We are becoming increasingly accustomed to living our lives online, but this presents banks and other businesses with a significant problem: how do they know we are who we say we are? The solution lies in taking an intelligent and modern approach.
The Nordic countries have solved this by successfully establishing electronic Identity (eID) schemes. The eID is used by casual users (93% of Norwegians on a weekly basis), and recognized by public services and many private businesses.
But what exactly are eIDs, why are they important, what are the benefits associated with using them, and where have they been implemented successfully?
An electronic identity is is the digital counterpart to a physical identification method in the offline world such as a passport, ID-card or driver’s license. It is a verified identity that provides the credentials necessary to trust that a person is who they claim to be online.
Such identification is essential so as to protect data and reduce instances of online fraud. However, there is a growing need for such identification to be universal. Just as a passport can be used to validate an individual’s identity wherever they are in the world, an eID should be able to confirm that someone is who they say they are when interacting digitally, no matter where they are.
However, though this is the ideal scenario, there are a number of challenges stopping eIDs from being rolled out across the world.
Governments, financial institutions, telecommunications providers and other parties have all attempted to develop digital identity solutions – however, the difficulty of gaining widespread attention and acceptance in a two-sided market often causes these efforts to fail.
In Germany, only 18 percent of the population has activated the eID function on their national identity card, with the number of people actually using the function much lower. The UK has fared even worse, reaching a meagre three percent of the population in two years.
A crucial key to succeeding with an eID is to gain sufficient critical mass in a two-sided market. Citizens will only see the benefits if there are enough use cases, and the same holds true for companies in need of strong authentication and e-signature services. Any provider who is already active in two-sided markets, such as a large bank, has a competitive advantage; they can offer a new service that all their customers, consumer and corporate, benefit from.
Registering for the eID must be simple, and preferably online, otherwise consumers won’t bother, and it must be a long-term solution. Focus and a future oriented outlook are needed, and only those who are really eager to succeed will do so.
A vital component to a federated eID is widespread confidence in its security, stability and strong representation of a person’s identity. An organization providing eID must be trusted by consumers as well as the private and public organizations; without this trust, the eID will not work.
Recent studies have shown that consumers prefer banks over government, retail or social media platforms as providers of their eIDs. This is largely because they already use their bank credentials on a weekly basis to pay bills or check their balance, but also for a number of other reasons.
We already trust banks with our money, loans and credit cards, which means we are used to relying on them to support us and ensure our wellbeing. The banking industry is also heavily regulated, which means that they need to meet requirements for liquidity and transparency, as well as capital.
In the Nordics, solutions jointly initiated by a group of banks has taken the dominant position. This is because banks, when working in collaboration, have a huge advantage over governmental and third-party solutions. Banks tend to be incredibly aware of trust and risk management, and are adept at minimizing fraud.
Banks also have an advantage due to the fact that they are one of the few players who have already authenticated the majority of their country’s citizens and transferred them to an online solution: online banking.
However, collaboration amongst banks alone is not enough to guarantee success. In order to form sufficient practical use cases for the solution, incentivising the transfer of a whole society to it, further cooperation with the respective governmental institutions and service providers is necessary.
Despite initial hesitance and doubts around bringing such an all-encompassing solution to the market, banks in the Nordics now see their eID schemes as an enabler for their businesses, and as a product from which many other services can profit. With the help of strong partners, they came to the understanding that a collaborative solution gives each of them a chance to improve existing business.
Despite the setbacks some nations have seen, a few countries have been successful in implementing eID systems. Sweden, Norway, Finland and Denmark have overcome the hurdles of creating nationwide eID solutions, providing over 70 percent of their population with a digital identity. The authorities did not do it alone – the major banks, in collaboration with wider industry, were the deciding factor in effective roll-out.
Having successfully collaborated to form eIDs systems, trust amongst the banks has been established, which enables them to collaborate further on joint products together. Examples of this is Swish in Sweden, a mobile peer-to-peer payment solution, which is now the number two payment method of choice for Swedes. It can be used as a payment method substituting cash or card in almost all stores, offline and online. A similar solution emerged in Denmark called MobilePay, and Vipps in Norway. All solutions are supported by several banks together and are highly successful in their respective countries.
Unified country level eIDs function foremost as a platform. There must be registered users, with services that they want to use, before a eID actually works in practice. In Norway, for example, the first decisive service that generated users was online banking. And, in the wake of its establishment, it was easy to start creating other online services based on the same eID, largely due to the fact that users were already available, and they fully understood how to use—and the benefits of—authentication mechanism.
eIDs are a service, but also function as a product in and of themselves. They spread trust between banks, encouraging the organizations to develop digital products together and separately.
Though eID usage generally charges a fee to the merchant, most operations will be happy to pay as it ultimately enables them to slowly get rid of their own onboarding and login solutions, which are costly to maintain. Also, eID provides verified user information, meaning offers a greater degree of security.
With the help of digital identity service providers, many banks have understood that they can use eID as an extended product offering to their corporate clients who are in need of logins, or are seeking strong authentication solutions for their own business.
The Nordics have shown that the advantages of eIDs aren’t just restricted to the customers. Major banks that have instituted eIDs like DNB and Nordea have seen improvements on existing processes, making them more efficient and less cost-intensive. Not only does this increase margins for the banks, but it can also be a factor in attracting and retaining customers.
Looking at the success of the Nordic countries in setting up eID systems, one clear takeaway is that banks in collaboration have a huge advantage over governmental and third-party solutions. Yet collaboration solely amongst banks is not enough to guarantee success. In order to form enough practical use cases for the solution and to transfer a whole society to it, further cooperation with the respective governmental institutions and service providers is necessary.
Despite initial hesitance and doubts around bringing such an all-encompassing solution to the market, banks in the Nordics now see their eID schemes as an enabler for their businesses, and as a product from which many other services can profit. Nowadays, the respective eIDs are part of the everyday lives of most Nordic citizens and have supported the movement of whole economies into the digital world.
To discover more about the Nordic countries’ success in the eID arena, download the Federated eIDs as a value driver in the banking sector based on experience from Nordic markets eGuide.
John Erik Setsaas
VP of Identity and Innovation at Signicat
May 07 2019