Financial Inclusion Via Digital Identity

The existence and lure of an entire population of people without access to traditional financial products in banking and in credit have been well-documented. In some cases, such as in emerging markets, the unbanked and the underbanked may not have access, physically, to banks or may live, literally, paycheck to paycheck. In relatively well-developed markets, the issue may be one of age (as in, youth, and more on that later) and disinclination to visit physical branches.

Whatever the circumstances, financial firms adapt and adopt technology to reach these would-be consumers, who number in the billions worldwide. And technology may be the strongest arrow in the quiver — acting as a lure for consumers and an aid for payment firms themselves in growing their top lines.

In an interview by PYMNTS’ Karen Webster with Johnny Ayers from Socure, the conversation centered on financial inclusion and what financial firms must do to onboard new customers with surety and speed.

The key? Broadly speaking, said Ayers, firms must “solve the problem of friction that lies in onboarding” through the use of technology in a “passive and programmatic way … to reduce fraud and risk.” Today, they wind up rejecting 40 percent, to as much as 50 percent, of those applicants, he added. They say “no” to the precise consumers whom they would most like to accept.

This friction shows up when retail banks, seeking to bring on more customers, said Ayers, are subjecting applicants to additional verification steps, such as knowledge-based authentication questions, requiring them to submit pictures of government ID documents or even requiring them to go into a branch or physical location to show a utility bill or the like.

The reason, stated Ayers, is that many of these firms are operating with legacy solutions, with which they “got comfortable and built processes among with existing components.” Today, this means they’re “trying to solve a 2016 problem with 1990s technology. Making do with those offerings, they run into trouble when they target a younger audience.”

“Solving this problem will drive revenue,” said Ayers, who also noted that, in terms of dollars and cents, as much as half of a firm’s top line can be traced to users under the age of 35. And in terms of lost sales, said Ayers, the math is simple: “If you receive 100,000 applicants a month and a typical customer nets a lifetime value of $100 and 50 percent are denied due to friction at the onboarding point, yet technology could aid in recovering half of those applicants, that translates to $2.5 million accruing to the top line regularly.”

That’s an attractive proposition, and enterprises must make efforts to collect data that lies beyond traditional credit and banking data, particularly when it comes to millennials, who typically do not have such histories under their belt.

Social media as a source of information and risk control becomes valuable when looking at these customers, said Ayers, who noted that he can be looked at along any number of technological avenues, such as Gmail accounts held for years, a presence on social media, details on college and where he works, travels and lives. “When you look at the connections of those digital identities,” Ayers told PYMNTS, “there is a better view of consumers, and it verifies that this is a real person and gives a sense of comfort” over the risk profile of that person.

Generation Y, said Ayers, born in the 1980s and 1990s, has the potential to be among the biggest groups of consumers in the world, with tremendous value (and spending power) to financial firms, said Ayers. Financial inclusion thus becomes important, he said, with an eye on starting relationships “young and carrying over across asset classes,” as these digital ties grow and customers become ever more successful in life. But the key, he added, “is to get them in the door the first time, or you may not see them again.”