The core of money is risk. When someone pays you, can you trust that payment is true? If you let them take away your car or computer, can you be certain that the money they offered is real? More than this, in banking, most of what takes place is the bank providing credit. Can they be certain that credit will be paid back? How confident are you in the company or individual who is borrowing from you?
So, banking is all about risk management, as is insurance, as is business, as is life. If you don’t take risks, there is no progress. Equally, when you take a risk, there’s a chance of loss.
What is interesting today is that, as we get rid of cash and paper payment, risk management is moving to be truly digital. The amount of money theft in 2020 beats the records, and forecasts say it will increase even further. That is why there are so many FinTech start-ups that focus on risk management.
Everything from client onboarding to digital behavioral analysis is a ripe area for companies to innovate and leverage new technologies to do new things. However, at the heart of all of these things is digital identity and identity verification.
Today, this is a bit of a mess, as it’s all over the place. Usernames and passwords as we know them no longer work. Biometrics is entering the mainstream, with fingerprint and face identification, but it’s still early days. However this develops, the reason why digital identity is critical is that you can trace any breach of the system back to the individual who made the breach. In other words, we have risk management backed by a digital identity trail that enables any issues to be tracked and traced.
Interestingly this is the area where many believe blockchain technologies will have the greatest impact. After all, blockchain provides an immutable trail of transactions that can track and trace anyone who did anything online, anytime. Well, that’s the dream.
Equally, without a verified identity, many people cannot get online. In fact, they cannot open a bank account, travel, or do anything. There are many people who don’t have verified identities – over a billion worldwide – and this is a priority for the United Nations Sustainability Development Goals (UN SDGs). The UN wants to ensure that every human on earth has a verified identity by 2030, and the way in which they want to do this is using blockchain technologies.
This means that yes, we need risk platforms and, more, we need to verify the players in the system with trust. Trust and risk go hand-in-hand, and digital identity technologies using blockchains are likely to have a radical impact on these areas. This is why so many FinTech start-ups are focused upon building identity management systems using biometrics and more for client onboarding and linking these systems to blockchain for trusted recording and reporting.
For example, a Malta-based startup Covery.ai offers a full-scale risk management approach and one of its USPs is Trustchain — a global database of reputation records. Whenever any member of the Covery community does any customer identity check, the results are added to Trustchain and are compared against the 400+ million available records. This way, if your potential customer uses any identifier — e-mail, IP address, IBAN, BIC number, phone number, etc — that was a part of a reported fraudulent scheme in the past, you get instant notification and can reject such transactions to safeguard your business.
Yet another market player, Kount, recently acquired by Equifax, provides a similar experience with its Identity Trust Platform, which scores the levels of risk and trust for every action your customers perform — from account creation to money deposit, payments or withdrawal. Solutions like Covery, Kount, and many others help prevent fraud, reduce the number of chargebacks, detect and mitigate account takeover and handle many more risks every business has to deal with on a daily basis.
But this is not one or two companies doing these things. There are hundreds of companies building pinpoint-focused systems using Open Commerce. An API for a client identity management linked to an API for verifying that client identity, linked to an API to record that client identity, and so on and so forth. It’s a fertile ground for innovation and progress based upon hundreds of companies and thousands of people trying to solve that balance between trust and risk.
Oh, and the platform for risk? Why, of course, it’s the network.
Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...