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Digital identities support mobile payments

March 17, 2022

Young woman unlocking smartphone with facial scanner indoors. Biometric verification

Jonathan Kriegel

CEO

The days when consumers need to type in numbers and passwords into web pages to make payments may be short lived according to experts attending the Mobile World Congress conference in Barcelona earlier this month. Instead, they will use smartphone-embedded digital identities enabled by biometric authentication technologies to gain closer control over their financial transactions and data security.

Open banking regulation and the greater use of application programming interfaces (APIs) now allow data to be shared between different financial services platforms much faster and more easily than ever before. But for consumers to fully exploit the advantages that delivers, they also have to be able to quickly and accurately verify their identities using their smartphones.

This sort of approach has already been widely tested as part of track and trace apps for Coronavirus in various countries of the world for example, and is poised to have a similar impact within the financial services industry. Matja Razem is vice president of business development at Infobip, a company that specialises in building connectivity channels to support digital identities and transaction services.

“The mobile phone has become a unique identifier of the user and customer, but at the same time you can use an app for payments, banking and communications, and that is important for the security part of digital banking,” he said. “But trying to power up any kind of app needs security and identification, partly with mobile network operators, and in some countries where the identity can be provided with the mobile app then the data used for easier identification.”

Regulation and KYC must evolve

Carol Grunberg is managing director and global head of partnerships and innovation at Citigroup’s trade solutions (TTS) division. She sees the mobile phone as the natural device for integrated identity verification and payments with financial services as the connecting layer. Pan-African eWallet M-Pesa for example is already heading in that direction, with owner Vodacom planning to bring in elements of single sign on (SSO) and identity that will provide a foundation for the introduction of new mobile products and services.

“Mobile has proliferated in the last couple of decades to the point where everything is connected in this one device – identity, payments, shopping etc,” said Grunberg. “The convergence of those things and the way the payment layer has been connected on mobile has been fascinating.”

Konstantin Peric is Deputy Director of Financial Services for the Poor at the Bill & Melinda Gates Foundation, a nonprofit organisation which has been fighting poverty, disease, and inequity around the world for over 20 years. He believes that one of the big challenges which telcos and mobile network operators (MNOs) face in bringing more people into the mobile financial ecosystem, especially the “unbanked”, is to streamline the new customer onboarding process by developing and regulating smartphone based digital identities.

“These new customers do not have any of data normally required for opening of bank accounts, like addresses or even dates of birth as there is often no paper record,” he explained. “Now we have digitised so many other things we also need to digitise identities and that is huge aspect of this work. But we also have to change the regulation so we can identify people by biometric methods rather than using all this [usual] data.”

“When we talk about identity we are relying on mobile networks a lot,” added Infobip’s Razem. “Many telcos have KYC databases which are already a regulatory requirement, or will be, in some countries. There are some regulatory restrictions on how to use it around privacy, the GDPR etc, but once we know how to do it the data can be used to create some kind of schema for identity.”

Tokenisation to improve mobile identities

An innovative solution to establishing that digital identity may depend on using tokenisation to authenticate people accessing data and services online via their smartphones. That has the dual benefit of giving individual consumers greater control over how and where they make payments and move their data and money, explained Keith Grose, Head of International at global open banking platform Plaid.

“It [tokenisation] is a big word but underneath that is the idea that I can face my ID to authenticate any payment I want to make,” he said. “The world is heading to one where typing numbers and passwords into web pages to make a payment is going to go away. Instead, consumers will be using biometric authentication, face ID or pincodes on their mobile devices. We have already seen that in Europe and the UK and it will spread into other developed markets.”

It may take some time for universal, interoperable digital identities which can be used by telcos, fintechs and consumers in different regions of the world to emerge. But if the industry gets it right it could significantly enhance payment and data security whilst simultaneously bringing more people into the financial ecosystem.

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