A few weeks ago, the Federal Deposit Insurance Corporation (FDIC) and the Financial Crimes Enforcement Network (FinCEN) organized a Tech Sprint, inviting experts from the private and public sector to discuss ideas about the effectiveness of identity proofing, the process used to collect, validate and verify information about a person.
Candler Eve, director of enterprise fraud at MidFirst Bank, was one of the nearly 60 participants selected for this Tech Sprint, and he told PYMNTS about his experience and why these initiatives are important.
The main problem that the participants had to solve in this event was remote identity proofing, how to you prove that someone is who they say they are without coming into a branch, Candler explained. Teams were formed with people from traditional banking, digital banking, vendors, FinTech — that’s what makes the Tech Sprint interesting, because it brings a lot of different ideas, Eve said.
Eve’s team proposed a solution in which regulators, party vendors and financial institutions could come together and play in a sandbox to design a “mouse trap” that helps digital identity. Although the Tech Sprint is just a few weeks, and some of the ideas cannot be tested during this time, regulators were particularly interested in the sandbox solution. All the ideas will be published, and many projects are open source, so there is a chance that some of these projects will evolve after the event and become real solutions that regulators can approve.
For Eve, one of the real values of this initiative is the possibility to collaborate with regulators and to take this collaboration further, to build something together that solves the issue.
“It would be nice to be able to partner with regulators so that we can design things that meet the specifications or risk tolerances of the bank,” Eve said.
A collaboration of this kind could change the incentives of banks and regulators to use innovative solutions for customer onboarding and other areas. Regulators need to be able to regulate banks and they can use a combination of carrot and stick, but Eve argues that regulators have a “giant” stick, and he would like to see a bit more carrot.
“What happens with a big stick is that you innovate to the point where the stick won’t hit you. I am going to innovate to the point where I am not going to get fined.”
The alternative option is to provide more incentives to innovate beyond that point without being afraid that you may be fined. “Things like Tech Sprints, where we have this collaboration, are absolutely critical, it is a very positive thing and part of that carrot,” Eve said.
But Eve’s team idea was not the only proposal for digital proofing in the Tech Sprint. Some of the most innovative ones were based on blockchain technology. These ideas attracted a lot of interest from the participants and the regulators, but according to Eve, the implementation of these ideas still needs development, though there is a lot of potential.
Having said that the current technology already provides very good solutions, there is not a magic bullet, Eve said. But combining the right components and parts, you can have a really good solution for identity proofing.
The transition to digital and remote onboarding isn’t likely to slow down, and banks need to be ready if they want to be competitive. While a few years ago a driver’s license was enough to prove identity, maybe having access to a mobile phone with all the data points, history, biometrics, etc. is an absolutely better indicator than a driver’s license.
Read also: FinCEN’s AML Probes Identify Customer Due Diligence Deficiencies
We’re always on the lookout for opportunities to partner with innovators and disruptors.
Learn More