discuss whether digital identity could resolve the complexities of KYC (know your customer) and how to capitalise on its opportunities.

The panel discussion was part of the inaugural Intersekt FinTech Festival in Melbourne and wrapped up with a consensus among the panellists around four broad statements:

• Australia can learn a lot from countries that have already trialled a digital identity model
• Collaboration between private and public sectors is critical in the design of a digital identity framework
• Biometrics is the future of digital identity
• The right digital identity solution could unlock up to $11 billion in economic value for Australia

What Australia can learn from other countries

Cameron Gough, Australia Post’s General Manager of Digital iD™ said that important work in the area of digital identity and verification has already been done overseas. However, he believes that Australia can learn from the experience of countries and skip several evolutions of technology.

“It’s like how some countries started off with no telephone network and bypassed the landline to go straight to mobile. Norway and Sweden were heavily involved in key fob-style identity for a while. Australia doesn’t need to do that. We can leapfrog that straight away.”

Victoria Richardson, Chief Strategy Officer of the Australian Payments Network, added that the key learnings from established international frameworks are market triggers and managing liability. 

“In terms of liability, there’s the buyer beware model in Canada, the contractual-based models in the Netherlands and the fixed-liability model in Norway. What we should do is look at how those models created a market and work out what might suit this one.”

Collaboration between the private and public sectors 

The question of who should lead the design of Australia’s digital identity solution doesn’t have a black and white answer. On one hand, private enterprises are most impacted by how the digital revolution has changed the nature of personal identification and security. On the other hand, governments already have the public’s trust and a head start when it comes to the identity of citizens. 

Because of this, the public and private sectors appear to be inextricably linked when it comes to creating a digital identity solution. 

Stuart Hosford, the co-founder and director of technology services company e4, expressed satisfaction over the interest and effort by the federal government in this area, particularly in its mandate to digitise 80 per cent of its services by 2020. 

“The government is going to create platforms for things like digital identity and we’ve seen some very positive signs about data sources that can help private enterprises build better services,” Hosford said.  

“But my question is, how long will these platforms sit within government institutions until they’re opened up to private enterprises to build their services on top of them?’”

Scott Williamson, the founder and CEO of biometric technology company PRIMEiD, meanwhile, pointed to Singapore and Hong Kong as examples of “sensible government involvement” in the issue. 

The central banks and regulatory bodies in both nations are making the effort to get private banks to share data and collaborate with government. 

“There should absolutely be collaboration,” he stated. “I don’t think the government can do it alone.”

Gough agrees but wonders whether progress in Australia is being held back by an almost stalemate in which the private sector is waiting for the public sector to ‘fill the gap’ and vice-versa. 

“I think a missing piece is probably for government and the private sector to agree how we can solve this for Australia. And hopefully, if we get this right it could lead to a common framework or common standards.”

Biometrics is the future

Approximately 40 per cent of all fraud and deception offences in Australia involve identity-related crime. eCommerce merchants currently lose between 1 and 5 per cent of revenue to fraud and, across all sectors, compromised security contributes to $2.4 billion in fraud every year.

One of the technological bulwarks against fraud is biometrics - the application of measurement and statistical analysis to people’s physical and behavioural characteristics for authentication purposes. 

For some, it’s ethically problematic but according to the panel it’s a part of the future, whether we like it or not. 

“It’s going to be ubiquitous,” Williamson said. “Biometrics will be the factor for identity 15 years down the track and you won’t need smartphones or other devices. You’ll walk into a bank branch and be automatically recognised and welcomed.”

Gough said that biometrics could enhance security if it’s used well but was reluctant to endorse it as a standalone security measure. 

“There’s a danger when organisations only use one method for identity verification. The better approach is to make biometrics part of a more comprehensive identity verification solution.”

In agreeing with Gough, Hosford also suggested that biometrics should be just one ‘data point’ that a bank, for example, might use to gain confidence that a customer is really who they say they are. 

“We wouldn’t ever present a solution to a bank and say, if a customer passes the biometrics they’re good to go and if they fail you should kick them off’,” Hosford said. 

For Richardson, the great appeal of biometrics is expediency, but she has concerns about its ethical implications. 

“Convenience is a massive driver but we’re getting to a point where we need to think about ethics. I recently read about how certain restaurants in China use biometrics to charge more attractive people a lower price. That’s worrying. Convenience is great but what is it leading us to?”

Unlocking up to $11 billion in economic value

Recent research conducted by Australia Post found that the right digital identity solution for Australia could unlock up to $11 billion in economic value. 

“Getting digital identity right is absolutely critical for Australia in terms of its competitiveness. Think of all the businesses that can’t exist today because it’s too hard, cumbersome or costly to do identity,” Gough said.

“There’s also the fraud, convenience and compliance costs that could be corrected or improved. And getting digital identity right will make all that possible.”