Digital banking popularity in U.S. grows amid pandemic, but digital ID is a barrier
Digital banking has surged in popularity during the pandemic, especially as some users of digital banks reportedly have been among the first to receive U.S. government stimulus checks deposited into their digital accounts, but experts and government and commercial financial institution officials caution that the accompanying identify verification and authentication has not fully been built out.
The central issue is the “digital onboarding” process of digitally authenticating an individual, and many brick and mortar banks lack either these capabilities or strategies when dealing with individuals who are not physically present, explained Kaitlin Asrow, the Federal Reserve Bank of San Francisco’s Fintech Policy Advisor, responsible for research and monitoring in the areas of data aggregation, data privacy, artificial intelligence, and financial investment and saving platforms, at the recent KNOW Identity Digital forum session, Accelerating Remote Customer Onboarding with Open Banking.
“Biometrics might be a great tool, but are usually only available if you’re working on more advanced phones,” Asrow said, according to FedScoop. “These systems need to be ubiquitous. They need to be available to all of our citizens.”
Prior to joining the Federal Reserve System, Asrow worked as a research manager for the Financial Health Network and specialized in financial data use and aggregation. She has published numerous papers on data portability, including a recent evaluation of the impacts and ambiguities of the California Consumer Privacy Act.
The session focused on “remote customer onboarding [being] the new reality for enterprises across sectors as consumers worldwide cope with going about their lives under new social distancing guidelines,” and “the possibilities offered by open banking APIs for leveraging existing identity infrastructure to solve these pressing challenges.”
Asrow said until an individual is authenticated, financial institutions cannot obtain the person’s consent to either open an account or to transfer personal data for that individual.
“We need to actually develop these networks, come to a consensus on the different pieces of information that we want to use to build identities,” Asrow said, emphasizing that the traditional methods of requiring a person’s driver’s license or some similar form of identification do not suffice in the age of digital transfers of information, and new digital methodologies and processes are required to do so for things like digital transactions and disbursements.
Other participants at the KNOW Identity Digital Forum agreed that the U.S. government’s response to the COVID-19 pandemic’s economic shutdown and sheltering in place, which prevents face-to-face transactions with financial institutions, and the provision of relief to Americans in the form of direct deposit stimulus checks and other forms of financial support, could likely cause both the government and the financial sector to reexamine the digital identity landscape, as those who prefer traditional channels are forced to abandon them while social distancing.
The Federal Reserve Bank of San Francisco has said “financial technology continues to change the dynamics of banking and how financial products and services are delivered to consumers. At the SF Fed, we’re analyzing fintech innovations and their impacts on financial institution supervision, community development, financial stability, payments, and other areas. Our goal is simple: to help facilitate responsible innovations while protecting consumers and ensuring the safety and soundness of banks.”
The Federal Reserve Bank of San Francisco’s fintech analysts have been working to “answer questions from fintech companies and banks to build an understanding of the financial regulatory environment so innovative ideas thrive,” the bank has said.
“You need to strike the right balance of benefits vs. the risk of something going wrong and the cost of giving up your data,” Asrow told Consumer Reports last year.
She told fintech industry website bobsguide a year ago that the impact of the California Consumer Privacy Act upon the entire fintech ecology was significant.
“For early stage fintechs without significant data infrastructure – i.e., in mapping what they’re collecting and being able to connect to consumers to comply with requests – they could still be building that out, or building their legal team. That could be challenging, especially if they want to get ahead of the curve, but then the law is tailored to focus on high risk cases so smaller firms will need to think really creatively about how they’re going to get up to speed like the larger incumbents who are prepared and how have been looking at GDPR already.”
Many fintech “companies all claim to offer personalized services, but that’s not what you’ll see in the fine print,” Christina Tetreault, senior policy counsel at Consumer Reports, added, saying, “There’s a big disconnect.”
Consumer Reports reported the results of an evaluation of popular fintech apps in a letter to the Consumer Financial Protection Bureau (CFPB).
“We’ve laid a lot of the pipes that I think will [allow digital verification data to be shared interoperably],” Financial Data Exchange Managing Director Don Cardinal said at the KNOW summit, but, “We just need to get everyone else wired up to the grid, if you will.”
“We’ll have data that will be verifiable from banks; we ultimately will have data verifiable from governments,” said Joni Brennan, president of the Digital ID & Authentication Council of Canada, which is already working to develop a Canadian-based structure for digital identity verification and authentication.
“Who can get there first, I think that’s a big question, and I do think financial institutions are positioned today to move more readily,” she said at the KNOW conference.