Removing the friction between digital and physical environments is the future of banking

I published an article earlier this month explaining why advances in financial technology are here to stay and how today’s fintech world is more durable than it was during the early 2000s. What’s the lynchpin of the fintech reality now compared to the hype and hope of more than a decade ago? The pervasive consumer adoption of digital technology and the world that’s built around it: technology is embedded in our society, consumers embrace a digital experience and online and mobile tools are complementing personal service.

We are, however, at an inflection point.

We live in a digital world, but many tethers keep us strapped to outdated, analog ways of doing things. We use online banking to pay bills and transfer funds, for example, but we must fill out lengthy paper work when we open a bank account. This is an illustration of the dynamic tension that exists between our digital and physical worlds. This tension between interacting and doing business seamlessly between digital and physical spaces is one impediment that remains.

To truly satisfy consumers’ needs, the evolution of banking must remove the friction between digital and physical environments. And it’s happening – with digital identification.

The economic case for digital ID

Digital ID is a way for people to securely and quickly identify themselves electronically without the need to present physical documents (read the CBA’s Digital ID White Paper if you’re looking for a helpful primer). A federated digital ID approach in Canada would save Canadians a tremendous amount of time. Looking at it through a banking lens, about five percent of Canadians switch banks every year, which is roughly in line with the average across developed countries. In a country of 31 million adults, almost all of whom have a bank account, that translates into about 1.5 million account openings each year – and almost that many visits to a branch to present physical ID. If I extrapolate that across the entire Organisation Organization for Economic Co-operation and Development (OECD), with an adult population of just under one billion people, that translates into nearly 50 million branch visits each year, just to open an account. And that is only for banking; add in other private and public services that require client ID and the numbers become enormous. Suffice it to say, the opportunity cost to society is huge.

Modernizing public policy to embrace digital ID

Digital ID must be championed by government and developed in collaboration with the private sector. Policy decision makers must bring together Canada’s best and brightest talent from our banks, telecommunications companies, law enforcement and public sectors to develop and deploy a dynamic, adaptable system. And the domestic legislative environment should allow companies and organizations to accept digital ID for the purposes of identifying clients. This includes updating current Anti-Money Laundering and Know Your Client legislation to allow institutions to accept digital ID the same way that they accept viewing physical ID.

The safeguard for third-party access to data

At a time of increasing interest in empowering customers to provide third parties with access to their bank data to help them manage their finances, the early experiences in markets such as the UK have been mixed because of the challenges of customer on-boarding and authentication in the absence of a reliable digital ID system. If we can get this right, we can effect real change to improve the digital experience for Canadians. If we don’t get it right, we could create a choke point in digital innovation, slowing new tech development and limiting functionality.

Smart, highly trained talent needed

Digital ID enables innovation in financial services, but it takes smart and highly-trained people to build the innovative products and services that use it. The second choke point we need to address is the availability of skilled labour equipped to help banks continue to innovate. In banking, we see this most acutely in areas like cyber security and payments technology: good people are hard to find, hard to keep and even harder to replace. The CBA highlighted this in our submission on the national cybersecurity strategy: the need to prioritize building our human capital. The Business and Industry Advisory Committee to the OECD recently released its Economic Policy Survey and found that human capital was the area most frequently cited as in need of reform to support economic growth in members’ countries. There is an urgent and tangible need to better integrate business and education to ensure that academic systems are producing graduates with skills in the areas of greatest demand.

If I sum it up, we are experiencing a technological transformation that’s here to stay. To make certain our technological progress benefits all Canadians – customers, business and government – we need to remove the last frictions between the physical and the digital environments. We need to create an effective federated digital ID system. We need to make sure we have a strategy for creating the skilled workforce that will be able to build the next generation of innovative products and services that utilize this capacity, and we need to create better linkages between education and industry. That is a recipe for lasting innovation.

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