Vision to Reality: Creating a Universal Digital ID for UK Financial Services Consumers

By Brian Smith, Senior Director of Product and Innovation at DST Systems now part SS&C Technologies

Brian Smith
Brian Smith

Improving compliance, efficiency and customer satisfaction with a single solution

The UK is one of the world’s dominant financial services markets, and much of the sector’s strength comes from broad consumer participation. According to the Financial Conduct Authority’s 2018 Sector View, UK retail banks hold some 73 million personal accounts. Wealth managers and brokers oversee around £824 billion (US$1 trillion) in client assets under management, and consumers have invested £548 billion (US$706 billion) via investment platforms. Holdings in workplace and personal pension plans combined total £570 billion (US$734 billion).[i]

Yet in many respects, the financial sector is surprisingly inefficient and customer-unfriendly. One glaring example of the barriers to doing business with financial providers is the lack of a simple, universal identification system. In the US, the Social Security Administration functions as a de facto national identity registry, issuing individual ID numbers that enable authorized entities to obtain financial background information on customers. Other European countries have successfully implemented single sign-on solutions such as Norway’s BankID, which provides 3.9 million customers with access to every Norwegian bank, certain public agencies and a growing number of commercial enterprises.

The UK has no such system. Financial institutions rely on a cumbersome process of documenting applicants’ payment and credit histories and account relationships. This makes it difficult to perform required anti-money laundering (AML) and know-your-customer (KYC) due diligence, as well as to onboard new customers efficiently and deliver targeted services. From the customer’s perspective, it adds a layer of friction in trying to access banking and investment services, making it difficult to open accounts or transfer funds among institutions. While most consumers are managing their financial affairs online, they have to maintain multiple logins and passwords across numerous digital services, which is not only inefficient but also poses security risks. When consumers use the same credentials across several accounts, one breach can give data thieves access to all their business.

Building Digital Trust

The FCA is keen on consumer protection, fairness, disclosure and transparency, and advocates access to financial services with the fewest possible impediments. It is up to the industry, however, to take the lead in improving the customer experience and driving greater satisfaction. Above all, for a universal identity system to be successful, the industry needs to build digital trust – a major challenge with a populace that is famously skeptical of institutional intentions and hesitant to surrender personal data. Consumers will need to be convinced that the industry has their best interests at heart, and that a universal ID system, independent of government control, would be a step toward financial empowerment. To accomplish all that while simultaneously improving operational efficiency and reducing servicing costs would be a win-win for the industry and its customers alike.

Taking the Lead

Having built and managed customer experiences for UK asset managers over the last 15 years, our team has gained deep insight into the online interactions between consumers and their financial services providers.Accordingly, we have joined the Tax Incentivised Savings Association (TISA) and leading UK financial institutions to advance an initiative to develop a strong, trusted digital identity capability for the commercial sector. With a leadership role on TISA’s Digital Innovation Policy Council, we are helping to shape the trust framework and technology solution that will make this vision a reality.

Initially for use among banks and asset managers, the envisioned digital ID would enable consumers to access a variety of services easily and securely across multiple institutions and government agencies.It would also enable financial services providers to help customers more efficiently and proactively, delivering relevant information and suitable products. The long-term vision is a universal ID system with full interoperability for all UK financial services.

Importantly, this is an industry initiative and not the result of regulatory pressure. Financial services providers and their technology partners have recognized the need to reduce inefficiencies and make it easier for consumers to do business with the financial sector. It is simply, on many levels, the right thing to do.

Advantages of a Digital ID

Financial institutions and their customers stand to benefit from a digital ID system in several ways. “Customers expect seamless, omni-channel service delivery and will migrate to services that offer the best customer experience,” notes Harry Weber-Brown, Digital Innovation Director at TISA. “A federated digital identity allows customers to access a broad range of services with a single sign-on and enables them to control the release of their personal data.” Among the benefits he cites:

Improved customer relations: A digital ID will enable organizations to strengthen customer relationships by delivering a range of interconnected online services that help consumers to better manage their financial lives. The financial sector will be positioned to become the trusted identity provider, offering a single ID that can eventually be used across borders and a range of sectors, including public agencies, education, health care and travel.

Potential for new products and revenues: The system will create opportunities for institutions to broaden their services and generate new revenue streams through the development of products specifically to leverage digital ID.

Increased operational efficiency: Institutions stand to reap substantial efficiency gains. “A digital ID system is an opportunity to streamline current processes and increase automation, while reducing account opening abandonment, human error and human intervention,” Mr. Weber-Brown points out. It will “streamline and improve onboarding and compliance processes through access to a reliable and consolidated digital view of the user’s identity and attributes.”

Cost savings:The digital ID will reduce customer onboarding costs and new business processing costs related to AML-KYC reviews and the processing of account transfers. It can also lower institutions’ IT costs through industry-wide standards for customer ID systems.

Improved security and reduced risks: The current paper-based information collection process is extremely vulnerable to exploitation by malicious actors. The envisioned system has the potential to reduce risk of fraud and identity theft, along with the resulting liabilities for financial institutions. It will improve the industry’s risk assessment capabilities by creating more holistic and accurate customer risk profiles to enable more effective monitoring for suspicious transactions and to inform credit‐ and risk‐based product decisions.

Regulatory compliance: The digital ID system will meet consumer protection and due diligence provisions of multiple regulatory regimes governing UK financial services, including GDPR, Open Banking, PSD2 and AML4. The digital Identity capability will be designed for compliance with relevant control and governance regulations that may arise in the future.

The Consumer Experience

For consumers, the process of obtaining a universal digital ID will be similar to signing up for a social platform or setting up online access with a single institution. They will have the option to register through an institution with whom they have an existing account relationship and established online credentials, in which case their data is transferred directly to their new digital ID. Conversely, they can register directly with the ID service by creating a user name and password, building a profile, verifying their identity with a current account, and answering a few questions about their financial history.

Once the digital credentials and customer profile are established, the information can be re-used any time the customer wishes to open a new account, transfer funds or access financial services.

Driving Adoption

One of the big challenges in implementing such a system is creating awareness, winning consumer trust and driving adoption, which is a key focus of the initiative. TISA has strong ties with the FCA, government agencies and UK banks, and is actively working with them to accelerate industry buy-in and consumer education.

The rollout is taking place two phases. For Phase 1our team in the UK built a prototype user experience for the digital ID sign-up and sign-in processes. Pilot testing with consumers is already underway. Based on learnings from the testing, Phase 2, the full, general-availability rollout, is planned for 2019.

Better for All

The concept of a single digital ID promises economic benefits for the financial sector while serving the social good by enabling easier access to financial services and broader participation in the financial system. We are fully committed to advancing this type of innovation, which helps our clients improve their processes, increase efficiencies and reduce operating costs. It will take a coordinated effort between the industry and the regulators, but consumer acceptance will be the critical factor in the initiative’s ultimate success. The key will be delivering a trusted and genuinely seamless solution, backed by wide industry support and consumer communication, to make this vision a reality.