Employing Digital Identity in Banking to Defend Against GAFA

Posted April 25, 2018

Employing Digital Identity in Banking to Defend Against GAFA

Recent reports from McKinsey and Accenture suggest the “Bank of GAFA” may be coming sooner than you think. But, digital identity could help banks fight back and even thrive in a rapidly changing retail banking marketplace.

But first, some background. For those just tuning in, GAFA is a trendy acronym for today’s digital behemoths: Google, Apple, Facebook and Amazon. As far as banking is concerned, you could easily throw China’s Alibaba into the mix, too (“GAFAA” anyone?).

Factor in open banking initiatives taking hold around the world, and there are those who believe any or all of the GAFAs could decide to disrupt this sector as profoundly as they have others – so much so that it could put up to 40 percent of the financial services industry’s revenue at risk by 2025.

Indeed, there may be good cause for concern.

Enemies at the Gates

For one thing, consider the tremendous roles GAFAs play in consumers’ lives.

Google’s reach exceeds 80 percent of all online consumers in the U.S., UK, Germany, Italy and India. Apple’s iPhone now tops 50 percent global market share, and its Apple Pay payments platform is gaining traction as well. And despite recent controversies, Facebook has more than 1.4 billion active daily users who spend an average of 42 minutes per day on the platform.

Meanwhile, nearly 64 percent of all U.S. consumers are Amazon Prime members. What’s more, the eCommerce giant already has a small-business lending arm and has already had discussions with banking regulators about financial services innovation, according to American Banker.

Here’s why it all matters. In a recent survey of 33,000 consumers in 18 countries, Accenture found that 71 percent said they’re open to the kind of artificial intelligence-generated “robo-advice” these platforms would be likely to provide on banking, insurance and other financial products.

Meanwhile, 31 percent said they would be willing to switch to a GAFA for retail online banking services. For those in the 18-to-21 age range, that figure jumps to 41 percent.

Well-Embedded Adversaries

As one industry publication points out, a recent study on global banking from McKinsey articulates the challenges the GAFAs may represent quite succinctly:

“By creating a customer-centric, unified value proposition that extends beyond what users could previously obtain, digital pioneers are bridging the value chains of various industries to create ‘ecosystems’ that reduce customers’ costs, increase convenience, provide them with new experiences, and whet their appetites for more.”

In other words, the banking industry should be quaking in its boots right about now, right? Not so fast. Instead of panicking, perhaps incumbents could do something far bolder—like stealing a page from the GAFA game plan while playing to their own distinct (even enviable) strengths.

The Fight Goes ‘Phygital’

According to Accenture, traditional banks’ digital transformation efforts could be better focused on emulating GAFA-life approaches to position themselves not as mere financial institutions, but as financial platforms that play a number of key roles within their customers’ lives. A few of the most important could include:

‘Digital Identity Enabler’: In Accenture’s view, banks could offer their customers a secure platform for fraud-free digital commerce. And why not? Using modern digital identity solutions, for instance, there’s no reason banks couldn’t take their proprietary customer data and combine it with global threat intelligence to instantly detect fraudsters attempting to hijack customer accounts, take out fraudulent loans or make illegal purchases—and stop it from happening.

‘Experiential Living Services’ Provider: Here, Accenture suggests that, in addition to facilitating digital commerce, banks could potentially leverage the same digital identity technologies to provide a platform for enabling seamless, secure and pervasive services in conjunction with partners. Imagine being able to log into your bank’s “life concierge,” where you can manage frictionless banking, travel, dry cleaning, home food delivery, entertainment and more without separate logins or the need to register credit card information with multiple services.

Combine the Physical and Digital: It will no doubt be challenging for GAFAs to offer both physical and digital (“phygital”) access to banking services. Today, a good example of this notion might be cardless cash withdrawals. Even in the here and now, it’s not uncommon for banks to play the “digital identity enabler” role by instantly assessing users and their devices, locations, behaviors, accounts and more to ensure the person requesting mobile access to cold, hard cash is indeed the customer they claim to be.

Which all sounds great, right? But is it really enough to help keep the “Bank of GAFA” at bay?

Perhaps. Yet maybe it’s the wrong question to ask. Instead, for at least some savvy banks anyway, you have to wonder: Could these approaches be enough to forge exciting new partnerships with GAFAs to help fuel secure, sustainable new growth in the digital age?

Learn more about what a digital identity-based approach to bank transformation can mean to your efforts to drive secure business growth via digital channels.

Mike Cichon

Mike Cichon

Former Vice President, Marketing, ThreatMetrix

close btn