The governor of the Bank of England, the Canadian ex-Goldman Sachs economist Mr. Mark Carney, recently suggested that digital ID cards “would make it safer for people to access money online”. He is sort-of-correct. We do indeed need to do something to stop the relentless increase in identity-related fraud and scams (such as, for example, “man receives surprise message purporting to be from Mark Carney offering multimillion-dollar sum”) because we need to make substantial improvements in both the security and privacy of online financial services, as well as a step-change in convenience) and we need it urgently.
I don’t think that a digital ID card is quite the solution though, because I prefer a more sophisticated solution that is based on digital identities for everything and multiple personae for transactional purposes, but that’s splitting hairs at high level. I am right behind Mr. Carney on the need for a solution, although I think he was wrong when he went on to say that such a scheme could also prove controversial and could “only be introduced by the Government rather than the Bank of England”. In my opinion he is mixing up the controversial idea of a national digital identity card of some kind (and he may well be unaware of the government’s decision to stop funding their gov.verify online identity scheme) with the uncontroversial notion of a some form of secure and convenient identity management for the purposes of interacting with regulated financial institutions.
Only a day after Mr. Carney’s remarks, the Emerging Payments Association (EPA) released its report on money laundering and payments-related financial crime, calling for UK financial institutions and payment processors to create a “national digital identity scheme to tackle these threats”. So let’s take this national digital identity for financial services and digital ID card for online identity checking in Mr. Carney’s terms and call the concept, for sake of brevity, the Financial Services Passport, or FSP.
I don’t know if Mr. Carney has read my 2014 book Identity is the New Money (still available from all good bookshops and Amazon), but in there I wrote that one very specific use of a digital identity infrastructure “should be to greatly reduce the cost and complexity of executing transactions in the UK by explicitly recognising that reputation will be the basis of trust and therefore transaction costs. The regulators should therefore set in motion plans for a Financial Services Passport”.
A few year ago, I spent some time as co-chair (with Ian Jenkins of Deloitte) of the techUK Financial Services Passport Working Group, I was working on the concept of a financial services passport with a bunch of smart people and no-one took the slightest interest in this obviously sensible concept and I do not remember observing any inclination by the UK’s banks to work together on it.
That techUK Working Group, incidentally, was created because of recommendations of an earlier techUK report “Towards a New Financial Services” developed through 2013. Section 3 of this report is actually called “Identity and Authentication: Time for a Digital Financial Services Passport”. The conclusion of that section was:
There is clearly a need to look again at identity authentication in financial services. In addition to creating inconvenience for consumers, the current approach is expensive to maintain and inadequate in serving an increasingly digital financial services industry. As trusted authenticators of identity, a new standardised approach by financial services organisation could enable wider societal benefits, while also unlocking new opportunities for the industry. However, moving from the current fragmented identity infrastructure to a standardised financial services passport would require overcoming several challenges; from the competitive dynamics in financial services, to the extent and scope of liability, whilst simultaneously maintaining KYC and AML compliance.
In the first instance, the scope of a financial services passport needs to be more clearly defined. This requires a technology roadmap that can match objectives and requirements in managing digital identities in financial services with technical solutions and provide a feel for how trends may already be shaping the market in this space.
So what would a practical financial services passport actually look like? In the techUK discussions, we explored three broad architectures using the technology roadmap referred to above.
A centralised solution, some sort of KYC utility funded by the banks. This was seen as being the cheapest solution, but with some problems of governance and control. It could also be a single point of failure for the financial system and therefore unwise given that we are now in a cyberwar without end.
A decentralised “blockchain” (it wouldn’t really be a blockchain, of course, it would be some form of shared ledger) where financial institutions (and regulators) would operate the nodes and all of the identity crud (“create, read, update and delete”) would be recorded permanently.
A federated solution where each bank would be responsible for managing the identities of its own customers and providing relevant information to other banks as and when required.
At the time, I thought that the third option was probably best but I’m open to rational debate around the topic. The way that I envisage this working was straightforward: my bank creates a financial services passport using the KYC data that it already has and “stamps” the passport with a minimum set of attributes needed to enable transactions. So Barclays would create an FSP for me. Then, when I go to Nationwide to apply for a mortgage, I could present that FSP to Nationwide and save them (and me) the time, trouble and cost of KYC. Instead of asking me for my bank account details, home address and inside leg measurement, Nationwide can use the stamps in my passport.
As I recall, the technology bit of this was easy but there were two discussions about this that were difficult. One was about liability (I advocate the “Identrust model” of transaction liability) and the other was about payment (I advocate an interchange model where the organisation using the passport pays the passport originator).
Let’s just say for sake of argument though that in response to Mr. Carney’s comments, the FCA decided on a federated solution using the three-domain identity (3DID) model. It would look like this:
All of the standards and technologies needed to make this happen already exist except in one area. The banks already do the KYC in the Identification Domain, we have FIDO and biometrics and mandatory Secure Customer Authentication (SCA) in the Authentication Domain and the tools that we need in the Authorisation Domain.
Let’s imagine that the digital identity is, basically, a key pair. In this case, the virtual identity is then a public key certificate that carries the attributes – the data about a person – that is necessary to enable transactions, as shown below. The attributes are digitally-signed by organisations that are trusted. This is where we need some standardisation to define attributes (eg, IS_A_PERSON, IS_OVER_18, HAS_OVERDRAFT_AGREEMENT or whatever). Were the Bank of England to make the banks get their act together and start doing something about this, maybe they could do what they did for Open Banking and set up an Financial Passport Implementation Entity (FPIE) to draw up the formats and standards for Persona that can be used by developers to start work right away.
Note that this special case, where the virtual identity is the same as the “real” identity is only one case. Barclays and others might well give me (or charge me for) other virtual identities, with the most obvious example being an “adult” identity that does not contain any personally-identifiable information for use in internet dating and so on.
In 2014, I wrote “what about a financial services passport?”. It is a testament to the power of my writing and my great influence in the financial services community that it has taken a mere five years for this idea to reach the governor and for him to put it forward as a way to “harmonise the various different systems of online identity checking”. Let’s hope that more people listen to him than listened to me.