Opportunities and Responsibilities for the Finance Sector in the Trust Infrastructure

1.     Trust infrastructure 

 As the benefits for building a global trust infrastructure are so massive (3-6% of GDP according to McKinsey), it is clear that governments will be strongly committed to drive the migration and that enterprises will start to see the enormous benefits they can achieve (as outlined in 5 major categories in Self-Sovereign Identity by Drummond Reed & Al).

This means that all citizens, all organizations, all big and many small things will get general-purpose identity wallets (applications in devices or the cloud – also called fact wallets) for obtaining, delivering and passing on the needed verified data in a wide range of life events from public and private sources based on www.MyData.org  principles. The architecture is outlined in https://trustoverip.org/ and tested in the public-private www.findy.org. The trust layer in the architecture makes wallets used for sending and receiving data interoperable by design – without need for technical integration. Sweden and Finland are now leading the https://eudiwalletconsortium.org/ to take this to an EU level. 

2.     Earlier trust services by banks

The most used bank services are payments, but banks have since ancient days been interconnecting customers also with trust services (letters of credit, collections, bank guarantees, credit card payment guarantees etc). 

3.     Trust services in e-banking

E-banking enabled new ways to interconnect customers in the 90s – at first by allowing customers to use their e-banking credentials also when logging in to (and signing documents in) non-bank services. The trust element was also important in the next step - e-invoicing in e-banking as regulation means that a sender and receiver of e-invoices must be strongly identified when they open a bank account and e-banking credentials. E-Salary statements delivered to bank accounts are also part of the privacy built into banking. 

Proliferation of information and technological alternatives mean that there is less time for any one thing and this in its turn that leavers to faster adoption - offered by established trust and user habits - are growing much faster. 

4.     Interconnecting people and organizations with all sorts of data

The trust infrastructure will mean that many organizations (also governments) will issue general-purpose and interoperable-by-design fact wallets to get the needed data (under the control of the data rights holder – GDPR in Europe) to the context (life event) where it is needed. It can be assumed that there will be service providers specializing in certain life events – knowing what verified MyData, but also less verified data (trustworthy recommendations) and anonymized big data is needed to solve citizens’ and organizations’ needs – also by feeding the data to machine learning and artificial intelligence in a trusted, transparent and energy-efficient way. 

5.     Mandatory aspects for enterprises in Europe

Article 20 in GDPR makes it mandatory for enterprises to deliver the personal data they hold when asked for it. As there are no interoperable wallets for this yet this clause is not working in practice and would cause substantial costs if insisted on. eIDAS2 subscribes that a wallet with a state issued identity credential can be used for opening bank accounts and several other services. Banks and other organizations need own interoperable wallets already for sending and receiving mandatory data.

It is likely that the arguments for more mandatory legislation will be stronger in the future. Structured, standardized and verified e-orders, e-invoices and e-receipts should be mandatory for all organizations with accounting obligation. 

The worst way of handling this for enterprises and thus society at large is to - instead of early participation - resist the needed change. Enterprises and their organisations should be co-steering - not be mere passengers.

6.     Verified data landscape

Based on the mappings already done it is obvious that there is a very large number av data sets needed in citizen’s life events in private and employee roles. The highest credential volume will be signed e-receipts in both sending, receiving and third party wallets. The obvious ones will be identification, driver’s licenses, examinations, proof of vaccination, loyalty cards, student records, professional qualifications, representation rights, proof of purchase, e-orders, tickets, proof of insurance, proof of prescription etc.

Once citizens understand that they already have the legal right to their data (GDPR art 20 and Data Governance Act) and start using their wallets for the first credentials for themselves or their organizations it is obvious that the demand will grow fast.

7.     What role should the finance sector play in the trust infrastructure?

There are two main alternatives – active innovative participation for society at large – or  

laisses faire. The latter would mean that the economy of trust, economy of repetition, 

economy of reuse, economy of scale and scope that especially the high transaction volumes 

bring would not be used by the sector and not offered to society at large. This would lead 

to the role of banking shrinking – when there is a good-for-society reason for it growing. 

There is also a clear risk for walled garden models in IoS and Android – instead of open 

standards, open source technology a real open banking development. In short banks should:

(i)    Move to life event-based service design. Locate the data customers need, expand own services and link to other services – e-banking becoming a version of a super app..

(ii)   See to it that all private and corporate customers get the multi-purpose wallets they need (either issuing wallets or recommending interoperable ones) to get data and send it the banks or 3rd party wallets 

(iii) Locate the data sources and organize wallets for them for data importing to customers’ wallets

(iv)  Locate other data service providers, enterprises and public sector entities that need data from the bank(directly or from the customers wallets). It would be important to form a picture of all the data banks already today have to send and how this could be automated via sending and receiving wallets.

(v)   Map regulation at large together with supervisors to start lowering the administrative burden and improve the results

(vi)  Map the costs of credit losses, fraud, fraud mitigation and money laundering and analyze how much these can be lowered with interoperable wallets.

New value should not be given for free – even if it should not be difficult to find a business case based on savings alone – especially considering the likely impacts of non-action.

8.     Verified data will make payments, financing, wealth management, trade finance, e-invoicing and other banking services more productive and valuable for customers

The massive improvements in corporate and public sector productivity, service levels and risk management is already well documented. The positive impacts in banking will be pronounced as payments, financing, e-identification, e-signatures, e-invoices, liquidity and wealth management, risk mitigation services, foreign exchange, stock exchange trading etc are needed in most interactions.

How the coming wide access to verified data will improve productivity and services in the above has not yet been much addressed. On a general level it is obvious that when more data is available for deeper automation and decision-making economic value will be substantial. When the data is structured both automation and energy efficiency is improved. The biggest improvement comes from getting verified data – knowing that the source is genuine and that data cannot change in transit. The following step is to get the data in use when it is born – in or near real time (especially important for machine learning and AI). 

 At this point the following e x a m p l e s can be sketched; 

 (i)             Payment services. Payments with cards from leather wallets have already widely moved to mobile phones. The next step will be that all kinds of payments will be handled in the general-purpose Factwallets in different devices. The ongoing work especially in the Nordic countries and the https://eudiwalletconsortium.org/  will enable transport of the payment proof credential – the signed e-receipt – from the sellers’ to the buyer’s wallet – often for on-warding to wallets for accounting, expenditure tracking, CO2 tracking, travel expense claiming, insurance claims, new owner etc. 

Verified warranty credentials will also be available in real time and the receipt in this form can also be the conduit for updates, warning messages etc – superapp-like.

 Loyalty schemes can be made more secure and cost efficient - as can check out in online shops. 

 By linking verified receipts to customer satisfaction questionnaires fake “like storms” and reputation attacks can be prevented – thus taking social behavior data closer to verified-by-trusted organisations.

As the wallets use the Self-Sovereign Identity based architecture they can be used for any currency, points, coupons etc and create secure solutions for using new kinds of “money” for very specific purposes (tested with the Finnish Social Insurance).

(ii)            Financing. The benefits of getting verified data automated into risk evaluation and administration of credit processes are manifold. Examples of data: income statements from tax, asset ownership statements, collateral management, power to act, accounting data, qualifications, licenses, domicile, tax liabilities, debt register statements, debt collection bankruptcy processes etc. Resulting in lower credit losses and much lower administrative costs. Credit volumes can grow due to on average more competitive pricing and more space for databased risk taking. 

(iii)          Wealth management. The benefits of verified data in asset management stretch into all sorts of ownership classes as also public sector property registers will deliver real time ownership data. An area of growing importance are the rapidly expanding startup sector’s unlisted shares – where banks have customers both as owners, employees, employers, borrowers and share issuers.  Issuing, trading and reporting of these - using identity wallets - was successfully tested with the Trade Registry and Tax in Finland in 2019. 

Banks often handle many types of tax and ownership reporting of capital income and assets to the public sector. By securing all input data and unifying all interfaces and avoiding much of the need for integration costs will be saved (even if batch reporting may continue much as before) and quality improved. 

A full picture of decentralized ownership is a central target for all wealth management and wallets-for-all will also radically simplify estate management in the death in the near family life event. Banks carry a heavy cost and risk burden here today.

 (iv)          Power to act

All wallets will contain power-to-act credentials. Issued by employers, customers, partners, institutions, parents to children, children to parents, etc. These are much used in banking – for customers and the banks employees to prove authority to sign documents, make payments, foreign exchange etc.

The present arrangements in banking are very cumbersome, seldom up-to-date and risky. So banks will have to have wallets for receiving these credentials from other wallets and for sending a credential onwards on when authorized on by customer of receiving wallet needing power of attorney issued by the bank.

 Should banks be actively involved? What could be even one credible reason for not being? Especially as only the banking sector can move this forward on a broad scale. The responsibility aspect is very clear. And the Mobey Forum is increasing its wallet focus.